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Student Loan Refinancing

Student Loan Refinancing vs. Consolidation

September 16, 2016
Updated September 15, 2020

If you’re looking into student loan repayment options, you’ve likely heard the terms “student loan refinancing” and “student loan consolidation.” While often used interchangeably, these are two different repayment structures that offer varying benefits. Read on to learn about each of these processes, as well as which one might be right for you. 

Consolidation means compiling several loans into one. While it may increase your interest rate, federal student loan consolidation is a viable option if you want to simplify your repayment schedule without losing federal loan benefits. This type of consolidation can also make you eligible for some federal benefits, like Income-Driven Repayment (IDR) plans.

Student loan refinancing, on the other hand, is designed to save money by lowering your interest rate. This is a great option for borrowers with significant private student loan debt because you can combine your private and federal student loans into one monthly payment at a lower interest rate. While you will lose any federal loan benefits, if your primary objective is to save money in the long run, this may be the option you’re looking for.

 

Federal Student Loan Consolidation

Federal or Direct Loan Consolidation is all about simplicity. Regardless of your income or credit history, you can combine all your federally-funded subsidized or unsubsidized student loans into one monthly payment.

The benefits of consolidating your federal student loans include:

  • Simplifying your payment schedule
  • Exchanging multiple variable interest rates for one fixed interest rate
  • Extending your student loan repayment term
  • Maintaining federal student loan benefits including deferments, grace periods, and federal student loan forbearance

Opting for a Direct Consolidation Loan may also make you eligible for some government programs or Public Service Loan Forgiveness opportunities, including:

  • REPAYE (Repay-as-You-Earn)
  • PAYE (Pay-as-You-Earn)
  • IBR (Income-Based Repayment)
  • ICR (Income-Contingent Repayment)

Consolidation means you can say ‘goodbye’ to managing several variable interest rates. It doesn’t, however, guarantee you a lower fixed rate. Your new interest rate will equal the weighted average of all your previous rates rounded up to the nearest 1/8th percent.

Direct Loan Consolidation also means you’ll have the opportunity to change your student loan repayment term. With options from 10 to 30 years, you can choose to repay your loans quickly to cut back on interest or to extend your term for lower monthly payments.

If you’re considering federal student loan consolidation, choose your timeline wisely. You can only consolidate your federal loans once unless you add additional loans later.

Many types of federal student loans can be consolidated into a Direct Consolidation loan, including Direct Subsidized Loans, Direct Unsubsidized Loans, Parent PLUS Loans and more. To qualify for federal student loans you must:

  • Leave school, graduate, or become a part-time student
  • Have the loan types listed here to qualify
  • Be in repayment or in the grace period of your loans

 

Private Student Loan Consolidation

Private student loan consolidation is synonymous with refinancing. It’s designed to reward fiscally-responsible borrowers with competitive interest rates and payment options that federal consolidation doesn’t offer.

Private student loan consolidation means letting go of federal benefits. These include Income-Driven Repayment plans, Private Student Loan Forgiveness (PSLF), deferments and forbearances. There are many factors to consider when deciding between PSLF vs Refinancing.

Although not guaranteed, reputable private lenders are invested in their clients’ success and offer support services to help keep their borrowers in good standing during unexpected financial hardship. ELFI pairs borrowers with expert Personal Student Loan advisors to provide a direct point of contact throughout the repayment process.

 

Private Student Loan Refinancing

Similar to Direct Loan Consolidation, refinancing student loans involves combining multiple student loans into one loan with one monthly payment. However, unlike Direct Loan Consolidation, this option is only offered by private lenders and allows the consolidation of both federal and private student loans should you wish to do so. 

Private student loan refinancing offers several unique benefits:

  • Lowered interest rates, with your choice of fixed or variable rates
  • The chance to extend or shorten your loan repayment term
  • A simplified payment schedule

Student loan refinancing benefits include the ability to change your repayment term. ELFI, for example, offers repayment terms of 5 to 20 years. With a longer repayment term, your monthly payments will be lower, but you’ll pay more interest over the life of the loan. A shorter repayment term means higher monthly loan payments, but fewer of them.

