This website is an independent, advertising-supported comparison service. The product offers that appear on this site are from companies from which this website receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). This website does not include all card companies or all card offers available in the marketplace. This website may use other proprietary factors to impact card offer listings on the website such as consumer selection or the likelihood of the applicant’s credit approval.
This allows us to maintain a full-time, editorial staff and work with finance experts you know and trust. The compensation we receive from advertisers does not influence the recommendations or advice our editorial team provides in our articles or otherwise impacts any of the editorial content on The Smart Investor. While we work hard to provide accurate and up to date information that we think you will find relevant, The Smart Investor does not and cannot guarantee that any information provided is complete and makes no representations or warranties in connection thereto, nor to the accuracy or applicability thereof.
In order to determine if it is the right option for you, it is crucial that you know what to look for . Compare student loans providers and choose the right loan for your needs.
Products that appear on this page are from companies from which this website receives compensation. This may impact how and where products appear on this site (including, for example, the order in which they appear). We do not compare all providers in the market. Any information provided can be updated and may include additional terms.
Statistics show that 47.9 million people in the USA have student loan debt with an average of $35,000 each. Your student debt can have a massive impact on your overall financial health, affecting your day to day finances and potential to obtain credit. Fortunately, you don’t need to be stuck with your original finance deal. Here we’ll explore student loan refinancing options and how to compare packages.
Student loan refinancing involves replacing your existing loan with a new loan that typically offers better terms. You can take advantage of refinancing deals when the interest rates have dropped or there are other circumstances, such as improvements in your creditworthiness that could provide a better deal.
A new loan has the potential to save thousands of dollars in interest payments. You’ll also have a new repayment term. Essentially, refinancing resets your repayment period, which is usually a minimum of five years. This can be an advantage, since you can reduce your monthly payments by opting for a longer repayment term.
The actual refinancing process is quite straightforward. You’ll need to choose the individual student loans you would like to refinance. You can then check what rates and terms lenders are offering. Refinancing is only available with private lenders, so if you want to refinance federal student loans, you will lose the federal protections and potential loan forgiveness.
Many student loan refinancing lenders offer prequalification, so you can obtain a quote for yourself and your existing loans. Unlike a formal application, this will not impact your credit score, but allows you to compare rates.
Once you have loan approval, you will use the funds to pay off the existing loans. You’ll then start making payments for your new loan.
There are several options to refinance your student loan. Each of these options is different and will be best suited to particular circumstances.
This is offered by the government and is only available for federal student loans. When you use this option, you will combine your existing federal loans into a new loan with a different rate. This rate is determined as a weighted average of your old loan rates.
While this option will not save you a great deal of money, it will make it easier to keep track of your monthly payments. You can switch out various old variable rates for a new fixed rate loan. This could provide protection from future rate increases. Just be aware that if you’re offered lower monthly payments, this is usually accomplished by lengthening the repayment term, so you could pay more interest overall.
As with federal consolidation, private loan consolidation allows you to combine several loans into a new loan deal. The primary difference between federal and private loan consolidation is that your new rate is not a weighted average of the old loan rates.
Instead, the lender will assess your credit history of managing debt and some of your other personal financial information to decide whether to offer a new interest rate on a new consolidation loan.
Consolidating through a private lender is a refinance of your loans. Remember that if you consolidate federal student loans with a private loan, you may lose access to a number of benefits including forbearance, income driven repayment and deferment options. You will also lose Public Service Loan Forgiveness.
This is obtaining a new loan to pay off some or all of your existing student loans. This is a great option if your finances have improved since you signed up for your original loans. You may be able to refinance at a lower rate or different terms to lower your monthly payments, reducing your overall interest costs or shortening the term to clear your loan sooner.
Student loan refinancing is only available through private lenders. However, you can finance both federal and private student loans. If you’re a well qualified borrower, you can consolidate your loans into one loan with terms that will work better for you.
As with any financial product, each student loan refinancing package is different. So, it is crucial that you know what to look for to determine if it is the right option for you. Some of the important considerations include:
Once you’ve determined you want to refinance your student loans, you need to compare lenders and ask the right questions to find the right one for you. Fortunately, there are some tips that can help you make comparisons to source the best deal.
This is the most obvious tip, but many people overlook this important consideration. Aim to go with the lender offering the lowest interest rate, but not all lenders advertise their best rates. Some lenders may advertise a 1.8% rate, but have no incentives. On the other hand, a lender may offer a base rate of 2.25%, but offer 0.50% rebate when you sign up for auto payments. This makes the overall rate better than the first lender.
