Student-loan debt in this country stands at $1.16 trillion.
To make this even more alarming, the average student-loan debt for college graduates in the class of 2014 is $33,000, making them the most indebted class ever.
It therefore makes sense that as the total debt owed in student loans continues to rise, student-loan refinancing through a private lender is becoming an increasingly popular option for graduates.
Refinancing student loan debt can make a great deal of sense. With interest rates still near historical lows, refinancing student loans can be a very solid strategy to manage the student-loan repayment situation and also improve the person’s overall financial health.
For a lucky few, however, there is another solution to the student-loan debt dilemma.
If you are a teacher or work in health care, for instance, you can apply for loan-forgiveness programs. According to the Consumer Financial Protection Bureau, more than a quarter of students with loan debt are eligible for federal assistance, but only a small percentage actually take advantage of the programs.
Teachers can apply for the federal Teacher Loan Forgiveness Program and may be eligible for up to $17,500 in debt forgiveness. In exchange, you must work five consecutive academic years in a school serving low-income families.
Read More Student loan in collections?
Additionally, if you work in a health-care profession as a doctor, dentist or clinician, there is the Health Professionals Loan Repayment Program. That program will pay you up to $50,000 in exchange for a two-year salaried commitment in an underserved neighborhood. The payment is federal tax-free and made at the beginning of your service to help quickly pay down student-loan debt.
For those who are not eligible to receive loan forgiveness, refinancing student-loan debt, just like refinancing a mortgage, is a logical choice to lower the loan and save money every month.
Understand the terms
Financial experts warn that student-loan refinancing can be confusing and lead to financial problems down the road if you don’t make the right decisions when applying for refinancing. To be sure, refinancing isn’t for everyone. There are some obstacles to refinancing a student-loan debt, and it’s not a straightforward process.
I spent time consulting with a variety of financial advisory experts. They offered some of their thoughts on the student-loan refinancing process.
It may seem obvious, but check with the bank to see if they refinance student loans from your school. Some banks will not lend to student-loan borrowers who have attended for-profit private institutions, community colleges or certificate programs.
It’s important to understand the exact terms of the refinanced student loan. Banks can offer 5-, 10-, 15- and 20-year repayment options. Know what terms will work within your financial situation to repay your loan. Also, when does the repayment actually begin? What will the monthly payments be? What fees can occur if you miss a payment or default on your student loans?
Read More Dropout tackles student debt
Your student loans have either variable or fixed interest rates. Do you understand the differences? By refinancing, you can convert a variable interest rate to a fixed-interest-rate loan or vice versa.
Check to see if there are any application, origination or disbursement fees. Some banks charge a student-loan origination fee up to 2 percent of the total amount being requested to refinance. The origination fee is usually added to the loan amount due, and you will not need to pay this amount up front.
Will the bank combine federal and private student loans? It’s a key question to ask. Before refinancing federal loans, it’s important to note that some of these loans have features that don’t transfer to private lenders through the refinancing process.
“Done right, refinancing a student loan will allow you to manage the repayment process and put some money back in your pocket.”
Also, keep in mind that a bill is currently working its way through Congress that could take some of the burden off those with federal student-loan debt. Minnesota Senator Al Franken co-authored a piece of legislation that would make it easier to refinance federal student loans at lower interest rates. The bill would apply to both graduates and current students with college debt.
Read More Is student-loan relief on the way?
It’s also very important to find out the typical credit score, salary and debt-to-income refinance requirements. A majority of banks require a 640 credit score or higher, 45 percent maximum debt-to-income ratio and minimum monthly salary of $2,000, depending on the total debt load. If your income or credit score is too low, the bank might require a co-signer to insure the student loans in case of default.
Done right, refinancing a student loan will allow you to manage the repayment process and put some money back in your pocket. So take the time and do the proper research to see which refinancing option makes the most sense for you.
—By Jim Pavia, CNBC senior editor at large