 

Additionally, interest rates are calculated based on the borrower’s credit history and overall financial health, as well as current financial market conditions, rather than the weighted average of the included loans. This means, with a good credit score and payment history, you’re likely to improve your interest rate.

Before considering refinancing your student loan debt you want to make sure you have a steady and favorable income, a good credit score and a good debt to income ratio. ELFI’s eligibility requirements also include:

  • Proof of U.S. citizen or permanent residence
  • Documentation proving age of majority
  • Minimum loan amount of $15,000
  • Minimum income of $35,000
  • Minimum credit score of 680
  • Minimum credit history of 36 months
  • Bachelor’s degree or higher
  • Degree from an approved post-secondary institution

If credit score and financial history are in good shape, refinancing could be a great way for you to lower your interest rate.

 

When to Consolidate Student Loans

Consolidating and refinancing student loans both offer several unique benefits. If you’re having a hard time deciding which is right for you, here are a few circumstances in which you should consider Direct Loan Consolidation:

  • If you hold multiple federal student loans
  • If you’re using or plan to use an Income-Driven Repayment plan
  • If you’re eligible for Public Service Loan Forgiveness
  • If you’d like to extend your repayment term
  • If you want to keep your federal student loan servicer
  • If you’d like to keep your federal benefits including deferment or forbearance

 

When to Refinance Student Loans

If you have a good credit score and would like to lower the interest rate on your loans, student loan refinancing could be right for you. Here are a few other signs of when to refinance student loans:

  • If you have a significant amount of private loans
  • If you want to combine federal and private loans into one payment
  • If you’d like to choose between a fixed and variable interest rate
  • If you’re interested in changing your repayment term
  • If you have a good credit score and want to lower your interest rate
  • If you’d like to refinance a Parent PLUS Loan to your child

 

Can You Refinance Student Loans After Consolidation?

If you’ve already consolidated your student loans but now want to refinance, don’t worry! Even though you’re only eligible for federal consolidation once (unless you refinance to add additional loans), you can refinance your student loans even after consolidation.

Additionally, if you are wondering how many times can you refinance student loans, you can refinance an unlimited number of times, so take the time to research whether refinancing might improve your interest rate or other factors of the loan.

 

Which Is Right For You?

Federal student loan consolidation means simplifying your student loan payments without letting go of your federal benefits. Student loan refinancing, on the other hand, means lowering your monthly interest rate if you have a strong financial track record. Even if you’ve already consolidated your loans, you still have the option to refinance anytime.

Choosing the financial path that is right for you and your budget is paramount. Compare the terms, interest rates and benefits of your current student loans against multiple lenders and decide if switching is worthwhile. 

Then, figure out what you can comfortably pay each month and how long you intend to make payments on the loan (our loan payment calculator helps borrowers choose a loan term that fits different budgets). Finally, take a look at our application process or give us a call at 1-844-601-ELFI.* 

Whether you choose to consolidate federal student loans, refinance a combination of private and federal student loans, or refinance private student loans, our team works as your advocate, steering you in the direction that is right for you and your budget.

 


 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

*Subject to credit approval. Terms and conditions apply.

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person making pros and cons list for refinancing private student loans
2020-09-25
10 Pros and Cons of Refinancing Private Student Loans

This year we have seen record low refinancing rates for student loans. If you have private student loans and have been thinking about whether you should refinance them, we hope this post will help you make a decision. We will run through the essentials and the pros and cons of refinancing your private student loans.  

6 Benefits of Refinancing Private Student Loans

Private student loans are loans borrowed through banks, credit unions or other private lenders and can consist of original private loans or a loan that you already refinanced. When you refinance, there are many benefits you can experience. Here are the pros of refinancing your private student loans:  

1. Obtain a Lower Interest Rate

When you refinance a private loan, you are paying the loan off with the new loan you borrow.  The new loan can have a lower interest rate than the rate you previously had on your old loan. A lower interest rate can lead to thousands of dollars in savings depending on the amount of the loan, your old interest rate and your new rate. A lower rate can help reduce your monthly payment and save you money in interest cost over the loan term.  

