Refinancing Student Loans

 f the requirements are met, college loan deferments can be granted for up to three years. Deferments are typically used for federally funded college loans, while private lenders use forbearances. However, if the loan is privately funded, it is strictly up to the provider to decide if a loan suspension period is warranted.

Before taking out loans, most borrowers do not think to ask about things such as deferments, forbearance, and repayment schedules. However, given the differences between federal and private or alternative college loan sources, it makes sense for borrowers to be armed with as much advance information as possible. No one assumes that upon graduation they will not find their perfect full-time, career-oriented, position. However, this does occur. Borrowers must make sure their lender will be able to cut them a little slack - if needed.

The college loan deferment option is a perk that federal loan providers offer their borrowers. With a maximum of three years of total time allowed for the life of the loan, borrowers should try not to use up their time, unless it is an absolute emergency.

There are many student loan refinance terms you may need defined if you are interested in refinancing your student loans. Refinancing can change the repayment terms of your loan and can save you a lot of money in the long run. However, you want to ensure you choose a plan with the best repayment options and the best rules and regulations for your personal financial situation. Choosing the best loan involves understanding the meaning of all the student loan refinance terms you are likely to see on your loan documents.

Definitions of Student Loan Refinance Terms

The following definitions of student loan refinance terms give you some of the most important vocabulary words you are likely to encounter in refinancing your student loans:

Capitalized Interest: Interest that has become part of the principal. Student loans are often in deferment or forbearance and payment is delayed. Payments may also not be enough to cover interest. Many lenders will capitalize that interest at periodic intervals, or essentially convert the interest into principal so you begin paying interest on the interest.

Deferment: A time period in which no payments are due on loans and in which the government subsidizes or pays a portion of the Interest on government-backed or subsidized loans, such as Stafford loans. Loans are generally in deferment while you are in school, and can also be deferred once you have graduated in certain situations, such as if you are experiencing financial hardship.

Forbearance: A time period in which no payments are due on loans, but in which interest continues to accrue at the full interest rate due on the loans. Forbearance has less stringent requirements to qualify than deferment with most lenders.

Government loans: Loans that the United States government either grants through the Department of Education, or guarantees. A government loan is backed by the US government so if you default or do not pay, the government will. These loans typically have lower interest rates.

Interest Rate: The amount of money paid annually to the bank as a fee for borrowing the money. The interest rate is normally expressed in terms of annual interest- i.e. a loan that charges six percent interest charges you a fee of six percent of the principal owed each ear.

Principal: The original amount of money borrowed, as well as any capitalized interest. If you borrow $10,000, for example, $10,000 is your principal and interest is charged on that $10,000 balance.

Private Loans: Private loans are loans not secured or guaranteed by the United States government. Because the US government is not guaranteeing that the lender will be paid back, the lender is taking a larger risk. These loans are often less well regulated since there is less government involvement. The interest rates may be higher.

Refinance: To renegotiate the terms of the loan, either with a different lender or a new lender. A new loan is granted, and the proceeds are used to pay back the existing loans. The new loan may have a different interest rate, different repayment term, or other fundamental structural differences form the original loan

Tip #1. Find out what type of loan(s) you currently have outstanding. Student loans come in many forms including private and federal. Typically, federally guaranteed student loans are eligible for lower interest rates than private loans. Calculate the cost of consolidating all loans versus keeping private and federally funded loans separate.

Tip #2. Get your credit in great shape before applying to refinance or consolidate loans. Refinancing student loans is a lot like any other loan; the lenders will use your credit and payment history to determine rates and loan eligibility. Start several months in advance so you will be able to make corrections to your credit report in the event of errors or omissions. Having a solid credit score not only allows you to qualify for better rates but also reduces the fees associated with other monthly bills.

Tip #3. Watch the interest rates. Unlike mortgage or car loans, student loan rates on federal loans only change once each year - usually on July 1st. If you are interested in refinancing federal student loans and are unsure of whether not interest rates will remain low then lock-in prior to the rate change.

Tip #4. Verify requirements in advance. Take time to verify eligibility requirements prior to making a final decision. Each lender has different standards and requirements that must be met in order to qualify; for example, minimum student loan refinance amounts or "out of school" status.