10 Essential Things to Ask Before Refinancing Your Student Loans

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Refinancing your student loans can be a smart strategy. You can secure a lower interest rate, reduce monthly payments, or otherwise renegotiate the terms of your debt.

But like most money moves, refinancing student loans should be carefully thought out to ensure it’s the best option. Ask these 10 questions as you refinance your student loans to make the best decision.

1. What is my main goal for refinancing student loans?

The first thing you need to decide is what outcome you’re hoping for by refinancing student loans.

There are some great reasons to refinance student loans. You can lock in lower interest rates, reduce monthly payments, or get rid of debt faster.

It’s important to be clear on which benefits are most important to you. Your overall goal will dictate your refinancing decisions and help you choose the loan that will best meet your needs.

This student loan refinance calculator can help you compare refinance terms and see which gets you closest to what you want.

2. What interest rates can I get?

If you want to get a lower interest rate, you need to first figure out what your current rates are. Interest rates on federal student loans can range from just under 4% to over 7%, depending on the type of loan. Private student loan rates can be even higher, averaging around 9% to 12%.

When you refinance your loans, you replace existing student loans with a new one. This gives you a chance to shop for a lower interest rate.

The higher your current interest rate, the more you’ll benefit from refinancing to a lower rate. A lower student loan rate will save you money as it charges less interest and will reduce monthly payments. The best lenders that refinance student loans offer rates starting as low as 1.95%.

3. What are my student loan payoff amounts?

When researching the interest rates on your current loans, you should also note the payoff amount. This is the amount you owe to pay off student loans in full. It’s higher than the current balance because it includes any interest you still owe.

The total payoff amount for all the student loans you hope to combine through refinance will be the balance of your refinanced loan.

If you have higher student loan balances, you might want to choose a longer repayment period to keep monthly payments manageable. With a lower balance, a shorter term could help you save on interest.

Wondering if refinancing is a good idea for you? Answer a few questions below and we’ll help you find the right solution! Otherwise, scroll down to read on.

4. How much can I afford to pay each month?

Whether new student loan payments will be affordable will depend mostly on your income. The more you earn each month, the more you can afford to pay.

Under federal guidelines, affordable monthly payments are equal to 10 percent of your discretionary income.

Take a look at your budget and add up your bare-minimum monthly living costs. Any money left over is discretionary income, which you can decide what to do with. Calculate 10 percent of that amount and you’ll get an idea of the monthly student loan payment you can afford.

Of course, borrowers’ abilities to repay will also depend on their unique circumstances.

The payments you’ve already been making can give you a baseline of what’s affordable for you. If it’s been a struggle to make payments, consider refinancing under terms that will lower the payments and give you more room in your budget.

5. What is my credit score?

When heading into the refinancing process, you need to know what your credit score is and what it means to private lenders.

If you know your credit score, you can see what kind of interest rates and terms you might qualify for. Hopefully, your credit score has improved since you first took out student loans. It’ll be easier to qualify for a refinance and get favorable terms if you have good credit.

You can view your credit score on sites like Mint, Credit Karma, or Credit Sesame.

6. Do I need a cosigner? Is cosigner release an option?

If your income or credit score is too low, your new lender might require a cosigner to insure your student loans in the case of default. Learn more about refinancing with a cosigner here.

Alternatively, you might want to refinance a student loan in order to release a cosigner from your original loan.

Perhaps your parents cosigned a student loan with you when you first entered college, for instance. If you now have a reliable job and a good financial history, it might be a good idea to remove them as a cosigner. Refinancing can allow you to do that.

7. Can I combine both federal and private student loans?

If you’re planning to refinance both federal and private student loans, you’ll want to make sure that’s possible.

There wasn’t always the option to consolidate federal and private student loans together, but some lenders like Laurel Road and SoFi are now refinancing both types of loans bundled together. This can ultimately help you get a lower interest rate to save money.

Check with the private lenders you are interested in to see how they handle consolidating federal student debts with private loans.

8. Will I need federal student loan repayment options in the future?

If you’re looking into refinancing federal student loans funded through the Federal Student Aid office, you should know what you’re giving up. Federal student loans offer many options and protections that won’t be available if you refinance.

If you refinance a federal student loan with a private lender, you could lose out on options like:

  • Income-based repayment plans
  • Loan forgiveness programs
  • Deferment or forbearance under federal rules

You should be confident that you can keep up on payments both now and in the future before giving up these protections.

9. Does this lender offer flexible repayment options?

While refinancing student loans means you’ll lose access to federal repayment plans, your lender might still provide flexible payment options.

Check to see if they have policies that allow you to adjust your payments if you’ve hit a rough financial patch. You should also ask about their policies and willingness to work with borrowers who are struggling to repay.

SoFi, for example, offers community-funded loans that have flexible options including forbearance and alternative payment plans. Many private lenders will also agree to honor your grace period, so even if you refinance right after graduating you’ll still have those first six months payment-free.

10. What type of support and customer service does the lender provide?

At Student Loan Hero, this is the most important question we ask our banking partners.

As student loan borrowers ourselves, we have worked with banks that provide terrible customer service. A lender like that will add to your student loan stress and make managing this debt a miserable experience.

You will be working with your new bank or lender for the next five to 20 years. Be sure to do your research before refinancing your student loans to ensure that you save money and have no regrets.