Depending on when you took out your student loans and their type, you could be stuck with sky-high rates.
For example, federal Grad PLUS Loans are currently at 7.05%. At such a high rate, you could end up paying thousands in interest charges on top of the loan principal.
Refinancing your student loans can help you save money, but you should think twice before submitting a full loan application with multiple lenders. According to myFICO, the organization behind the FICO credit score, each hard credit inquiry can drop your credit score by up to five points. Every inquiry can cause your score to drop, making it more difficult to qualify for competitive rates on loans or credit cards.
Submitting several loan applications isn’t wise, but should you prequalify with multiple student loan refinancing lenders? Absolutely! By rate shopping with just a soft credit check, you can ensure you get the best deal.
How Student Loan Refinancing Works
With student loan refinancing, you apply for a loan with a lender like Education Loan Finance for the amount of existing education debt you have, including federal and private student loans. The new loan has completely different terms than the old debt, including the interest rate and term length, and you use it to pay off the other loans. Moving forward, you have just one loan to manage with only one easy monthly payment.
What’s the advantage? With good credit — or with a parent, relative, or friend with good credit who acts as a cosigner — you can qualify for a loan with a lower interest rate. Over the course of your loan repayment, you can save a substantial amount of money by refinancing your debt.
For example, say you graduated from graduate school with $15,000 in PLUS Loans at 7.05% interest. If you made the minimum payments on a 10-year repayment term, you’d pay about $5,946 in interest charges.
If you refinanced your loans and were willing to shorten the loan term to seven years, you could qualify for a 5.5% interest rate. You’d have a slightly higher monthly payment, but you’d be debt-free three years earlier. And, you’d pay about $3,106 in interest charges. By refinancing your loans, you’d save over $2,800. That’s a significant amount of savings you could put toward other goals, like building an emergency fund, buying a home, or starting a retirement nest egg.
| Original Loan | Refinanced Loan | |
| Balance | $15,000 | $15,000 |
| Interest Rate | 7.05% | 5.5% |
| Loan Term | 10 Years | 7 Years |
| Monthly Payment | $175 | $216 |
| Total Interest Paid | $5,945.94 | $3,106.25 |
| Total Repaid | $20,945.94 | $18,106.25 |
| Total Savings | Not Applicable | $2,839.69 |
Use ELFI’s student loan refinance calculator to explore how much you could save.
What Is Loan Prequalification?
With private loans, lenders decide whether or not you qualify for a loan — and determine your interest rate — based on your credit, income, and other factors.
Lenders often list a range of interest rates on their websites. While the lowest rates are tempting, you may not qualify for the lowest advertised rates. The lender’s advertised lowest rates aren’t an indication of what rates you’ll actually get.
Only a select number of borrowers will qualify for the best terms. The lowest interest rates are typically reserved for candidates with the highest credit scores who opt for the shortest loan terms.
To give you a real idea of what rate to expect, some student loan refinancing lenders — like ELFI — offer prequalification tools. By entering basic information about yourself, you can get a rate quote without undergoing a hard credit inquiry. You can see what rates and loan terms you’d qualify for before submitting a full loan application.
Is It Worth Prequalifying With Multiple Student Loan Refinancing Lenders?
When you refinance student loans, rates and terms can vary widely from lender to lender. Some things to keep in mind when shopping around include:
- Interest Rates: Your interest rate will have the biggest impact on your total repayment. When rate shopping, pay attention to the total APR to see what you’ll repay over the life of your loan.
- Rate Type: While some lenders only offer fixed interest rates, which stay the same for the entire repayment period, other lenders also offer variable-rate loans. Variable interest rates often start off very low but can fluctuate over time. For instance, ELFI has both fixed and variable-rate loans.
- Loan term length: The shorter the loan length, the lower your interest rate. However, a shorter loan term also means a higher monthly payment. Depending on the lender, your loan term could range from five to 20 years.
- Hardship Policies: Not all lenders offer forbearance, so double-check the lender’s economic hardship policies. With Education Loan Finance, you may be eligible for up to 12 months of forbearance if you lose your job or face another financial emergency.
- Customer Service: The quality of customer support is important as you make payments and have questions. ELFI has an award-winning customer service team and a 9 rating on TrustPilot.
There’s no downside to shopping around. With loan prequalification, there’s no impact on your credit, so you can get several rate quotes and find the best rates and loan terms for your situation.
Use ELFI’s Find My Rate tool to get personalized rates without impacting your credit score.
