6 Things to Consider Before Refinancing Student LoansJanuary 3, 2018
Updated March 2, 2020
If you’re like most grads who are paying down their student loan debt (roughly 62%), you may be hesitant to step into the brave new world of refinancing. Maybe you’ve grown comfortable with the current orbit of your old loan(s). Or maybe you want to think about your student loan debt as little as possible and think that by closing your eyes and making your monthly payments, your debt will simply vanish. And it will… eventually.
But you’re smarter than that, and hesitation could cost you thousands. But as you weigh your fears against the potential benefits of refinancing, the least you can do is be as informed as possible so you have hard evidence to consider while you count down to launch.
Let’s take a closer look at what refinancing your student loans might look like:
To Consolidate or To Refinance?
Some graduates confuse loan consolidation with refinancing individual loans and immediately shy away from the conversation altogether. The point of consolidation is to boil down all your various loans and interest rates into one, easy-to-remember monthly payment. The point of refinancing is to get a lower interest rate on one of your existing loans. You have several choices to make with your new loans. You could arrange for smaller monthly payments by extending the life of the loan. Or you could opt for similar monthly payments, but more of your hard-earned cash goes to paying down the principal of the loan.
Fixed Rate vs. Variable Rate
Just in case you missed it on your first go-around, there are two types of interest rates – fixed and variable. Fixed rates stay the same over the life of the loan, while variable rates change depending on several variables like the federal funds rate. You’ll have to decide what’s more important – the possibility of getting the lowest interest rates or the certainty of knowing exactly how much you’ll pay every month over the life of your loan. Before choosing a variable rate loan, consider whether you can afford to make the payments if the interest rates spike for months at a time.
The Good News
Refinancing is especially beneficial for recent graduates, as they’re often struggling to keep up with student loan payments and other bills on low starting salaries. By refinancing, you can pay less in interest or lower your monthly payments. Consolidating multiple student loans into one could get you a lower single rate than if you added up the rates from all your loans. Decreasing your loans by even one percent could shave hundreds off your monthly payment, which means tens of thousands over the life of your loan. Our customers have reported that they are saving an average of $309 every month and should see an average of $20,936 in total savings after refinancing their student loans with Education Loan Finance.1 See what you could save by using our student loan refinance calculator.*
The Not-So-Good News
Unfortunately, refinancing is not available to everyone. Most creditors want to see a credit score of 700 or higher before they’re willing to lend you money. They’ll also insist that you be gainfully employed and have a good record of on-time student loan payments. Before you apply to refinance, check your credit report for any dings. If your credit score is too low, explore the many ways you can work to repair it. And if your first attempt to refinance is rejected, don’t be afraid to re-apply.
Many lenders charge origination fees, a charge for just opening the loan, which can often cost around 1% of the total loan amount! As if that’s not enough to deter you from refinancing with them, many lenders punish you with an extra fee if you pay off your loan early. That’s because the longer you have the loan with them the more money they make. Reputable lenders such as Education Loan Finance can help empower you to borrow smart, save smarter, and pay off your student loan debt as quickly as possible, which is most certainly in your best interest. For that reason, we don’t charge application and origination fees, nor will we ever penalize you for paying off your student loan debt early.*
Get A Co-signer
We know it can be difficult to ask family members for financial help, but when it comes to refinancing your student loan debt, having a qualified co-signer might make the difference between “approve” and “not approve.” Ask someone close to you to act as a co-signer – someone with a strong credit profile who’s willing to be equally responsible with you for your student loan.
Explore Your Options Before Refinancing Your Student Loans
The prospect of refinancing or consolidating your student loans may cause some graduates to hesitate. But do yourself a favor and, at the very least, explore your options. You may be surprised at how much money you could save with a new loan. Whether you are ready to step into refinancing or simply want to get more information, Education Loan Finance is here to empower you. It’s a big, bright world out there, and we want you to feel confident that no matter what you do is the right step towards fulfilling your financial dreams.
1Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 8/16/2016 and 10/25/2018. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.
*Subject to credit approval. Terms and conditions apply.
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