2. Make Your Repayment More Manageable

If your monthly payment is becoming difficult to pay, refinancing is a good way to help make your payment more manageable. This can be done by obtaining a lower interest rate, as previously mentioned, that can help lower your payment. You can also lengthen the loan term when you refinance. When you extend the loan term it makes the monthly payment lower, but will increase the amount of interest charges you will pay.  

3. Pay Debt Off Faster

Ready to pay your loan off faster? This can be achieved through refinancing in multiple ways. If you have 10 years remaining on your loan term and
refinance to a 7 year loan term or shorter , you will have a higher payment but will have the loan paid off 3 years earlier. Another way to pay off your loan faster is if you refinance and obtain a lower interest rate, your payment will be lower monthly. But if you continue to pay your old monthly payment or more towards the new loan you will be able to knock out your debt quicker.  

4. Release a Cosigner

When you refinance your private student loan you can use the opportunity to release a cosigner from your previous loan. As long as you have a strong credit history and credit score, along with stable income, you can qualify for the new loan on your own. To qualify for the best interest rates available most lenders look for a credit score at least in the high 700s. At ELFI a minimum credit score of 680 is needed for refinancing.*  

5. Combine Multiple Loans

If you have multiple student loans, refinancing is a great way to simplify your finances. You are able to pay off all the previous loans and focus on paying off just one loan. It’s also easier to keep track of your due date so you never miss a payment. Having only one loan may also help keep you motivated on your debt paying journey instead of seeing multiple student loan debts you have to pay.  

6. Choose a Different Lender

If you are not happy with your current student loan lender, refinancing allows you to change to a different refinancing lender by refinancing with whichever lender is the best fit for you. So if you have questions about your loan but can never seem to get answers from your lender, refinancing can help you fix that. At ELFI we pride ourselves on providing a simple and easy process for refinancing along with award-winning customer service loan advisors.

However, just like there are benefits to refinancing private student loans, there are also some cons to consider.  

1. Lose Benefits with Your Current Lender

If you refinance your student loan with a different lender, you may lose benefits you have with your current lender. Some benefits that lenders may provide are an interest rate deduction for setting up auto-pay for your payment, forbearance options, or career coaching. Before you look to refinance with a different lender, weigh whether a new interest rate from a different lender outweighs any benefits you may be giving up.

2. Get a Higher Interest Rate

If you are refinancing to extend your loan term to make the payment more manageable, you may end up with a higher interest rate then the previous rate you had. This would make refinancing your loan more costly in the long term because of the additional interest you will end up paying. In order to avoid this, make sure to get personalized rate quotes from multiple lenders so you know your options and how it will affect your monthly payment and the total amount of interest you will pay.

3. Raise Monthly Payments

When you refinance you have the ability to choose a new loan term. Selecting a shorter loan term then the amount of time you had left on your loan can increase your monthly payments. Typically refinancing lenders provide loan terms of 5, 7, 10, 15, or 20 years. If you had 8 years remaining on the loan you want to refinance and select a loan term of 7 years you may see an increase in your monthly payment unless you are qualifying for a significantly lower interest rate.

4. May Extend Time to Repay

When selecting your loan term when you refinance, if you choose a longer loan term then the amount of time you had remaining on your loan, you will be stuck paying the debt off longer. However, this can be beneficial if you need to lower your payment to fit within your current budget. You can also combat this issue by paying more than the required monthly payment when you can afford it, to help pay the loan off quicker.

The Bottom Line

Every financial situation is unique so it’s best to determine what is right for your circumstances. When you weigh the pros and cons of refinancing private student loans, you will most likely find it is advantageous for you because of all the different potential benefits.  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
Man refinancing his student loans to a longer term
2020-09-23
Should You Refinance Student Loans to a Longer Term?

