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.
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.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|