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It&s;s no secret that the Federal Reserve plans to raise interest rates this year.
If you have student loans, here is what you can do to protect yourself.
&l;strong&g;1. Determine if you have variable rate student loans&l;/strong&g;
It sounds simple, but make sure you have variable rate student loans.
These are the student loans that are susceptible to interest rate changes. If you borrowed private student loans, you can check with your lender or student loan loan servicer to confirm whether you have variable rate student loan debt and what is the interest rate.
&l;strong&g;2. Refinance your student loans&l;/strong&g;
Your best move to protect against rising interest rates is to refinance your student loans.
&l;a href=&q;https://www.makelemonade.co/5-reasons-refinance-student-loans/&q; target=&q;_blank&q;&g;Student loan refinancing&l;/a&g; enables you to combine your existing federal student loans and private student loans into a single, new, private student loan with a lower interest rate. So, if you are concerned about rising interest rates, you can refinance your student loans with a private student loan lender and choose a fixed interest rate that will stay the same for the duration of your student loan.
The first reason that borrowers refinance student loan debt is to lower their interest rate.
A lower interest rate can save you substantially each month on your student loans. Let&s;s assume you have $100,000 of student loan debt at an 8% interest rate and 10-year repayment term. With strong credit and income and a history of financial responsibility, let&s;s assume you refinance your student loans to a 3.25% fixed interest rate and 10-year repayment term. You would save $236 per month and $28,330 over the life of your student loan.
You can check your own potential savings with this &l;a href=&q;https://www.makelemonade.co/calculators/student-loan-refinancing-calculator/&q; target=&q;_blank&q;&g;free student loan refinancing calculator&l;/a&g;.
With student loan refinancing, you can also change your loan term to a shorter or longer time period. For example, the standard repayment period is 10 years, but many lenders allow you to choose a 5 year, 15 year or 20 year repayment plan. The shorter your loan term, the more money you will save in interest.
Student loan refinancing may not be right for you if you want access to federal repayment programs, the Public Service Loan Forgiveness program and other protections from federal student loans such as deferment and forbearance. However, many private lenders now offer types of deferment programs for economic hardship for borrowers who refinance student loans. Also, the Public Service Loan Forgiveness program may not exist in its current form or at all, so student loan refinancing may be one, viable alternative.
&l;strong&g;3. Refinance student loans even if you have fixed rate student loan debt&l;/strong&g;
You can refinance federal student loans, variable rate student loans or both.
Refinancing your student loans from variable rate debt to fixed rate debt can protect you from interest rate increases. However, even if you don&s;t have variable rate debt, refinancing student loans can still be your best bet to save money. Why?
Student loan refinance can also lower the interest rate of federal student loans, even if they are fixed rate. When you borrowed your federal student loans, you received the same interest rate as every other borrower regardless of your credit profile. If you have private student loans with a fixed interest rate, your rate was based on your credit profile at the time you borrowed.
What&s;s changed now? Presumably you are working, have a stable income and have built a positive credit history. Your credit profile is likely stronger today than it was when you were a student.
Therefore, your chances of receiving a lower interest rate today are likely higher. You can also apply for student loan refinancing with a creditworthy cosigner such as a parent or grandparent, who can help you get approved with a lower rate (so long as they are able to be financially responsible with you for the loan). Many lenders will release a cosigner after you are approved once you meet certain requirements.
Want to get approved for student loan refinancing? Check out these &l;a href=&q;https://www.makelemonade.co/student-loan-refinancing-secrets/&q; target=&q;_blank&q;&g;insider tips to refinance student loans&l;/a&g;.