If your student loan payments are becoming overwhelming, it could be time to consider refinancing. When you refinance your student loans, you’ll not only have the option of consolidating multiple loans into one monthly payment; you’ll also have the chance to change your student loan repayment term.   When you take out private loans, you have the option of choosing to repay them over a short period of time or a longer period. We’ve compiled the pros and cons of both, as well as some situations in which a longer student loan repayment term might be the right fit for you.  

Is it time to refinance your student loans?

Refinancing your student loans is a great way to lower your interest rate and earn financial freedom more quickly. You can refinance both private and federal loans, and if you’re tracking a multitude of payment dates and timelines, consolidating your loans through refinancing can be a great way to simplify your financial life and work toward becoming debt-free.   You can refinance your loans as many times as you’d like, so even if you’ve already refinanced once, it never hurts to explore new lenders! Now is an especially good time to refinance your student loans, as interest rates have recently dropped as a result of the COVID-19 pandemic. As of September 18, 2020, student loan refinancing rates are as low as 2.39% for variable interest rate loans and 2.79% for fixed interest rate loans.   If you think now is the right time to refinance your student loans but you’re not sure, keep reading for more insights. We’re here to support your journey toward financial freedom and applaud your researching smart money moves!  

Signs it might be time to refinance your student loans:

  • You think you could earn a better interest rate. If interest rates recently dropped or your credit score has gone up, research your options to see if refinancing could be the right choice for you.
  • You have mostly private student loans. If your loans are through private lenders, now could be the time to consider refinancing, as you won’t risk losing any federal benefits.
  • You need more financial flexibility. If your student loan payments are keeping you from accomplishing other financial goals, refinancing could help by lowering your interest rate and extending your student loan repayment term. To learn more about the pros and cons of a long student loan repayment term, read on.
 

What happens when you change your student loan term?

A student loan repayment term calculates how long you have to pay back your loans in full. ELFI, for example, offers varying repayment terms for student loan refinancing.   When you consolidate and refinance your student loans, you’ll have the opportunity to change your student loan repayment term. This is especially useful if you’ve taken out several loans with different amounts and timelines.  

Choosing a longer term for your student loans

Opting for a longer student loan repayment term means you will pay more in interest over time. Each monthly student loan payment, however, will have a lower balance than if you had opted for a short repayment term.   If you're looking to accomplish several financial goals, like saving for a down payment on a house or purchasing a new car, lengthening your student loan repayment term may give you the flexibility you need to work toward those goals. Be advised, however, that if you do opt for a long student loan repayment term, the total amount you’ll pay in interest will go up. At the end of the day, the right student loan repayment term for you depends primarily on your long-term financial goals.

It might be time to refinance your student loans to a longer term if:

  • You want the financial flexibility of a lower monthly student loan payment
  • You’re expecting a drop in income and need to lower your monthly expenses
  • You’re having difficulties keeping up with your current student loan payments
 

What about shortening my student loan repayment term?

If none of the above scenarios apply to you and your most pressing question is “how can I pay off my student loans faster?” then a short student loan repayment term could be right for you.   Unlike a long student loan repayment term, you’ll make larger monthly payments but will pay less in total interest. Opting for a short student loan repayment term is the right choice for borrowers who have the financial flexibility to make larger monthly payments for a short period of time.   Learn more about short student loan repayment terms in our recent blog, “Choosing the Right Student Loan Repayment Term.”  

Refinancing student loans with ELFI

Ready to explore your student loan refinancing options with ELFI? Great! We’re excited to help. In addition to potentially lowering your interest rate and choosing a new student loan repayment term, when you refinance with ELFI, you’ll also work directly with a Personal Loan Advisor who will help provide a seamless, personalized refinancing experience.   Don’t take our word for it. Check out recent customer reviews on Trustpilot! If you’re ready to explore potential interest rates by refinancing with ELFI, check out our Student Loan Refinance Calculator.*  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
Man contemplating which student loans to refinance in 2020
2020-09-10
Which Student Loans Should You Refinance in 2020?

