Student loan refinancing is a great way to club your existing student loans and have them paid off by a new lender. But before you consider refinancing, equip yourself with enough information that will allow you to take an informed financial decision. Here are the top ten questions to ask if you’re contemplating refinance as a way to consolidate your student debt and potentially lower your interest rate.
What is loan refinancing?
Refinancing is the term used for paying off your existing student loans (private or federal) by taking out a new loan with a new private lender. A lot of students refinance their education loans primarily to make savings on interest by getting a lower interest rate. Another benefit of refinancing is the possibility to reduce your monthly loan payments.
Refinancing is a simple and convenient way to substitute several monthly payments with a single and possibly lower payment.
Can I refinance my federal student loans?
Yes, you can, but only with a private lender. Do note that when a federal student loan is refinanced, you lose certain protections associated with the loan, such as income-based repayment, public service loan forgiveness, etc.
Which factors would a private lender consider to determine the interest rate on my refinanced loan?
Borrowers with good credit history are generally offered lower rates and better loan terms. The lender would take into account you credit score as well as your current income, the type of interest rate you have chosen (fixed or variable) and the duration of your loan. Your credit score will also factor in to where you can apply for loans including peer-to-peer sites, credit unions and traditional banks.”
How are the two types of interest rates different?
As the terms indicate, a fixed interest rate will remain unchanged through the life of your loan, while a variable rate will keep fluctuating based on the market—a dip in the market rate will lead to a dip in your interest rate, and vice versa.
I am in undergrad school. Can I refinance my student loans?
Refinancing is only available to existing or past graduate school students who are citizens or permanent residents of the United States.
Should I refinance all of my student loans?
It is usually preferable to pick the loans with the highest interest rates for refinancing. Refinancing a student loan that already has a fairly low interest rate may not be worth the trouble. Additionally, lenders usually have minimum and maximum limits on the amount that you can borrow in a refinanced loan.
Will I need a cosigner when refinancing?
Refinancing offers are driven by your credit history and your present income; therefore it is unlikely that the lender would require a cosigner. However, having a creditworthy cosigner can help you secure a lower interest rate. Additionally, refinancing makes it possible for you to release your existing cosigner from your loan obligations and add a new cosigner.
My parents took out a Parent PLUS federal loan for me. Can I refinance it?
Some private lenders do allow refinancing of Parent PLUS loans by transferring the loan to the child. Certain criteria must be met for this to be possible: the student should have completed undergraduate education, have a good credit report, and have a steady income that meets the lender’s qualifying criteria.
Do private lenders offer any protection for situations such as temporary unemployment or other financial downtime?
Some private lenders do offer protections such as deferring your loan payments until you get a job. Check with the lender what perks they offer with refinanced loans. A better, time-saving alternative would be to compare several personalized refinance offers on an online private student loans marketplace that brings you the most competitive loan offers on a single platform.
What additional perks can I expect from my refinancing lender?
Many lenders today offer attractive incentives, such as discounts tied to auto-debit of your monthly payments, and cashback offers.
If you qualify for refinancing, you can save a substantial amount of money in the overall interest payable on your student loans. The first step before you start hunting for refinancing offers is to check your credit score—your creditworthiness will determine if you will actually be able to get an interest rate lower than your current loan rates. Also check your current finances, terms of the new loan, and the fees associated with refinancing (e.g., origination or processing fee).
Lastly, consider refinancing if it will bring considerable financial savings over the years or if it will give you financial freedom by letting go of a cosigner. Ask the lenders as many questions as you can, so that your refinancing decision is a sound one.
