Can you think of any time, ever, that you’ve had the opportunity to save money and turned it down? Suppose you’re in a retail store, looking at a leather jacket you’ve been saving up for. The sales clerk approaches you and says, “You can have that jacket for 20% off simply by applying for a discount.”
Are you going to say, “No thanks, I’d rather pay full price?” Of course not! You’re going to take the discount and laugh all the way to the bank. Anybody would.
This is why it’s so surprising that millions of college grads are leaving money on the table. We’re not talking about scholarships you missed out on, either. We’re talking about the chance at a lower student loan payment, as well as reducing overall student loan debt.
Like many college grads, you likely had to take out student loans in the course of completing an undergrad and/or graduate degree. Now that you’ve graduated and found gainful employment, you’re diligently paying down loans to maintain a stellar credit rating.
Are you paying more than you have to? If you have yet to consider student loan refinancing, there’s a chance you could be leaving money on the table. By refinancing, you could lower student loan interest rates, monthly payments and possibly overall debt. Doesn’t it seem worth looking into, at the very least?
It’s not difficult to find out if you’re eligible for student loan refinancing and whether or not it’s right for you. It starts simply enough by speaking with lenders. Here are a few things you need to know going into the process.
Am I Eligible?
Many people seem to suffer from the misconception that in order to refinance a loan, they have to first be in serious financial straits. This is not the case. In fact, people who are doing well financially tend to enjoy greater eligibility and stand to benefit the most from student loan refinancing (or other loan refinancing).
Just because you aren’t necessarily desperate for a lower student loan payment doesn’t mean you can’t take advantage of savings and work smarter instead of harder. It’s a question of setting yourself up for the most profitable and advantageous financial situation, now and in the future.
Finding out if you’re eligible requires little more than applying. Qualifications for refinancing student loan debt vary by lender, but the main thing you need to prove is an ability (and willingness) to repay any loan you’re given. Other possible qualifying factors could include:
- Good credit score
- Solid history of repayment to date
- Steady income
- Debt-to-income ratio
In other words, being well-situated financially can greatly increase your odds of getting approved for student loan refinancing, as well as getting a low interest rate. Other considerations on your part may include carrying loans with variable interest rates (which are likely to go up in coming years) or carrying already high interest rates that could be reduced through consolidation and refinancing.
How Does Student Loan Refinancing Work?
The process of refinancing begins with filling out an application to find out if you’re eligible to participate. This generally includes providing information about your financial situation, including the number of loans you wish to consolidate/refinance. You may also be asked to provide other information such as your income and other debts (i.e., credit card debt, auto or mortgage loans, etc.).
You will also have to agree to a credit check, which will reveal your credit score and credit history, including current debts and whether or not you have any black marks over the last three to five years (late or missed payments, defaults, bankruptcies, etc.). If everything looks good, you may receive an offer for refinancing or consolidating loans and potentially lower student loan interest rates and debt in the process.
From there you will have to consider your options. Accepting a new loan means figuring out which terms are going to provide you with the greatest overall benefit. There are several questions you should ask.
- Can I reduce monthly payments?
- Can I reduce overall debt?
- Can I replace variable rates with a single, fixed-rate loan?
- Will I save money with a lower interest rate even if the term is longer?
- Are comparable or shorter terms for repayment an option?
- Will I reduce my debt-to-income ratio?
- Are there fees attached and how will they impact overall savings?
Refinancing your student loans ultimately has to make sense for you, but determining your options begins with finding out if you’re eligible to consolidate and refinance.
Benefits of Refinancing
There is no shortage of reasons to consider refinancing your student loans, especially if you’re already doing well financially. When you refinance, you could enjoy:
- The convenience of a single, consolidated loan payment
- One rate (as opposed to a combination of rates over multiple loans)
- Lower monthly payments
- Reduced overall debt
- Improved debt-to-income ratio
If it turns out you’re one of the millions of people that are currently eligible to refinance student loans but have yet to do so, you may be able to do a lot more than lower student loan interest rates. You may be able to take advantage of a major opportunity.
Even if you don’t necessarily pay attention to the economy, you probably understand that it has improved significantly since the lows of the Great Recession. The natural byproduct of this recovery is that the Federal Reserve has recently increased the federal funds (interest) rate, which is the benchmark for other interest rates across the nation, including loans of every type.
By refinancing now, you can potentially lock in a lower student loan payment that might not be available a few months from now. You may also be able to consolidate loans, reduce monthly payments and, depending on the term you choose, reduce long-term debt. Now is the time to find out if you are eligible for refinancing so you can say yes to significant savings.