With interest rates favorable to student loan borrowers, right now can be a great time to refinance. But not all loans are created equal. In fact, it may be better to wait to refinance certain types of loans. Keep reading to find out which student loans you should refinance in 2020.    By Caroline Farhat  

Refinancing Rates at All-Time Lows. Should You Refinance?

Refinancing interest rates for student loans are at an all-time low in history. This is due to the Federal Reserve lowering interest rates in response to the COVID-19 pandemic. When the Federal Reserve lowers interest rates, this impacts rates that lenders will use on loans that you borrow. This change affects private student loans with variable interest rates and any new loan that you want to take out, including refinancing rates. This makes it an ideal time to refinance if you have certain loans.      As of September 8, 2020, student loan refinancing rates are as low as 2.39% for a variable interest rate loan and 2.79% for a fixed interest rate loan. If you refinance now you could potentially be saving thousands of dollars over the loan term because you will be able to lock in a low interest rate. This will also save you on your monthly payment.   

Example of Savings When Refinancing

Here is an example of how much can be saved by lowering your interest rate:    If you have $60,000 in student loans and an interest rate of 9% with 10 years remaining on your loan term, your estimated monthly payment would be $760.00. If you took advantage of the low interest rates now and qualified for a fixed rate of 3.76% you could save as much as $159.00 per month and over $19,000 in interest over the remaining 10 years.    To find out your possible savings, use our
Student Loan Refinance Calculator* where you can put in your specific loan numbers to obtain an estimate of the amount of savings for your specific situation.   So now that you see how beneficial it can be to refinance student loans, which ones should you try to refinance in 2020?   

Considerations for Refinancing Federal Student Loans

Federal student loans are currently benefiting from the protections provided by the CARES Act and the subsequent Executive Order signed on August 8, 2020. The benefits provided include: 
  • 0% interest - Right now federal loans are not accruing any interest because of the lowered interest rate. This means the loans are not increasing and can actually be paid off faster if payments are made while the interest rate is 0%.
  • Administrative forbearance - This means no payments are due during forbearance. Payments are set to resume in January 2021. 
  • During the administrative forbearance, payments that you would have made during this time but are not required to make, still count towards forgiveness for loans in the Public Service Loan Forgiveness program. 
  All of these benefits are set through December 31, 2020, making it more ideal to wait until 2021 if you want to refinance any federal student loans. If you have federal loans and were to refinance them now, you would lose these federal benefits. During this time if you have a federal student loan it is best to use the money that you would normally be paying on your loans to save for an emergency fund, pay off other high interest debt, or use it to make a lump sum payment on your loans when payments resume.    

Best Student Loans to Refinance in 2020

The loans that would be best to refinance now in 2020 include:  

Private Student Loans

If you obtained private student loans in the early 2000s you could have an interest rate as high as 9%. Refinancing older student loans would greatly benefit from the much lower interest rates. Even if you have newer student loans with a lower interest rate than 9%, with rates so low you may be able to refinance with a shorter term length and still be able to see savings and cut time off your student loan.    Here is how that could work: with a student loan balance of $60,000 with 18 years remaining at 7% interest you would be paying approximately $489 per month. But if you refinance the loan and qualify for a rate of 4.07% you could save an estimated $43 per month, over $25,000 in interest, and cut your loan term down to 15 years. That’s saving you time and money on your student loans!  

Variable Interest Loans

If you have a variable interest rate loan, you may also be experiencing the benefits of the interest rates being lowered. However, just as rates can be lowered, they can be raised. If you want the security of knowing your rate cannot go up, now would be a good time to lock in a low fixed interest rate.    

Bottom Line

Refinancing is a great way to save money on your loans. Knowing the current student loan environment is helpful to determine the best financial move for you now. With the current CARES Act, refinancing only your private student loans and not your federal student loans may be the most financially savvy move you can make this year.  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.