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Can I refinance my student loan?

Generally, the standard repayment option for student loans involves a fixed monthly payment for a 5- to 10-year term. With increasing tuition costs, however, it's possible you may graduate with student loan payments that are simply unaffordable. Moreover, if you have multiple student loans, you may be required to make several different monthly payments to different loan servicers. Consolidation of your loans may thus make your debt more manageable.

You can consolidate your federally subsidized student loans through a variety of programs. The process pays off your existing loans with a single new loan. Most consolidation programs offer a variety of repayment options. You can choose an extended payment option, a graduated payment option, or (in some cases) an income-sensitive repayment option.

An extended payment option allows the term for repayment to be as long as 30 years. Although this can dramatically lower your monthly payment, it can also dramatically increase the total cost of the loan. The interest rate may be higher, and interest charged on any unpaid principal will continue to accrue for a longer period of time. However, as with all consolidation programs, you can make prepayments against principal at any time without penalty.

A graduated payment option starts off with lower monthly payments that increase over the term of the loan. Theoretically, as your income increases, you are better able to afford the higher payments.

An income-sensitive repayment option ties your monthly payments to your income level. The higher your income, the higher the required payment. Conversely, if your income drops, the required monthly payments may be reduced. This option requires you to allow the lender access to your federal tax return information.

Of course, you are always free to explore other refinancing options, such as an equity loan or a loan against a retirement plan. However, you should explore carefully the advantages and disadvantages of these options before pursuing any one of them.

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