Many parents of student loan borrowers are probably very familiar with the concept of refinancing debt. Indeed, numerous individuals refinanced mortgages after the Great Recession to take advantage of historically low interest rates. In addition, many individuals also have experiences with refinancing credit card debt and other types of loans. Refinancing debt usually allows borrowers to spend less money on interest and enables individuals to pay less each month to service their debt.
Student loan refinancing is very similar to any other type of debt refinancing with which you may be familiar. This website has already discussed how refinancing student loans can lower a borrower’s interest rate. Many student debt borrowers have interest rates close to eight percent, and refinancing student loans can cut these interest rates in half. In addition, refinancing student debt can permit individuals to lower the monthly amount they devote to student loans, which frees up money that borrowers can use for a number of other purposes.
Despite the benefits of refinancing, many student debt borrowers do not refinance their student loans. Some people already have low interest rates, and others might not want to refinance their student loans because they wish to take advantage of an income-driven repayment plan. However, some individuals don’t want to refinance their student loans simply because they do not want to go through the refinancing process. Even though it is very easy to refinance student loans, and there are ways to streamline this process, some individuals are unwilling to refinance their student debt despite the benefits they can realize after refinancing. As a result, parents of student loan borrowers can play an important role in encouraging their children to refinance student debt.
Parents who cosigned their kids’ student loans have a vested interest in ensuring that their children refinance their student debt. This website will discuss cosigning at length in future articles, and guest posts have already discussed this topic. However, it is enough to say for now that cosigning student loans can make you liable for repaying this debt.
As many parents are aware, student loans can have insanely high interest rates. This makes it difficult to pay off student debt, since many borrowers cannot afford to pay much of the principal of their student loans. Refinancing student loans makes it easier for a borrower to repay their debt. This is because less interest will accrue on student loans after they are refinanced, and as a result, more principal will be paid off with every payment. In addition, refinancing can also lower your monthly payment amount, since less money is needed to pay off debt that has a lower interest rate.
As such, refinancing student debt might make it less likely that a borrower will default on their student loans. This accordingly makes it less likely that a cosigner will need to step in and pay off the student debt themselves. Therefore, it is in the best interest of parent cosigners to convince their children to refinance their student loans.
Parents typically cannot go through the refinancing process by themselves, even if they cosigned a child’s student loans. Rather, both the primary borrower and the cosigner usually must agree to refinance student debt. As a result, it is important for parent cosigners to begin talking about refinancing as soon as possible, so that you and your child are on the same page about refinancing.
However, all parents of student loan borrowers should tell their children to research student loan refinancing options, even if they did not cosign their child’s student loans. This is because refinancing will not only affect your child’s student loan story, but will also improve your kid’s financial situation more generally. After refinancing student debt, many borrowers need to devote less money to student loans each month, and will therefore have more cash to devote to other purposes. As this website has already detailed, there are many things a millennial can spend their money on in order to set themselves up for financial success. Indeed, every recent graduate should think about setting up a retirement fund, an emergency fund, and a fund that can be used for a down payment on a home. It is typically advantageous to work toward these achievements as soon as possible, and refinancing student loans empowers borrowers to devote additional money toward these goals.
It is also worth noting that even if you did not cosign your child’s student loans, you might be able to help your kid by cosigning their refinanced debt. Sometimes, borrowers can get more favorable refinancing terms if their loans are cosigned by a parent, and this is especially true if a borrower has a poor credit history or a spotty employment record. Of course, cosigning refinanced debt would make a parent liable for repaying the loans if a child is unwilling or unable to do so. However, this assistance could help a child get the best terms possible when refinancing student debt.
As mentioned in prior articles, Student Debt Diaries has partnered with Splash Financial a major student loan refinancing company. If you use the link above to refinance student loans, you may receive a welcome bonus and we may receive a bonus we can use to keep the lights on at Student Debt Diaries. Accordingly, we recommend that Splash be part of your and your children’s search for a refinancing partner.
All told, parents of student loan borrowers can have a positive impact on many of the life decisions their children make. And borrowers can benefit greatly from refinancing their student loans. As a result, parents of student loan borrowers should help their children complete the student loan refinancing process.