With interest rates expected to rise in 2022, it’s a good time to consider refinancing your student debt. If you’ve been putting off paying back your loans, start focusing on them again now.
The State of Student Debt
According to the Federal Reserve, over 45 million Americans owe a total of $1.7 trillion in student loans in 2020. These are huge figures that have exploded in the last two decades, as shown in the graph below.
Student loans debt has become a hot topic for people from all walks of life due to the high levels of debt, the risk of default, and the world economy’s ongoing battle with a three-year-old deadly pandemic.
With the CARES Act of March 2020, the US government granted a moratorium on student loan repayment and interest rates as a result of the pandemic’s fiscal pressures. This moratorium is only applicable to Federal (public) loans, and even then, not all loans were eligible.
Note: The original moratorium on federal student loans was intended to be a temporary solution to assist people in the early days of the COVID-19 crisis. As the coronavirus enters its third year, both the Trump and Biden administrations have extended the student loan moratorium. This was done for a variety of reasons, including the coronavirus epidemic as well as growing inflation. The government moratorium was extended for the sixth time as of the time of writing this post, and it is set to expire on August 31, 2022.
There was no moratorium for private student loan holders; nevertheless, certain private lenders have offered limited moratoriums for select debtors and those who qualify. Private lenders are currently lobbying for the reinstatement of student debt repayment programs.
2022 Realities
The fact is that the COVID-19 pandemic looks to be slowing down, while the US economy continues to thrive but faces inflationary pressures. Given this, interest rates will mostly likely start to climb this year for the first time in a long time. If inflation continues to rise, expect this to also impact interest rates.
Student loan interest rates are currently at an all-time low in early 2022, making this an ideal moment to organize and possibly refinance your student loan debt.
Finally, there was a popular outcry for student loan forgiveness during the 2020 presidential election. President Biden said in March 2022 that his administration will seek to forgive more than $6 billion in student loans for those who qualify. For some, this is excellent news; however, for others, it is not. As previously stated, Americans owe $1.7 trillion in student loan debt. Given this, it’s reasonable to expect that not all student debt will be forgiven.
If you agree with this and have student loan debt, there’s a good chance you’ll be making your pre-pandemic student loan payments again in the near future. Are you also ready to resume making loan payments if you’ve benefited from a loan payback moratorium of any kind?
We believe that 2022 is the best year to refinancing your student loans, whether you have a federal or private loan.
Student Loan Maintenance
It’s time to re-familiarize yourself with your student loans, whether you’ve been making some payments or none at all. Edukate has created a free resource for all of your student loan requirements. The Student Loan Maintenance Checklist walks you through the process of arranging your student debt. Start here and organize your debt before taking any action.
This includes:
Personal Data Verification
This should be your first step if it’s been more than a year or two since you checked your loan(s). Organize your debt papers and verify your personal information to the information held by the bank; any discrepancies should to be resolved as soon as feasible.
Is There a Difference?
Given the amount of time that has gone, it is critical that you check the terms of your loan once more. Examine your online account to check if any procedures or policies that may affect you or your debt have changed. If you were only able to make partial payments on private loans during the epidemic, this includes any penalties or fees.
Do You Have a Good Understanding of Your Loan(s)?
Do you know what your initial loan’s interest rate is now that you’ve confirmed and analyzed your debt? When does your payment have to be made? What happens if you add a few dollars to your monthly payment? Finally, do you have an estimate of when your loan will be paid off? These are all critical topics that must be addressed before you take any debt-reduction steps.
Note: Edukate offers a Student Loan Insights Calculator that shows you when you’ll be finished paying off your student loan, as well as the total amount of interest you’ll have paid. We invite you to check it out.
Do You Need to Make a Budget Change?
You should have had some additional money each month if you took advantage of the federal loan moratorium. Hopefully, you’ve either paid off other bills or built up a healthy emergency fund. If this is the case, you’ll need to re-adjust your budget to account for your student debt repayment.
Note: If you don’t have a budget, we strongly advise you to do so.
Student Debt Refinancing Options
What is your current interest rate and how does it compare to the interest rates currently being offered? If your interest rate is higher than 3-4 percent, you may want to consider refinancing your student loans.
What is Refinancing?
A student loan refinance involves replacing one or more student loans with a new loan with better terms from a private lender. Both private and federal student loans can be refinanced. The purpose of refinancing is to get a lower interest rate and thereby reduce the monthly payments and lifetime costs.
The Pros and Cons of Student Loan Refinancing
Pros
- A lower interest rate means you can save you money over the life of your loan.
- A new repayment plan that better fits your current budget.
- Combine multiple loans into a single loan, making repayment easier.
Cons
- Possibly lose access to some federal loan advantages, such as income-based repayment plans and loan forgiveness programs.
- You will have to undergo a new credit check in order to qualify for a refinanced loan, which could affect your credit score.
- Extending the repayment term of your loan may result in you paying more interest in the long run.
Before making a decision, be sure to compare the interest rates, fees, and repayment terms of your federal loans with those of private lenders. You can use a student loan refinancing calculator to estimate your new monthly payment and compare it to your current payment. Be sure to consider all factors before making a decision to refinance your student loans.