6 Actions to Take Before Applying for Student Loan RefinancingJuly 12, 2016
Updated December 12, 2019
Student loan refinancing options are growing at a historic pace, offering more opportunities to lower monthly payments and interest rates and reduce the cost of education debt. With an increasing desire to find a smarter way to pay off student loans, borrowers will undoubtedly embark upon the process with different needs and goals. Whether you are just now beginning to think about student loan refinancing, have done some research, or are ready to contact student loan refinancing companies, being prepared at the outset will go a long way towards streamlining the application process.
As education loan repayment options increase, choosing the right program can become somewhat daunting, so we have outlined the basics for you. Improve the likelihood of an efficient process — and approval with better rates and terms— by addressing these six items BEFORE applying:
1. Do the Math
When comparing refinancing options, the first step involves gathering and making yourself aware of the interest rates and monthly payment amounts of your current loans. This is an important first step in the process, as it will help determine how much money you could save per month and over the life of your loan(s), especially if your loan were to be refinanced through a private lender, such as Education Loan Finance. Review the current interest rates on all of your education loans before refinancing, and consider whether excluding loans that already have low-interest rates, or consolidating your entire student loan debt into one loan with one monthly payment, makes sense for you. Fortunately, Education Loan Finance offers a convenient education loan payment estimator that easily calculates this information for each of its repayment options, allowing you to choose which loan term best meets your budget goals.
2. Ensure Eligibility
Some lenders only work with borrowers who have a minimum amount of debt, attended a certain school, hold a particular degree, work within a specific career field, or reside in a particular state. Before you invest time preparing an application, review each lender’s requirements to ensure that you have met the basic criteria. For instance, to be eligible to refinance a student loan with Education Loan Finance, you must have:
- A minimum of $15,000 in student loan debt.
- Earned a bachelor’s degree or higher from an approved post-secondary institution.
- A debt-to-income ratio that indicates a borrower’s capacity to repay the loan.
- U.S. citizenship or permanent resident status at the age of majority or older.
3. Review Credit Scores
Before applying, you should access (and save) your credit report to ensure that there are no errors or issues that may negatively impact your score. Doing this will help eliminate any surprises during the application process, but most importantly, a credit score review will help you determine if you need to start establishing better credit. Higher credit scores increase the likelihood of getting approved and receiving lower interest rates because lenders view borrowers with higher scores as a better investment. Under federal law, you are entitled to one free copy of your credit report from each of the three nationwide consumer reporting agencies every 12 months. For more information, visit www.annualcreditreport.com.
In order to review your credit score effectively, you probably need to know what credit score is considered good, as well as the typical credit score requirements from lenders. Remember, the better your credit score, the lower your new interest rate will likely be when refinancing your student loans.
4. Pay Down Other Debt
Reducing your debt-to-income ratio is a key element in receiving better interest rates and loan terms. For many individuals, simply reducing credit card debt before applying for student loan refinancing is a great way to improve credit scores and credit utilization possibilities. In addition, lowering your debt-to-income ratio may help you receive better interest rates and terms on a refinanced student loan. When lenders review your credit report, they are not only reviewing your repayment habits but also how much you owe and what types of debt you have accumulated. Be sure to pay down any credit card debt — and any other non-student loan debt — as much as practical.
5. Gather Financial Documents
A fundamental part of the loan application process involves proving that you, the borrower, are able to repay your loans and hold true to your financial commitments. To do so, gather all pertinent information that proves payment history. While different lenders will ask for different documents, most loan applicants will have to provide some or all of the following documents:
- Recent Pay Stub or proof of employment from within the last 30 days.
- W-2 Form from the most recent tax year.
- Tax Returns only if self-employed.
- Government-issued Identification
- Account Information because all borrowers are required to make payments electronically. If making payments with auto debit, you must submit billing account for setup.
- Current Billing Statement or Payoff Letter for each eligible loan.
- Student loan servicer’s information on current loans.
6. Understand Federal Loan Details
Federal student loans offer certain options and benefits that many private lenders do not, such as deferments or forbearances that allow the borrower to temporarily reduce or defer payments if they enroll in school or experience financial hardship. When these federal loans are refinanced through a private lender, the borrower may forfeit some special benefits associated with them and should carefully weigh the pros and cons of each program before applying. Individuals who maintain established careers, with reliable income for the foreseeable future, are great candidates for private loan refinancing. On the other hand, someone intending to pursue a full-time, advanced degree may want to postpone refinancing while still in school in order to preserve the benefits of the Federal Loan Program, such as income-based repayment.
The Next Step
Borrowers who have worked through the above steps are one step closer to an easier, smarter financial path– as well as a smoother application process! If you are now ready to apply for student loan refinancing, we want you to know we are here to help. The education loan experts at Education Loan Finance aim to be the leaders in educational financing support for financially-responsible college graduates, and we offer comprehensive options for consolidating and refinancing student loans. Best of all, our application process is streamlined, simple, and ready to help you with your financial future.*
*Subject to credit approval. Terms and conditions apply.
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