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The goal of refinancing student loans is to lower your monthly payment and make them more manageable. You have to refinance your federal and private loans separately, and will most likely be able to refinance your federal loans at a lower interest rate. Private ones are made under the assumption that your income will increase once you graduate and therefore you will be able to pay more. This means your interest rate will generally be higher on private student loans.
It is possible to reduce your monthly payments by refinancing at a lower interest rate or extending the duration of your loan. The first option would be a reduced interest rate which lowers the monthly and overall amount you have to pay back. Obviously lowering your interest rate and having more manageable payments is ideal. However, this is not always possible.
In that case, extending the length of your loan will effectively reduce the size of your payments, though this will increase the amount of interest you must pay over time. Whichever method you choose, it is a good idea to pay more than the new minimum payment whenever possible.
|Jennifer Mathes, Ph.D.|