When Should You Refinance Your Student Loans?

June 18, 20220
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When should you refinance your student loans?

Introduction

If you’re struggling with your student loans, one option to consider is refinancing your student loan debt. Refinancing allows you to restructure the terms of your existing loans by paying off your current loan balance with a new loan that has different terms. In most cases, this results in lower interest rates and monthly payments.

What is student loan refinancing? Deciding to refinance your student loans

With student loan refinancing, you take out a new loan to pay off your old one. This can be an excellent way to save money and invest in your future. The process is fairly simple: you apply for a new loan through an independent lender, who pays off all or most of your existing loans (depending on their terms). You then begin paying back the new balance on your term schedule.

Should you refinance? What to consider first

To get a better idea of what refinancing could mean for you, it’s important to consider the pros and cons before making a decision.

Pros:

  • You have more options to reduce your monthly payments by stretching out your repayment time or consolidating multiple loans into one loan with a lower interest rate. Instead of making monthly payments on each individual loan, you’ll make one payment per month toward your total balance. This can help simplify things and ensure that all of your loans are being paid off at once.
  • You may be able to get access to programs with lower interest rates than those offered by federal student loans—and do so without having any co-signer or collateral as security against defaulting on the loan (which is necessary for many other types of debt).

Cons:

  • There are fees associated with refinancing student loans, which may include origination fees (such as application processing charges or documentation fees), closing costs related to transferring funds from existing loans into yours (such as late payment penalties), and administrative costs associated with sending monthly statements in email form instead of paper format; these fees will likely depend on the company offering them and what type(s) they are offering at any given time.”

How to determine your refinancing eligibility

To find out whether you are eligible for student loan refinancing, take a look at your credit score. If it’s low and you have already been denied for other loans, you may not be able to get approved for a new one.

If you do qualify, here’s how to decide if refinancing is right for you:

  • How much can I save? Student loan refinancing companies compete with each other based on their rates and fees; this means that they all offer some of the best interest rates around. You can compare these offers side by side on sites like Credible or LendingTree.com—just make sure not to pay any application fee before getting quotes from multiple lenders!
  • How long will it take me? If you want smaller monthly payments but don’t want to extend the life of your loan (and thus pay more in interest), then consider opting into an income-based repayment plan rather than switching over to another lender–it’ll give up lower monthly payments but still keep things manageable (at least until something better comes along).

How to find the best student loan refinancing company for you

>It’s important to consider the various loan types that a company offers. If you want to refinance your federal loans and also have private loans, you’ll need to find a company that can help with both. Likewise, if you’re looking for fixed rates or variable rates on your student loans, it’s important to find out which options are available at each company and what those interest rates will be.

>You should also consider how long you plan on keeping your loans with the lender once they are refinanced. For example, some lenders offer payment plans lasting several years while others only offer shorter terms of three or four years in length while also charging fees for early repayment or refinancing again during this time period (which may not be worth paying if it comes down to having access to more funds now).

>Finally, make sure that any company has multiple ways of submitting applications online so there’s no need for phone calls back and forth between customer service representatives and yourself regarding information about your application before finalizing things like account details such as account numbers, etc.

How to prepare for refinancing

Before you refinance, it’s important to make sure that your student loan information is correct and up-to-date. This can help ensure a smooth application process and avoid any complications down the line.

  • Check your credit score. Make sure your credit report is accurate by checking it for errors or potential identity theft issues. You should also find out what kind of impact refinancing might have on your credit score over time (see “How Refinancing Affects Your Credit Score” below).
  • Verify income and employment status with employers, banks, lenders, and other institutions who may have information about recent income or job changes in order to verify employment status as well as current income levels (if this is an issue). Having this information ready before applying will speed up the process and allow us to better assess whether refinancing makes sense for you at this time.* Get tax returns ready: If required by the lender(s) of choice, we may require signed copies of the prior year’s tax returns prior to closing on a new student loan refinance package.* Gather financial information in general: In order to complete the application process successfully—and ultimately decide whether refinancing makes sense for you at this time—you’ll want all relevant financial documents organized ahead of time so there are no delays during our review period once we receive everything from an applicant.* Organize student loan information: It’s not uncommon for students/young professionals with multiple loans from multiple sources; therefore having all applicable account numbers available will help ensure that everything gets processed smoothly once submitted for review

Choosing your refinancing terms

You’ll want a fixed-rate loan, which means the interest rate will stay the same for the life of your loan. This is important because you don’t want to be stuck with a variable rate that could increase suddenly if there’s an economic downturn.

To find out what rate you qualify for, check out Bankrate’s loan comparison tool, and then call around to lenders in your area to see how quickly they can get you approved.

When deciding on how long you want your loan term to be, consider:

  • If your career takes off soon after college and brings in plenty of money, maybe go with a longer-term so that your monthly payments are lower later in life when income starts increasing again. Alternatively, if this isn’t likely or something else has changed since graduation (like getting married or having kids), it may make sense to shorten the length of time before interest begins compounding so that by 2030 when these loans come due there won’t be quite as much money owed on them and thus less stress attached!

You’re more likely to be approved if you have an excellent credit history, a relatively high income, and low debt.

