Student loan refinancing basics
Refinancing student loan or private student loan consolidation means that multiple loans that student has ( private, federal or combination of the two) will be replaced by the new one.
If your new loan has a lower interest rate, you will definitely save a money.
For the process of refinancing your financial history is extremely important. When you refinance your credit score, income, job history, and educational background will dictate your new interest rate.
Usually, you need a credit score at least in the high 600s to qualify. Rates range should be from around 2% to more than 9%.
Before you start refinancing process you must be aware that with refinancing you will losing consumer protections specific to federal loans. For example: If you work for the government or a nonprofit you will lose the possibility to get your loans forgiven. Or you can lose an option to tie payments to income.
How to refinance student loans
Refinancing is a process where private companies offer the option to consolidate multiple student loans into one. Unlike the federal government, private companies can consolidate both federal and private loans.
Based on your financial history, you will receive a lower interest rate. Not to mention, easier payment options with a single payment.
Consider refinancing if you have:
- Made at least a few on-time student loan payments after leaving school
- Good or excellent credit, generally defined as credit scores of 690 or higher
- A stable job
- Access to a co-signer with those characteristics, if that doesn’t sound like you
1. Check rates with multiple lenders
To get the most convenient deal for you, you need to check rates through multiple lenders.
You should always window shop! Browse and cheek multiple offers, without any risk to your credit score. Don’t worry, you don’t have to commit to one lender or offer. Because you’re under no obligation to choose one unless it would benefit you.
You have a lot of options to choose your lender. There are a variety of banks, online lenders, and credit unions that refinance your debt. You can check your rates with these lenders in just a couple of minutes. Just visiting the lender’s website and enter some basic information. Most lenders ask for the following:
- Degree and university
- Total student loan debt
- Monthly housing payment
Some lenders might have some different requirements, but the gist will be the same. It’s a good idea to create an account so you can revisit your information later.
After you enter, all necessary data, the lender will instantly run a soft credit check. Again, this check won’t impact your credit score at all.
You’ll see a range of offers if your income and credit score meets the lender’s eligibility requirements. Most lenders offer loans with five, seven, 10, 15, and 20-year repayment terms.
In addition to the repayment terms, you will see a variable and fixed interest rates. ( Variable rates fluctuate with the market, while fixed rates stay the same over the life of your loan.) Usually, variable rates tend to start lower than fixed rates, but because they depend on the market conditions, they could increase over time.
Experts adIn addition to the repayment terms, you will see a variable and fixed interest rates. ( Variable rates fluctuate with the market, while fixed rates stay the same over the life of your loan.) Usually, variable rates tend to start lower than fixed rates, but because they depend on the market conditions, they could increase over time.
You’ll also see variable and fixed interest rates. Variable rates fluctuate and align with the market (because they depend on it). Fixed rates stay the same over the life of your loan. Variable rates are generally lower than fixed at the beginning of the loan disbursement, but they could increase over time.
Generally, it’s safer to choose a variable rate if you can pay off your loan fast. If you have a longer repayment term, going with a variable rate carries more risk.
Step 2: Choose a lender and your loan terms
After you find some good offers, it’s time to choose a lender and a loan. Usually, borrowers go with the lender that offers them the lowest interest rate. Probably because of sounds logical…But be smart and do the math. Use a student loan refinancing calculator to see how much you’ll save with a new interest rate.
Also, a good strategy is to compare loan terms to help you choose a five-year, 10-year, or longer repayment term.
If you choose a longer repayment term you will get lower monthly payments. But keep in mind that this also means more accrued interest over the life of your loan.
A longer repayment term will allow you to free up more of your monthly income. On the other side, a shorter term will save you money on interest and help you get out of debt fast. So, if you can manage higher payments choose a short term.
One of the factors that can affect your choice is a customer service. Online reviews offer good insight into how well a company treats its customers. If this is a significant factor for you, explore and read the recommendations before you select a lender
Step 3: Prepare your documents and fill out the application
After you choose your new interest rate you need to submit a full application. During the application process, you will need to submit documents
Before locking in your new interest rate, you need to submit a full such as loan statements and proof of income.
This step also means that you agree with a hard credit check.
Most lenders require the following documents and information:
- Proof of citizenship (Social Security number or government ID number)
- Valid ID number (driver’s license or passport)
- Proof of income (pay stubs or a job offer letter)
- Official statements for all your federal and private loans
In case that you’re applying with a consigner, you will need to provide all necessary information related to that person. All supporting documentation you can upload any to your online account with the lender.
You can expect notification from the lender if anything is missing in your documentation. On the other hand, you are free to call or chat with customer service if you have any questions.
If you’re not sure where to locate full statements, feel free to call your current loan servicers Statements needs to show your original balance, date of disbursement, and a full history of repayment.
Step 4: Don’t stop paying your loans during the approval time
It’s important that you don’t stop paying your loans as you wait for approval. Even though you can browse initial offers in an instant, you might have to wait a few weeks for full approval of a refinancing application. The process usually takes two to three weeks before you’re up and running.
So during this time, it’s important that you don’t stop paying your current loans. When you get the green light from your new lender, you can stop paying your current services.
When your application is approved, you should set up automatic withdrawals from your bank account. This will ensure that you don’t miss a payment. One more benefits for autopay is that many lenders offer an additional 0.25% discount on your interest rate.
Conclusion: Refinancing is a strategic way to get rid of student loan debt
If a student loan refinancing is a good option for you, you can start now all process, and in just two or three weeks you could have a refinanced student loan.
Now that you know how all works, it will only take a few minutes to check your rates and compare lenders.
After careful study of options and choosing an offer, you can submit a full application. Wait for your approval and when you get a green light just say goodbye to old loan servicers.
Plus, your new interest rate could save you lots of money over the life of your loans. As long as you’ve thought through all the pros and cons of refinancing, it can be a smart way to get out of student debt faster.