How - To

How to approach refinancing or consolidating student loans

The average college student can expect to pay between $10,000 and $23,000 in tuition fees at public universities depending on if they live in-state our out. Those costs are even higher for private colleges, with prices starting at $30,000, according to The College Board, a mission-driven not-for-profit organization that connects students to college success and opportunity. Millions of students and their families simply cannot afford to pay for tuition and boarding outright, leaving them to seek out student loans and other options to finance their educations.

Today's college students can expect to graduate with substantial debt. According to an analysis of government data by Mark Kantrowitz, publisher at Edvisors, a group of websites offering advice about planning and paying for college, members of the class of 2015 can expect to have a little more than $35,000 in student-loan debt upon graduation. In an effort to make repayment more manageable, many students opt to consolidate their loans or refinance for better rates.

Renegotiating, consolidating or refinancing can help recent grads in various ways. Some grads may find it easier to work with a single lender, while others may recognize how much they can save over the life of their loans if they refinance with lower interest rates. But before restructuring their loans, borrowers should take steps to understand the process so they can rest easy knowing they made the best decision.

• Know the risks. Borrowers who have federal student loans and are looking for better interest rates should realize that they may sacrifice some benefits by cutting ties with the federal program. These can include passing up on federal loan protection, such as deferment and certain loan forgiveness programs.

• Explore the strengths of other lenders. Many banks are out there looking to do business, but lower interest rates may not be reason enough to refinance. Think about the convenience of keeping the loan with the bank you currently use for other accounts. This can make managing your finances much easier. There may even be incentives to keep all of your accounts with the same bank. Such perks may include lower interest rates or fee forgiveness. Some borrowers may want to work with lenders that specialize in student loans.

• Inquire about potential fees. Some lenders charge fees to transfer loans. Weigh the benefits of paying that fee against the perks of the new lender. Will you really save money?

• Think about interest rates. Rates are usually separated into fixed or variable rates. Although variable rates can start out low, they may increase incrementally based on the market. Fixed rates do not vary and can be a safer option if you cannot pay off the loan very quickly.

• Verify your credit standing. Even after all of the rate advertisements and the assumed benefits of a new loan, loan rates and terms are usually based on a borrower's financial health and credit. Be sure your credit rating is good; otherwise the rate you end up with may not warrant refinancing.

• Make sure loans are eligible. Not every lender will take on student loans. Determine your eligibility before you begin doing all the legwork required to restructure your existing loans.

Restructuring student loans can benefit borrowers in various ways. But borrowers should do their best to learn the ins and outs of restructuring before changing their existing terms.

Mankato Free Press