Student loan refinancing can be a great way to take control of your financial future. It can lower your interest rate and help you save thousands of dollars over the lifespan of your loans.
But before you make the major decision to refinance your student loans, how do you ensure you make the best decision?
We’ve got you covered. Here’s what you need to do before your refinance your student loans.
Step 1: Weigh the pros and cons
Before making any major changes to your student loans, make sure you understand the consequences of refinancing — not just the benefits.
When you refinance, you take out a new student loan to repay your old one. Ideally, the new loan will have a lower interest rate. Plus, you may choose a shorter repayment period so you can pay it off as fast as possible. (You can opt for a longer repayment period, too).
Refinancing can save you money and simplify your monthly payments. Instead of dealing with multiple loan servicers, you’ll work with just one. But if you’re refinancing federal loans, it also means you’re turning them into private debt with a lender like SoFi or CommonBond.
As a result, you’ll no longer have access to federal programs like income-driven repayment or Public Service Loan Forgiveness. If you’re worried about losing your income or working toward forgiveness, refinancing isn’t a smart move.
But if you don’t anticipate needing these federal options, refinancing could make your student debt more manageable. Make sure you weigh the pros and cons of refinancing before submitting an application.
Step 2: Determine your goals
Once you’ve learned about refinancing, decide on your personal goals. They might include:
- Simplifying multiple monthly payments to just one
- Lowering your interest rate
- Lowering your monthly payment
- Changing the number of years left on your repayment plan
- Moving away from loan servicers with bad customer service
By clarifying your goals, you’ll be better able to compare offers from lenders. Once you know exactly what you’re looking to accomplish, you can choose the offer that’s best for you.
Step 3: Get quotes from a variety of lenders
You might be surprised to learn you can browse initial refinancing offers in just a few minutes. Lenders look at a few basic factors to give you an initial offer. Typically, they ask for four main pieces of information:
- Total loan debt
- Former college or university
Some may also ask how much work experience you have to gauge how stable your income is. Other lenders want a sense of your monthly expenses, so they may ask how much you pay for rent or a mortgage.
At this point, a lender will provide you with initial refinancing offers. You’ll see a variety of plans with different repayment terms and interest rates. You can typically choose between a five, 10, 15, and 20-year plan, each with a variable or fixed interest rate.
Note that this initial request for a quote will not affect your credit score in any way. A lender will only run a hard credit check once you accept an offer and submit a full application.
If you’re not impressed with any of the offers, you might benefit from applying with a cosigner. If your cosigner has a strong income and credit, you could get more attractive loan terms.
Step 4: Do the math
When you’re comparing loan terms, it’s easy to get confused. Even if your new interest rate is lower, it’s tough to calculate exactly how much you’ll save or spend over the life of your loan.
Before choosing an offer, take the time to do the math. First, use a weighted average interest rate calculator to find one interest rate for all your current student loans.
Then, use a student loan refinancing calculator to compare your old loans with the new offers. This calculator will show you exactly how much you’ll save or spend over the life of your loans.
Let’s say you have $30,000 in loans with a weighted interest rate of 7%. You have eight years left on a 10-year repayment plan. When you applied for a refinancing quote, you qualified for a 5% interest rate.
Even if you started over with a new 10-year plan, you’d save over $1,000 in interest and lower your payments by $91 each month. If you refinanced to a 7-year repayment plan instead, you’d save over $3,600 on your loans.
A refinancing calculator can help you see exactly how much you’ll save and which repayment terms will best help your finances.
Step 5: Choose an offer and submit your application
Once you’ve chosen your lender and loan terms, it’s time to submit a full application. Have the following information and documents for refinancing ready:
- Proof of citizenship (social security number or government ID number)
- Valid ID number (driver’s license or passport)
- Proof of income (pay stubs or a job offer letter)
- Official statements for all your federal and private loans
- Cosigner’s information, if you’re applying with one
Some lenders also want to see proof of monthly housing payments or verification that you graduated college.
You’ll upload the documents and the lender will confirm whether or not it has all the information it needs. If you have questions, you can always contact customer service for help.
Most lenders give you a few months to get everything in order before your initial offer expires. But the sooner you apply, the better; that way, you can say goodbye to your old loan servicers and start saving money as soon as possible.
After you submit your completed application, the lender will run a hard credit check. The company needs to see your credit history to confirm your new loan. This hard credit check can affect your credit score, but your score will bounce back after you start making regular payments on your new loan.
Crossing the finish line with your new student loan
Once you’ve submitted the application, you’ll need to wait a few weeks to a month to get your new loan up and running. In the meantime, it’s important to continue making payments on your current student loans.
Before you stop paying your old loan servicers, make sure you have no outstanding payments left and all your previous accounts have been closed. Once that’s the case, all that’s left for you to do is set up autopay with your new lender.
If you follow these steps, you’ll be able to refinance your student loans quickly and with confidence. After all, knowledge is power — especially when it comes to your finances.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Rates (APR)||Eligible Degrees|
|Get real rates from up to 4 Lenders at once
Check out the testimonials and our in-depth reviews!
|2.56% - 7.40%||Undergrad & Graduate||Visit SoFi|
|2.57% - 6.32%||Undergrad & Graduate||Visit Earnest|
|2.58% - 8.12%||Undergrad & Graduate||Visit Lendkey|
|2.80% - 7.02%||Undergrad & Graduate||Visit Laurel Road|
|2.54% - 6.65%||Undergrad & Graduate||Visit CommonBond|
|2.90% - 7.34%||Undergrad & Graduate||Visit Citizens|