You’ll find deals for both fixed and variable loans, so you need to think about which one is best for you. To put this into context, consider the current trends. For example, when there is economic uncertainty, you may prefer to have the reassurance of a fixed rate. However, if the base interest rates are currently high, it is a good idea to choose a variable rate that will drop in accordance to base rate reductions.
While the monthly payment will impact your day to day finances, you need to consider the overall cost of your loan. Even if you choose a loan with a lower rate, if you take it over a longer term, you will pay more in the long term.
There are a lot of factors that influence if you can gain approval for your student loan refinancing. Some lenders require that you have excellent credit or you will need to provide a cosigner. A cosigner may allow you to access the best rates, but some people prefer to keep their finances separate from their family members.
Finally, be sure to verify what fees may apply to your loan. If the lender has strict payment policies and you will get stung with a massive fee if you’re a day late on your payment, you may prefer to choose another lender.
Refinancing a student loan may appear daunting, but it can be accomplished with some basic steps. Once you have decided that you want to refinance, you can start the process.
As with any finance product, there are both benefits and risks of student loan refinancing. It is important to be aware of both before you make your final decision.
As with other types of finance, having a higher credit score will make it easier to qualify for student loan refinancing. Typically lenders prefer applicants who have a good FICO score, which is 670 to 739 or more. However, there are some lenders that offer decent refinance packages for scores of 600 or less.
Lenders typically make lending decisions based on a number of factors. So, your qualification will depend on more than your credit score. This will include your current income, your debt to income ratio and other financial details.
If you don’t have a good credit score, but need to refinance, you may be able to increase your chances of approval by adding a co-signer to your loan. There are lots of private lenders who accept co-signers and their good credit history can help you secure a loan.
However, you need to be aware that if you miss a payment or are late with your payments, you could hurt your credit score and your co-signer’s credit.
As we’ve touched on above, refinancing isn’t always a good idea and there are some circumstances when you should leave your current student loans in place.
The Fees Will Wipe Out Savings: Some lenders charge significant origination or application fees, so these need to be considered against your potential savings. Even if you can obtain an attractive rate, if those fees are too high, they could wipe out any savings, making it pointless to go through refinancing.
You’re Offered a Higher Rate: If lenders are only offering higher rates that you’re currently paying, it is not a good idea to refinance. Even if your monthly payment is lower, you will be paying more in the long term and staying in debt for longer.
It’s For a Longer Repayment Period: Unless you are in serious financial difficulty and need to drop your monthly repayments down to a more manageable level, you should not refinance for a longer repayment period. Most lenders allow you to specify your preferred term, but think carefully about the repercussions of carrying the debt for longer than you originally planned.
You’ve Declared Bankruptcy: Many lenders are unwilling to offer student loan refinancing after you’ve declared bankruptcy. Those lenders that do, will typically charge far higher rates, so you will need to think very carefully before going down this route.
You Must Have a Co-signer: While there are some circumstances where using a co-signer may be a good idea, it can impact both you and your co-signer. If a lender insists you must have a co-signer, it may not be the best time to refinance.
Your personal circumstances aside, there are occasions when it is the best time to refinance your student loans. This is when the base rate is particularly low and you can lock in a fixed rate now. This means that even if the base rate goes back up again, you will remain paying the same each month.
You can usually spot these occasions, because it is when lenders are advertising very low rates for all types of finance. Whether you’re seeing adverts for low cost car loans, cheap personal loans or other finance offers, if the rates are low, it could be the best time to refinance.
If you time it right, you could see a massive drop in your interest rate, which could save you substantial interest charges. If you want to maximize this saving potential, you could keep your monthly payment the same and take your loan over a shorter period. This will not only save you money, but you’ll be out of debt sooner.
When you start shopping for a refinancing lender, you may be surprised at the vast number of choices. Fortunately, whether you’re looking for a mortgage, a car loan or even student loan refinancing, there are some things to look for that can highlight the company is the right lender for you.
As we touched on above, there is more to a student refinancing than the basic interest rate. So, it is crucial that you know the refinancing cost and fees.
All lenders will provide a summary with their quote. This will not only document the rate, but also the overall cost of your refinancing. These figures are based on your total payments for the full duration of the loan.
When you’re comparing quotes, be sure to check the total costs. This will provide you with a realistic idea of which quote represents the best deal.
Additionally, you should check what fees may apply to your new account. While you may have every intention of making your payments on time every month, you don’t want to be stung by a massive fee if you slip up.