Failure to Launch: Why Haven’t You Refinanced Your Student Loans Yet?

According to a report from Google Consumer Surveys, which polled 1,001 Americans with student debt, roughly two-thirds of graduates paying down student loans have yet to refinance, despite the fact that about 62% are familiar with prospects for refinancing. More interesting, perhaps, is that there seems to be no consensus on why, with respondents citing various reasons. Some said they intend to refinance at some point while others had no clear reason for their lack of interest.

What, exactly, is holding them back? The average student debt for undergrads who finished school in 2014 is $28,950 in combined federal and private loans. If refinancing has the potential to lower interest rates, monthly payments and/or overall debt, why aren’t they jumping at the chance? As a graduate paying down student loans yourself, you might be struggling with this very issue. If you have yet to refinance, consider that you may have fallen into a couple of common traps that are causing your peers to stall out.

Feels Like the First Time

You’ve taken out loans before, but this time is different in a key way.  Whereas many students have the assistance of their parents when taking out their initial student loans, and there are fairly consistent set terms thanks to limited types of loans (Perkins, Direct, etc.), neither of these conditions may apply when you decide to refinance your loans. Refinancing could be the first opportunity many graduates have to make serious financial decisions on their own as adults. Independence is exciting, but it can also be scary.  It’s no wonder some grads are hesitant to leave their comfort zone (i.e., the loans they already have).

Look at it like your current student loans are your high school sweetheart. You’ve been together a long time so you’re used to his/her habits – the fixed interest rates that prefer to watch TV instead of going out to a movie, the tax-deductible interest payments that make you breakfast in bed once a year on your birthday, and the knowledge that the prepayment penalty will never leave you for a younger partner. Is it really the best relationships for you, though?  Sure, it’s familiar, but don’t you think you could do better?

Refinancing is like getting back into the dating game, and you might find some potential partners that don’t bring the same benefits as your previous, long-term relationship. Then again, you might meet someone like Education Loan Finance that offers a prettier package with lower interest rates and better terms, as well as the long-term commitment you’re looking for. Seeking loan refinancing in this world of internet dating might feel new and overwhelming, but a little research and honesty could lead you to a fulfilling financial match.

What if I’m Not Worthy?

Fear of rejection. It’s something that plagues even the most confident among us from time to time, and it could be what’s holding you back from taking the leap toward refinancing existing student loans. That said, if you’re doing well financially and diligently working to pay down your student loan debt, you’re probably a pretty good candidate for refinancing. Think about it – you were able to take out student loans as a high school graduate, probably with little or no income or credit history.

Now you’re a responsible and gainfully-employed adult. You have a steady income and money to spare each month. By making loan payments on time and in full, you’re building your credit – increasing your score and creating a favorable history that puts the minds of lenders at ease. Steady income and a solid credit score are what lenders want to see, and if you have both, you have little to fear. Naturally, some lenders weight certain criteria more heavily, but even if you’re not the perfect candidate in the eyes of the first lender you approach, it doesn’t mean you’re out of luck.

Even if you get rejected, it’s not a hard no – you can always try again and you’ve probably learned a lot that will lead to success the next time you try to refi. What can you do if a lender turns you down?

• Get the 411 – Why were you rejected? Whether you’re still working toward that top tier credit score, you didn’t realize how your car loan impacted your debt-to-income ratio, or you’re on your way to a promotion and raise that will bump your income, knowing which factors held you up with lenders can give you the data you need to make changes and refi down the road, sooner rather than later.
• Comparison Shop – If you needed avocados for your toast, would you give up when the first grocery store you went to didn’t have them? No. You’d head down the road to Trader Joe’s or Whole Foods. As a consumer, you have many options, and you need to explore them to find the best deals. This applies to seeking refinancing, as well as avocados.
• Get a Leg Up – Asking mom and dad for help is not a desirable proposition, but successful adulting sometimes involves knowing when to bite the bullet and ask for help, especially if it means taking advantage of limited opportunities. Interest rates are on the rise, with the prime going up again this year, to 4.25% in June. If you want to lock in the lowest rate for refinancing, you can’t afford to wait. Having a parent or other family member co-sign so you can get the best rates might be the most responsible thing you can do for your financial future.

The prospect of refinancing student loans may give some graduates pause due to the unfamiliar situation and the fear of rejection, but it’s best approached from the stance of benefits to be gained. If you take the time to research options, choose a preferred lender, and get all your ducks in a row, there’s no reason you can’t take advantage of low rates before they go up again. Overcoming fear is a big part of becoming a responsible adult, and the rewards could be a lot bigger than the risks. Now is the time to see what a lender like Education Loan Finance can do for you.