Your strategy is determined by whether they are federal or private loans and just how aggressively you are able to repay them.
INDIANAPOLIS – When it comes to student loans, the first thing for you to do is determine what's private and what's federal.
This happens because each type has different things to consider.
Federal loans
If your loans are federal, Cecilia Clark with NerdWallet says don't touch them before the government's payment hiatus is over.
“Wait until February. Right now, your federal student education loans, you haven't any payments. So even though you obtain a lower interest rate than you normally get with your federal student loans, you can't not beat zero, “Clark said. .
The refinancing of federal loans may also call into question certain protections in place.
“If you've federal student loans, you can subscribe to an income-based repayment plan, which will set your instalments according to your earnings and disposable income. This benefit is usually not available with private lenders. Clark said.
Private loans
Regarding private loans, Clark said this is the time to refinance.
Unlike refinancing a house, there are no onerous settlement costs associated with refinancing an education loan – it's just the loan problems that come with any loan application.
“If you're in good financial shape and want to decrease your education loan bill, repay has given faster, or enhance your debt-to-income ratio, refinancing may well be a wise decision for you personally,” Clark said.
Clark adds that the credit score should be at least within the 600s, ideally higher.
Also, search for the lowest interest rate. The objective of refinancing would be to reduce interest. Here is the NerdWallet calculator.
Fixed rate vs variable rate
If you choose to refinance your private loans, you'll be offered a fixed interest rate along with a variable rate.
But which one to select?
“It really depends upon your goals, your tolerance for risk, how flexible your money are, and just how quickly you plan to tackle your debt,” Clark said.
If it requires you 10 to 15 years to pay for it off, the fixed one is probably better because your payments won't change.
But if you can eliminate them aggressively each year or two, a variable rate can save you more money since it is usually a lower rate. Keep in your mind that it can increase depending on market factors.