When a longer-term student loan might be right for you

When it comes to managing student loan debt, there are many repayment strategies and refinancing options to think about. If you’re considering refinancing, an important factor to focus on is the term length. The term lengths that come with student loan refinancing options can vary widely, each with pros and cons. Depending on your unique financial situation, a longer-term student loan might be the right option for you.

What is student loan refinancing? 

When you refinance student loans, you replace your current student loans with a new loan which may have a lower interest rate, lower monthly payment or both! 

When you refinance your student loans, you could have the opportunity to choose your repayment term. Loan terms typically come in five-year increments (e.g., 5, 10, 15, or 20 years), and the length of your loan term will affect your monthly payments and total interest paid over the life of the loan. For example, a shorter-term loan could have higher monthly payments, but you’ll pay less interest overall, while a longer-term loan could have lower monthly payments but more interest overall.

When is refinancing student loans a good option?

Student loan refinancing could be a good option for borrowers with high-interest rate student loans. If you have good credit and strong income, you may be able to refinance at a lower rate, which could save you money over the life of your loan. Interest rates and loan terms may vary from lender to lender, so it’s important to shop around and do your homework when looking for a refinancing lender.

However, the U.S. Department of Education recently announced a student loan debt relief plan which includes forgiveness of up to $10,000 for qualifying federal student loans and up to $20,000 for qualifying Pell Grant recipients. For more information, please visit: https://studentaid.gov/debt-relief-announcement. Keep in mind that if you have federal student loans and you refinance through a private lender, you will no longer qualify for existing or future benefits offered by the federal government to federal student loan holders. Look online for the most current information about any federal student loan benefits. So, before you refinance make sure you know what type of student loan you have. 

Pros and cons of refinancing term lengths

A shorter-term loan:

• Pro: You’ll likely pay less interest because you’re repaying the loan over a shorter period, so less interest is accrued on your overall loan balance. 
• Con: Your monthly payments will likely be higher because you’ll repay the principal plus interest over a shorter period.
• Pro: You could pay off your debt faster! For example, if you refinance into a five-year loan, you’ll be out of debt five years sooner than if you refinance into a 10-year loan. 

A longer-term loan:

• Pro: Your monthly payments will likely be lower because you’re repaying the principal (the amount you borrowed) plus interest over an extended period.

• Con: You’ll likely pay more interest, which means that you’ll pay more money over the life of the loan.

• Pro: Monthly payments could be more affordable.

• Con: You could be in debt for a longer period of time. 

So, what student loan refinancing term is best?

When it comes down to it, there is no “right” answer when choosing a student loan refinancing term. The best way to know what term is right for you is to consider your current situation and future goals, whether that’s buying a house, saving for retirement, or taking a dream vacation. For example, if you have plans to make a major purchase in the near future, refinancing into a longer-term loan could help free up some extra cash each month, but if you’re looking to get rid of your loans sooner, a short-term could be the better option. At the end of the day, it all depends on your specific situation and what’s best for you.