If you have student loans and you think the interest rate you’re paying is too high, you might be right. If this sounds like you, you can qualify for refinancing to get a lower interest rate.
Refinancing is an excellent strategy that can help you take control of your student loan debt. If you’re on the fence about refinancing, here’s a simple step-by-step guide to learn how to refinance student loans.
What does refinancing student loans do?
Refinancing is when a lender pays off your existing loans, allowing you to get a single new loan at a potentially lower interest rate. This process will also combine all of the loans you refinance into one convenient payment.
If you feel like you’re struggling to pay off your loans and not making any headway, it might be that your interest rates are too high. Lowering your interest rate means that more of your money can go toward paying off your principal debt instead of just your interest, and refinancing can potentially help you do that.
Refinancing doesn’t guarantee that you’ll be able to lower your monthly payments, but you might be able to pay off your total debt sooner.
Can you refinance private student loans and federal student loans?
You can refinance private student loans as well as federal student loans. However, if you choose to refinance federal loans, you will lose certain borrower benefits that come only with federal loans, like the opportunity to qualify for income-driven repayment plans like Revised Pay As You Earn (REPAYE).
What is the student loan refinancing process?
For many borrowers, student loan refinancing is still a relatively new process. If you’re wondering what it actually means when you refinance your loan, and how you go about refinancing your loans, look no further.
Here are three simple steps that will help you learn how to refinance student loans.
Step 1. Compare all your options
Time: ~2 minutes to fill out Credible’s form to find and compare multiple refinancing options
Before you refinance your loans, you should do your research. There are a number of lenders out there who offer refinancing as an option, and each of them will offer you a variety of rate and repayment options. So it’s a good idea to compare as many offers as you can without suffering multiple hits to your credit score.
You can use Credible.com to see options you can qualify for by entering some basic information — like your name, school and degree type, total student loan debt, income and monthly housing payment — without being under any obligation to commit.
Depending on the which lender eligibility requirements you meet, you’ll see all the offers you qualify for, along with a range of repayment terms and interest rates.
Generally speaking, in order to get the best refinancing offers you should:
- Be in good credit standing and have a good credit score.
- Have a long term and stable employment work experience — this shows financial stability and will improve your chances of qualifying for a better offer.
- Consider adding a cosigner — adding a cosigner with an established credit history can help you qualify for an offer you might not have qualified for by yourself.
Step 2. Choose your lender and loan product
Time: ~2 minutes to select a lender and a loan after receiving rates on Credible
Hopefully, you’ll find that you have a variety of options to choose from. But no two offers are alike, so how do you choose?
Your first instinct might be to just go with the lender that offers you the lowest interest rate. But there are a number of factors that you should consider before making your decision:
- Interest rate: Is the lender you’re considering offering a competitive rate? What will your total savings be with the offer you’re considering?
- Repayment term: If you’re looking to lower your monthly payments, a longer term can help you do so by stretching out your loan term. But remember that increasing your repayment term may mean that you’re paying more in accrued interest overall. A shorter repayment term, on the other hand, might increase your monthly payments. But it could also help you get a lower interest rate, and pay off your debt sooner.
- Fixed vs variable interest rates: A variable interest rate might offer a lower interest rate in the short term, while a fixed rate will offer predictability and certainty of monthly payments and interest rate over time.
- Additional benefits: Does the lender offer forbearance or deferment options? What other benefits can you expect?
- Process: How long does the application take and how easy it is to apply? What kind of customer service do they offer?
Credible can make the process of finding multiple refinancing offers easier than ever. In just two minutes, you can compare multiple personalized offers and use a handy student loan refinancing calculator to determine just how much refinancing can save you.
Step 3. Apply and await approval
Time: ~1-3 weeks to upload required documents as per the lender’s requirements and to await approval
While you can compare multiple offers without impacting your credit, when you choose an offer and submit the full application, you will need to agree to undergo a hard credit pull. You’ll probably also need some additional documents, such as your proof of income, identity proof, and other official documents relating to your student loans.
Remember that submitting an application does not mean you’re guaranteed to be approved! While you’re waiting to hear back from the lender you applied to, it’s important that you keep making your student loan payments on all your existing loans.
Once you’re approved for refinancing by your lender, you’ll often have the option of setting up automatic withdrawals to ensure that you never miss a payment — some lenders will also offer you a 0.25 percent discount if you set these up.
Establishing a budget and keeping track of your income and expenses is an easy way to make sure that you’re able to make consistent, on-time payments.