Most law students graduate with as much as six figures in federal and private student loans. That’s a lot of debt to pay off. Refinancing is one way to take control of your law loans and even pay them off faster.

What Is Refinancing And How Does It Help?

Refinancing involves taking on a new loan to pay off your existing loans. The new loan will have its own interest rate and repayment schedule. The main benefit of refinancing is that it allows you to set new loan terms to suit your current financial circumstances.

For example, if you’re earning a high income, you can choose to refinance with higher monthly payments. This will reduce your loan term so you can be debt-free earlier. Also, less interest gets accrued over the shorter loan period, saving you hundreds of dollars in interest.

On the other hand, your monthly earnings may be low and you may be struggling to pay the current monthly payments. In this case, you can choose to refinance with lower monthly payments. This will extend the life of the loan and also increase the amount of interest that accrues over a longer period. Your loan will end up costing you more if you lower your monthly payments. But, it does help free up much-needed cash for the moment. This is far better than defaulting on your law loans.

If you’re like most law students, you most likely have a mix of federal and private student loans. Both of these have completely different interest rates, payment terms, and associated benefits. Before you choose to refinance your federal or private law loans, it helps to understand the pros and cons.

Pros & Cons Of Refinancing Federal Law Loans

Federal law loans come with a fixed rate of interest for all students. The federal government sets the rate for the year based on market conditions. Even if the rate drops during subsequent years, you still continue paying the original higher rate. Refinancing is one way to get a lower interest rate on your loan. This lower interest could save you thousands of dollars over the life of the loan.

Another benefit of refinancing it can help you change the terms of the loan to make it more manageable for you. You can pay off your debt earlier if you can afford to increase your monthly payments. Alternatively, you can lower the monthly payments to cover other necessary expenses.

The one big disadvantage of refinancing federal law loans is they get converted to private loans when you refinance. The newly refinanced loans won’t have any of the protections associated with the original federal loans. You won’t have access to income-based repayment terms, deferment and forbearance options, or forgiveness. You should only consider refinancing federal law loans if you aren’t interested in any of these protections.

Pros & Cons Of Refinancing Private Law Loans

Private law loans do not have any protections, and as such there are no downsides to refinancing. Refinancing private law loans makes sense if you qualify for a lower interest rate or when you need to change the terms of your loan.

Is Refinancing Law Loans Right For You?

Refinancing is not the best solution for all borrowers. It depends on the type of loans you have and a few other factors. Refinance law loans may be right for you under the following circumstances:

• You work or intend to work in the private sector – Public-interest lawyers may be eligible for Public Service Loan Forgiveness or Loan Repayment Assistance. Both of these are applicable only to federal law loans. If you work or intend to work in the public service and want to avail of these benefits, it’s best not to refinance. Only consider refinancing if you work or intend to work in the private sector.
• You qualify for lower interest rates – A high credit score, consistent monthly income, and low debt-to-income ratio will qualify you for lower interest rates. Focus on these three aspects from day one to get those lower refinance rates and reduce the cost of your loan.
• You have a high monthly income – Lawyers employed by private firms earn a relatively high monthly income. A high income combined with good credit will qualify you for low refinance rates. Refinancing under these conditions can save you a substantial amount over the loan term. It can even help you wipe out your debt earlier if you increase your monthly payments.

How To Refinance Law Loans

The first thing to do is to compare lenders and offers online. There are several lenders that offer refinancing. You’ll find that different lenders offer different rates and loan terms. Even the eligibility requirements may differ from one lender to another.

A good way to start is by checking the eligibility requirements. Only shortlist those lenders whose requirements you meet.

The next step is to check each lender’s refinancing rate and terms. Keep in mind that most lenders publish the lowest possible rates on their sites. This is not necessarily the rate you will pay. Your rate will depend on your financial circumstances, including your credit score, income, and debt-to-income ratio. The best way to compare your personalized rate with different lenders is by using an online refinance calculator. This will allow you to calculate your rate without triggering a hard credit check.

Before you sign a contract with any lender, there a few things you should consider:

• Is the rate of interest lower than what you’re currently paying?
• Is the lender charging any origination or other hidden fees? Most lenders don’t.
• Does the lender offer an interest rate reduction for setting up automatic payments? Most lenders do and that rate reduction does help lower the cost of your loan.
• Have you considered what is the best loan term for your payoff goals?
• Does the lender’s loan terms suit you and can you afford the monthly payments?

Once you’ve zeroed in on the best lender for you, you’ll need to submit your application along with the required documentation to refinance your law loans.