Student loan refinancing is a great way to potentially save you money and lower your monthly payments. Refinancing is the process of consolidating your existing loan(s) into a new loan with a lower interest rate and a different term.
If you are wondering whether or not you are a good candidate to refinance your loans or what questions you want answers to before filling out a long application, here are some answers to commonly asked questions.
Why should I refinance my student loans?
- To combine multiple federal and private loans into one affordable payment
- To lower the interest rate on current loans
- To get rid of variable rates on current loans
- To remove or add a cosigner to your loans
What are the fees?
You will want to do your research before deciding with whom to refinance your student loans. Different lenders may require an origination fee tacked onto the total balance of your student loans. Most lenders do not charge fees, but if you are looking to compare rates be sure to look at APR rates,as this will reflect any added fees.
Will it hurt my credit?
If you are looking to apply to multiple lenders, FICO considers inquiries in a 30-day period as “rate shopping” and counts them as a single inquiry. This will indeed be a hard pull in or credit. Some lenders offer a soft pull as a preapproval, but will ultimately need a hard pull to finish the process.
Can I refinance federal and private loans together?
Yes, most refinancing lenders can refinance both federal and private loans. This new loan can have a variety of terms ranging from 5 to 25 years with fixed and variable rates. However, you don’t have to consolidate all of your loans, only the ones you want to.
What are my lending options?
The student loan refinancing market has grown over the last several years. Borrowers can choose to refinance through a traditional bank, credit union, or newer alternative lenders such as peer-to-peer lenders. Some lenders work with higher balance borrowers and other focus on graduate students or niche markets.
Will I have to give up federal benefits?
If you currently take part in income-based repayment or another federal income-driven plan these benefits will be lost. Some refinancing lenders offer repayment options such as interest-only payments during the first years of repayment. This can differ from lender to lender, so make sure that check with the lender to see what benefits you can take advantage of. Federal benefits are a great safety net, but they also extend repayment (increases total repayment) and are usually income dependent. Again, you don’t have to refinance your federal loans even if you refinance your private loans.
How about deferment and forbearance?
If you decide to refinance your student loans, some but not all lenders offer deferment options. Some lenders will allow you to defer your loans if you choose to go back to school, however interest will still accrue during this time.
Do I need a cosigner?
You do not need a cosigner to refinance your student loans. Often times this can be beneficial as it regularly leads to the lowest rates offered by lenders. Refinancing can be a way to get your cosigner off your current loans or alternatively add a cosigner that with some lenders can be released in about a years time.
Are there any secondary benefits?
Besides the great savings refinancing can bring, lenders usually offer great incentives for borrowers. This can be through strong auto-debit reductions or cash back rewards. Some lenders offer support for entrepreneurs or help to those who are between jobs.
How do I refinance?
Shop around and check with refinancing lenders to see which lenders you qualify for. Your loan balance, school of attendance, and financial history may limit which lenders you can receive offers for. Make sure that you seek offers all within a 30 day period to make sure that it counts as only one credit pull.
Be sure to check out sites like Credible to compare multiple personalized offers from refinancing lenders by filling out just one simple form.