You’re more likely to be approved if you have an excellent credit history, a relatively high income, and low debt. In addition to these factors, the lender may consider your occupation and the value of your home (if you’re planning to use that as collateral).

Most companies will check your credit score before making a lending decision. The higher it is—and the better it’s been in the past—the more likely you are to get a good interest rate. If yours is on shaky ground because of late payments or other problems with managing debt, don’t worry: there are still options available that might help out with repaying student loans while also providing some extra money each month.

If you want to refinance federal loans (which comprise most federal student loans), make sure they’re eligible for consolidation first before going through any refinancing process.[1] Also, note that private lenders often require applicants who are self-employed or own their homes outright rather than renting them.[2]

Refinancing could reduce your interest rate and lower your monthly payments.

Refinancing your student loans is a great way to save money in the long run. When you refinance, you can decide how long you want to pay off your loan and how much money you want to pay each month. That means if you have a high-interest rate on your current loan and are paying it back over time, refinancing could reduce your interest rate and lower your monthly payments.

If the new terms of the loan allow for lower monthly payment amounts, this could help make sure that all bills get paid on time—including rent or mortgage payments, car payments, insurance premiums, and credit card bills—so it’s important for borrowers who are considering refinancing their student loans as well as those who already have done so but need help staying on top of their finances

You could save thousands of dollars in interest since you’ll pay less overall.

If you have student loans and are considering refinancing, it’s important to know that the benefits can be significant. Refinancing can save you thousands of dollars in interest—and there are many ways to do so.

  • Pay off your loan sooner

If your goal is to pay off your student loans as quickly as possible, then refinancing with a lower interest rate could be a great way to save money over time. Since the payments on a new loan will be lower (due to the lower interest rate), more of each monthly payment will go towards paying down principal rather than accruing more and more interest. This means that over time, you’ll be able to pay off your original balance sooner than if you had not refinanced at all!

  • Pay less each month on an existing loan with no prepayment penalties

Another great reason for refinancing is if you’d like to pay less per month without having any prepayment penalties attached: If this sounds appealing but seems too good for real life… well… guess what? Refinancing does not require paying off all at once or even making extra payments during times when money is tight; instead, borrowers have options ranging from simple reduced payments or graduated payment plans over several months (depending upon the lender).

You can speed up the payment process: If you want to make all the payments required under your loan agreement as soon as possible, extending the term of your loan will only lengthen the process.

The longer the term of your loan, the more money you will pay in interest. For example, if you have a $10,000 student loan at 7% APR, it will cost you $2,600 to make payments for 10 years. If instead, you decide to refinance this loan and shorten its term from 10 years to 4 years, then your monthly payment would be about half as much ($397), and in total, over the course of just four years those payments would add up to less than half ($1,852) what they would’ve been under the original terms with an additional six years left on top of that!

Refinancing also allows you to speed up the payment process: If you want to make all the payments required under your loan agreement as soon as possible and are willing to forgo some flexibility on how long it takes (for instance by consolidating multiple loans into one), extending the term of your loan will only lengthen this time frame.

If you want to pay less money every month, but plan on paying off your student loans over a longer period of time, refinancing could help you achieve that goal.

If you want to pay less money every month, but plan on paying off your student loans over a longer period of time, refinancing could help you achieve that goal. You can choose a longer-term (such as 20 years) and pay less each month without having to pay extra interest on the principal balance.

You might also consider refinancing if you’re paying more than 15% in interest rates on your current loan. Paying more than 15% in interest rates is generally considered bad for your financial health because it means you’ll be spending more money over the life of the loan than what was originally borrowed if nothing changes.

If you have federal loans and refinance with a private lender, you won’t be eligible for certain federal programs that may help with repayment.

If you have federal loans and refinance with a private lender, you won’t be eligible for certain federal programs that may help with repayment. These include income-driven repayment plans and Public Service Loan Forgiveness (PSLF).

You can still take advantage of these programs if you have private loans. However, if your income is low enough that it makes sense to use an income-driven repayment plan instead of paying the full amount each month, one option might be to borrow from a private lender so that the interest rate is lower than what you’d pay for federal student loans. Then once your debt has been paid off using an income-driven plan, at least some of which will likely be forgiven under PSLF rules anyway, transfer over any remaining balance onto another type of loan such as a Perkins or Direct PLUS loan (and stay away from them!).

You can also choose not to refinance through a private lender but rather consolidate all or most of your student loans into one manageable monthly payment through U.S Department of Education’s Federal Family Education Loan Program (FFELP).

Refinancing is an option for those who are struggling with their student loans

Refinancing your student loans is an option for those who are struggling with their student loans. Refinancing can help you save money and lower your monthly payments, pay off your debt faster, or get a lower interest rate.

There are many reasons why you might want to refinance your student loans. If you have decent credit (a score of at least 620), then refinancing could be a great way for you to save money on interest and put more cash in your pocket each month by paying off your debt sooner.

Refinancing isn’t always the best option though—it’s important to consider all of the pros and cons before jumping in with both feet!

Conclusion

It’s possible that you’re still not sure whether refinancing is the right option for you. If this is the case, we recommend doing more research about your options. Or, if you feel comfortable speaking with a professional about your specific situation, consider reaching out to a student loan expert.

 

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