The student debt burden is a crisis that plagues millions of Americans. Students are often graduating from college with tens of thousands of dollars in student debt. This burden is heavy to carry and can present financial stress and pressure to those looking to make ends meet or pay the monthly student loan payment. If you’re curious about how to refinance student loans, you’ve come to the right place.
What to know about refinancing your student loans
You must take certain nuances into consideration before you decide to refinance your student loans. Spoiler alert: It’s not always the best decision to refinance your student loans.
Consider the loan type and the benefits of each
If you’re looking to refinance your student loans, you may notice that it’s more common to receive refinancing options from private lenders. But if you have a government student loan, you’re likely entitled to benefits such as a fixed interest rate, a potentially lower interest rate when compared to a private loan, income-driven repayment options, and various forbearance or deferment options. If you were to refinance your government student loan with a private lender, you may lose these benefits.
Consider the interest rate
You must consider the interest rate when refinancing your student loans. Generally speaking, the lower the interest rate, the better. The higher your interest rate is, the more money you will pay back to the lender over the life of the loan. Not only should the interest rate be strongly considered, but you should also have a thorough understanding of all the potential fees associated with refinancing and the loan. Fees can add up quickly, and what seems like a good deal at face value may actually cost you more money per month when you factor in the fees.
It’s also important to consider the type of interest rate you have and the type of interest rate being offered on the new loan. A fixed interest rate means your interest rate remains the same for the duration of the loan. A variable interest rate means your interest rate can adjust — either increase or decrease — throughout the duration of the loan. A variable interest rate has a higher risk associated with it because you will be paying more money per month if interest rates increase. A fixed interest rate is consistent and easy to factor into your monthly budget.
Consider the remaining time on your loan
The time remaining on your existing loan should also be considered before you decide to refinance. Refinancing your loan may extend your loan period. For example, you may currently have four years remaining on your existing loan, but you’re considering refinancing. The refinanced student loan may have a 10-year term. Even if the monthly payment is less than what you’re currently paying, you must do the math to see whether you’re actually paying more money over the life of your loan considering all the additional interest you will be paying over the 10-year term.
Consider your monthly payment
The overall monthly payment is the last variable that needs to be factored into your refinancing decision. If having a reduced monthly payment is essential to keep you financially solvent, only refinance if the monthly payment is less than what you are currently paying.
Now that you’ve learned the foundation of refinancing student loans, take a look at some of the best ways to actually refinance your student loans.
Steps to Refinance Student Loans
Take a look at the various steps to refinance student loans.
Step 1: Gather all necessary information about your loan
Start by gathering all the necessary information about your existing student loan, including the type of loan, interest rates, loan balances, and repayment terms. Knowing these details will help you evaluate whether refinancing is the right option for you.
Step 2: Review your loans
Before you refinance your existing student loans, it’s important to review your existing loan agreement. You want to make sure you are eligible to refinance your loans and you will want to be aware of any fees you may be forced to pay if you do refinance your loans.
Step 3: Check your credit
Your personal credit score is an important variable when refinancing your loans. If you have a low credit score, a lender will charge you a higher interest rate on your loan as you will be considered a higher financial risk in the eyes of the lenders.
If your credit score is low, it may be wise to work on repairing your credit before refinancing your loan. Once your credit is repaired, you can start the process to refinance your student loans with a higher credit score, which could give you a superior interest rate.
Step 4: Shop around
Research, research, research. Plenty of lenders may be willing to refinance your student loan, including credit unions, national banks, and online banks. Don’t be afraid to shop around and see who is offering you the best deal.
Step 5: Select the right loan
After you’ve received options from at least three lenders, and assessed the benefits, dive into the details. You’ll want to familiarize yourself with the terms and conditions of the new loans and all the fees or clauses associated with them. Remember to look for early pay-off penalties and any stipulations on refinancing. Knowing these details can save you a great deal of frustration down the road.
Step 6: Finalize the Loan
Once you’ve identified the right loan, it’s time to sign off on your new loan. Enrolling in an automatic monthly payment is a great way to stay current on your loan, which will help you avoid fees for missing a payment and help you boost your credit score.
How long does it take to refinance student loans?
Refinancing your student loans shouldn’t take long. The most time-consuming step may be shopping around, as you should never just get one quote for such a big financial decision. You can shop around from the comfort of your home as plenty of online lending options are available.
The Stress of Student Loans
Without question, having student debt can be stressful. Not only is college expensive, but the interest rates on your student loan may be steep, making your monthly payment hundreds of dollars per month. If your current payment is too steep for your liking, refinancing your student loan may be an option you should consider. There are plenty of refinancing options available, be sure to shop around to get the most competitive offer.
Benefits of Refinancing Your Student Loans
Without question, having student debt can be stressful but has many benefits. By shopping around for a refinancing option you can discover lower interest rates and lower monthly payments which will help pay off debt faster and improve your cash flow.
FAQ
Can you refinance student loans with bad credit?
You can refinance your student loans even if you have bad credit, but the lender may charge you a higher interest rate.
Does refinancing student loans actually help?
Absolutely. Refinancing student loans can be incredibly helpful and can save money each month.
How do you qualify for student loan forgiveness?
Your income will likely be a key factor in determining whether you qualify for student loan forgiveness. The federal government is still debating whether or not a mass student loan forgiveness option is something they can move forward with.
