Student Loan Refinancing

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Student loan refinancing is essentially the process of taking out a new loan and using it to pay off your existing balance.

Generally, this is done to secure lower interest rates or to change your repayment term on your current debt.

Refinancing can also help consolidate multiple outstanding balances into one, which can make it easier to manage your monthly payments.

Who Should Refinance?

Refinancing is a great option for any individual carrying high-interest debts. If your credit score has increased since taking out your original debt, then refinancing can help you save a lot of money in interest.

Additionally, if you have multiple open balances from several lenders, refinancing can simplify your repayment schedule.

Keep in mind, though, that if you have a poor credit score or are a low-income individual, you may not be able to refinance at a lower rate than your current one.

It should also be noted that, if you have federal student loans, refinancing can cause you to lose certain benefits, such as public service forgiveness or federal repayment plans.

Which Types Can Be Refinanced?

Generally speaking, you can refinance both private and federal balances. But this can vary on a lender to lender basis.

Some lenders will only refinance private ones, so, if you need to refinance federal balances, it’s important to find the lender that meets your needs.

Pros & Cons of Refinancing

Refinancing can be a great option for those looking to lower their interest rates or restructure their repayment plans, but that doesn’t mean there aren’t a few downsides to consider.

Let’s take a quick look at the pros and cons.

Pros

The pros include:

  • Potential to lower your interest rates
  • Restructure your repayment plan
  • Consolidate multiple balances into one
  • Move to a lender that better suits your needs
  • Lower your monthly payment

Cons

Cons include:

  • Lose eligibility for federal repayment plans
  • Lose access to federal repayment protections
  • End your repayment grace period

Ultimately, while there are a few disadvantages, refinancing is a great way to save money on interest and customize your repayment plan if you are able to qualify.

How Much Does It Cost?

The cost comes down to a few factors: how much you borrow, your interest rate, your term, and any fees charged by your lender.

Borrowing Limit

Borrowing limits vary from lender to lender. In most cases, you should be able to find a lender willing to refinance the total amount, assuming you meet their qualifications.

To find out how much you can refinance, be sure to talk with your lender about how much you qualify for.

Interest Rates

Interest rates tend to fall anywhere between 4% to 13%.

Your interest rate will be based largely on your credit score, so it’s important to increase your credit score by as much as possible before exploring your refinancing options.

Additionally, if your income has increased or you’ve finished paying off other debts, you may be able to qualify for lower interest rates.

Term

Many people choose to refinance to adjust their repayment term.

Whether you’d like to extend your term or pay off your balances faster, it’s important to understand that the length of your term will impact the total cost.

Generally speaking, longer terms will result in lower monthly payments but will cost more due to interest.

Fees

Lastly, be sure to review your terms to understand what fees you may be responsible for.

Lenders may charge origination, application, processing, prepayment, late payment, and other fees. These can add up over time, so be sure you are aware of anyl fees before you sign anything.

How to Qualify

Since refinancing involves borrowing from a private lender, eligibility requirements aren’t set in stone.

You’ll need to:

  • Have a good credit score (at least 600)
  • Provide proof of stable income
  • Get a co-signer if your credit score isn’t high enough

These requirements are just to be used as a general rule of thumb. Be sure to consult with your lender to find the exact requirements.

Choosing a Lender

There are a variety of lenders available. Before choosing one, it's important to consider what your priorities are.

For example, you may want to find a lender that offers the option to make interest-only payments if you experience financial hardship. Or, you might want to find a lender with as few fees as possible.

Some reputable lenders for refinancing include:

While these are a few good options to start with, it’s important to research and compare several lenders to find the best one for you.

Tips for Applying 

Applying can be stressful and time-consuming if you’re not prepared.

Be sure to keep these tips in mind to make applying for refinancing as easy as possible.

Compare Lenders

Lenders set their own rates and terms, so it’s very important to compare multiple lenders before making a final decision.

In addition to comparing rates, be sure to ask about:

  • Fees
  • Prepayment penalties
  • Refinancing federal student loans
  • Forbearance programs
  • And anything else that is important to you

Finding the right lender is the most important part of this process, so be sure to take your time to find the right match.

Gather Your Documents & Apply

To complete your application, you’ll need to submit a wide range of documents, including:

  • Personal Identification
  • Social Security Number
  • Proof of Employment
  • Income Verification (Pay Stubs, Tax Returns, Bank Statements)
  • Co-signer Information

Again, the specific documents you need may vary by lender, so be sure to check with your lender to find a list of all of the documents you’ll need.

Once you’ve gathered your documents, you can submit your application. Be sure to stay in contact with your lender in case they need anything else to process your application.

Review Your Offer

Once your application is approved, review your offer one last time to make sure you understand and agree to the terms. If you are happy with the offer, you can sign your loan agreement.

That’s it! After following these tips, you’ll have successfully refinanced your student loan.
 

Typical cost is

$233/Month

Monthly payments at 5% interest rate on a 10 year loan with a $22,000 balance