How does student loan refinancing work?
Student loan refinancing is the process of paying off one or more
student loans using a new loan obtained through a private lender.
Usually, the goal of refinancing is to get a lower interest rate and
save money on student loans. You can refinance just one student loan
or several - it's up to you. It's also possible to refinancing both
federal and private student loans.
What are the benefits of student loan refinancing?
Again, the reason why most student loan borrowers choose to refinance
their loans is to save money on interest. Whether you have expensive
private student loans or older federal loans (such as Grad PLUS loans,
which can have interest rates hovering around 7%), student loan
refinancing can get you a lower interest rate and end up saving you
thousands of dollars over the life of your loan.
You can use those savings to pay down your debt faster, open a savings
account, or even start investing.
But that's not the only benefit to student loan refinancing. When you
refinance more than one loan, you consolidate those loans into just one.
This can help make your debt much easier to manage because there's only
one payment each month. You can also refinance to a longer repayment
term, which can help lower monthly payments even more. (Keep in mind,
though, that taking longer to pay off your debt might cancel out any
savings on interest).
Who shouldn't refinance student loans?
Although there are a lot of great reasons to refinance your student
loans, it's not the right plan for every borrower. A major drawback
to student loan refinancing is that it converts any federal loans you
refinance into a private loan. As a result, you no longer have access
to federally sponsored benefits such as deferment, forbearance,
income-driven repayment plans, and Public Service Loan Forgiveness.
Once you refinance, the change is permanent.
If your income is unsteady, you have trouble making monthly payments,
or are interested in pursuing a federal student loan forgiveness program,
refinancing is probably not right for you.
On the other hand, if you have a steady job, good credit, and would
like to cut down on the time and/or money it takes to pay off your
loans, student loan refinancing can be a great option.
Do I qualify for student loan refinancing?
Since student loan refinancing companies are private lenders, each one
has its own set of eligibility requirements. Unlike federal student
loans, your entire financial situation will be considered when you’re
trying to get approved for refinancing
In general, refinancing companies require you to have a good credit
history, as well as proof of a stable income and cash flow to support
your new loan payments. Some lenders might also only work with borrowers
in certain career fields or from particular schools.
To find out if you're eligible for refinancing, check out our list of
refinancing options above and look for eligibility information listed
on each lender’s website. Be sure to read the fine print, as refinancing
may not be available in all states.
Think refinancing is the right choice for you? Start the application
process with one or more of the lenders listed above. In most cases,
you can find out if you qualify and see your interest rate without any
impact on your credit.
Check out these resources for more information about student loan refinancing:
