By Kat Tretina
Kat Tretina is a freelance writer based in Orlando, Florida. Her work has been featured in publications like The Huffington Post, Entrepreneur, and more. She is focused on helping people pay down their debt and boost their income.
If you have student loan debt, you know how painful interest charges can be. High interest rates can cause your loan balance to grow over time, forcing you to repay thousands more than you originally borrowed.
Student loan refinancing 1 is a strategy you can use to manage your debt and save money. In fact, ELFI customers have reported that they see an average savings of $20,936 after refinancing their student loans2.
However, there are questions about student loan refinancing out there that may be preventing you from submitting a loan application. Here are some of the most common questions — and answers — you should know about.
1. Does refinancing student loans cost money?
One of the biggest myths is that refinancing student loans is expensive. And that’s because student loan refinancing is often confused with other forms of refinancing, such as refinancing mortgages. While refinancing a mortgage does involve closing costs, student loan refinancing should not.
Plus, most lenders don’t charge any application or origination fees. And with Education Loan Finance, there are no prepayment penalties, so you’re free to pay off your new loan as soon as you’d like.
2. How long does it take to qualify for student loan refinancing?
Some forms of loans can take months to process, but student loan refinancing is different. You can complete the application in minutes, and you can do everything online. Once you submit your application, the lender will review your information and make a decision. In most cases, you’ll find out whether or not you’re approved in as little as one business day.
If approved, the lender will work to disburse your loan. It can take a few days to a few weeks for that process to be completed, so keep making payments on your current debt until you receive a notification that the loan was disbursed. If you refinance your student loan with ELFI, you’ll have a personal loan advisor who will be your guide throughout the entire process.
3. Is savings from refinancing student loan debt significant?
You may think that student loan refinancing isn’t worth the work because it won’t save enough money for you. But taking just a few minutes to submit a refinancing application can help you save thousands over your loan repayment term.
For example, let’s say you had $30,000 in loans at 7.08% interest — the current rate for federal PLUS Loans. If you repaid your loans over the course of 10 years, your monthly payment would be $350. In total, you’d pay $41,948 by the end of your repayment term; interest charges would add nearly $12,000 to your loan balance.
Use ELFI’s student loan refinance calculator1 to find out how much money you can save by refinancing your debt.
4. Will refinancing student loans affect my credit?
Some people hold off on student loan refinancing because they’re afraid it will damage their credit. However, lenders like ELFI allow you to get a rate quote (prequalify) with just a soft credit inquiry, which doesn’t affect your credit score.
If you find a quote that works for you and submit a refinancing application, the lender will then complete a hard credit inquiry, which can impact your credit. However, the effect is usually minimal. According to myFICO — the organization behind the FICO credit score — one hard credit inquiry will typically take less than five points off your FICO credit score.
5. Is refinancing federal student loans a good idea?
If you have federal student loans, you may have heard that refinancing your debt isn’t a good idea. However, that’s not the case for everyone.
When you refinance your loans, you will lose out on federal benefits like income-driven repayment plans and loan forgiveness. But those perks are only valuable if you’d actually use them. If you make too much money or don’t work in a qualifying field, you wouldn’t be able to take advantage of those programs.
If you can afford your monthly payments and feel secure in your job, refinancing your federal student loans can help you save money and become debt-free sooner.
6. Do only federal student loans have forbearance or deferment programs?
A big perk of the federal loans is the ability to enter into forbearance or deferment. With these options, you can postpone making payments on your debt without entering into default.
Few refinancing lenders offer forbearance benefits. However, there are some exceptions. With ELFI, you may be able to postpone your payments for up to 12 months if you’re facing a financial hardship, such as a job loss or medical emergency. That period can give you time to get back on your feet before you have to worry about making payments.
7. Can I refinance student loans more than once?
If you already refinanced your loans once, you may think you’re out of luck, and you’re stuck with your current interest rate. However, there’s no limit to how many times you can refinance your loans.
If your credit score improves or you get a raise at work, you can refinance your loans again to see if you qualify for a lower interest rate. As you progress in your career and your finances stabilize, refinancing multiple times can help you pay off your debt even faster.
Refinancing your student loans
While student loan refinancing can be an effective way to manage your debt, there are a lot of myths and misinformation out there. Now that these common questions have been answered, you can move forward with the refinancing process with confidence.
Use ELFI’s Find My Rate tool to get a rate quote without affecting your credit score1.
1 Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.
2 Average 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 several factors.
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