When you refinance student loans, you may be able to save money on the overall cost of the loan. This process allows an individual with several student loans to roll all of the individual student loans into one, larger loan. You can also refinance your student loans with higher interest rates into a new loan with a lower interest rate, if available. Refinancing is generally an option after you are out of school and repaying your loans, but you can refinance during your grace period as well.

Will You Save Money? The process of refinancing can help you save money, in some circumstances. If your student loan interest rate is higher than what is available now, refinancing can help you to save substantially. Your savings could be in the form of lower monthly payments or paying less for the loan overall. You can consolidate both federal student loans and private student loans.

How Does Refinancing Work? By refinancing your student loans through consolidation, the original lender(s) of the loan will be paid off, and a new loan will be arranged, possibly with a different lender. Funds from the new lender are used to pay off all the original higher-interest-rate loans, clearing those debts and adding them to the new loan.

Once this happens, the multiple monthly payments no longer exist. In their place, a new payment plan takes over, requiring you to make a single monthly payment, which can be at a greatly reduced amount. For instance, if the old loans were originally set up to pay off over a five year period, your new single loan may be set for an extended period of time, maybe ten years. This could allow you the option of trading more accrued interest over the extended time for a greatly reduced monthly payment.

To illustrate this, say the balances of all your existing outstanding student loans add up to $10,000, and have a 6.8% interest rate over five years. The payments for this would equal $197 each month, and over the five year course of payments you would have pay all the principle and interest totaling $11,824. But instead of struggling with paying that monthly obligation you choose to refinance your loans and consolidate them into a new one, with an extended amount of time, say ten years. Even keeping the same interest rate as the old ones, and just giving yourself more time to pay it off, your new payments would be only $115 per month, though the overall total amount of repayment would increase to $13,810.

Through the process of consolidation, you will only have to make one monthly payment to the new lender, rather than several payments to several lenders. This is one of the key benefits of refinancing.

Is Refinancing Right for You? The best time to refinance your student loans is when the interest rate on the loan you have is significantly higher than what is available. Another instance is when you need a lower monthly payment and you hope to extend the terms of the loan to accomplish this.

To help you decide if consolidating your loans is the right thing for you, consult with lenders, and shop around for the best term and interest each can provide.

Visit consolidate student loans to get more information about student loan consolidation and different types of federal student loans.