For many student loan borrowers, considering their options can feel overwhelming when it’s time to manage their student loan debt. But in recent years, student loan repayment options have continued to expand for borrowers with federal and private loans to help finance their undergraduate and graduate education. For professionals with good credit and income, and borrowers with private student loans, refinancing may be a good option to help you save with a lower interest rate or shorter term.1 Read on to learn more about when to consider student loan refinancing.
How to Refinance Your Student Loans
There are several considerations when it comes to managing your student loans. Take a closer student loan refinancing, including the benefits, and the pros and cons.
Published September 05, 2024
9 min read
What is student loan refinancing?
Student loan refinancing enables borrowers to pay off their original student loans and obtain a new loan with different repayment terms and a potentially lower interest rate. You can choose to refinance all or just some of your federal and private loans.
Why refinance? How could student loan refinancing save money?
Typically, student loan refinancing is an opportunity for those looking to:
- Lower their interest rate(s) and save money;
- Pay off their loans faster;
- Lower their monthly payments;
- Change from a fixed rate to a variable rate or vice versa; or
- Reduce the number of loans in repayment
There are many benefits to refinancing your student loans, but before you start the process, here are some things to consider:
- Achieve your financial goals. What is your primary reason for refinancing? Are you looking to lower your monthly payment? Pay off the loan more quickly? Reduce the total cost of the loan?
- Set your budget. How much you can afford to pay each month will depend on your income and your other debts. Student loan refinancing could offer the opportunity to customize a repayment plan that suits your financial situation.
- Know your credit score. The better your credit, the easier it may be to qualify and get favorable terms.
- Consider your ability to consistently repay. You will need to consider whether you may have to use federal options and other protections in the future, these could include income-based repayment, loan forgiveness, and forbearance and deferment options.
Maximize your savings: Explore federal loan repayment options
When considering refinancing, be aware that if you refinance your federal student loans with a private lender, you’ll no longer be eligible for federal forgiveness programs such as Income-Driven Repayment (IDR) or Public Service Loan Forgiveness (PSLF).2
The IDR and PSLF are programs are designed to help borrowers who are struggling to repay their student loan debt by stabilizing their monthly payment amount based on their adjusted gross income (AGI). After an established period of qualifying payments – such as 10, 20, or 25 years – the borrower’s remaining balance is then forgiven. For more information about federal forgiveness programs, and to compare potential savings with these options against refinancing, schedule a free, 30-minute call with a student loan specialist.
Compare refinancing vs. loan consolidation
Consolidation simply combines two or more loans into one loan with one interest rate. When federal student loans are consolidated into a Direct Consolidation Loan, the new interest rate is based on the weighted average of the original loans’ rates. Consolidation does not offer any interest savings, and private student loans cannot be consolidated with federal student loans, but any options and benefits associated with your federal loans are retained. Visit our resource Refinance or Consolidate Student Loans: Is There a Difference? to learn more.
Evaluating your options: Research student loan refinancers
Once you’ve decided that refinancing is right for you, look at more than just interest rates.
1
Compare rates and terms.
Of course, interest rates are important, but as you shop around, make sure the rate isn’t just a “teaser,” but a real offer based on your information. You also want to evaluate the lenders, including their overall reputation and customer service reviews. And you want to look at other benefits they offer, such as what options they offer for economic hardship should the need arise.
2
Determine eligibility.
While each lender has its own specific qualification criteria, the key factors in determining eligibility and rates typically include your credit profile, total monthly debt payments and income. Those who are in good financial standing, have good credit scores and have shown they are responsible with other debts and monthly budgeting are more likely to be approved.
3
Apply for student loan refinancing.
Applying for student loan refinancing can be a lot easier than you might think. The most critical step is making sure you are eligible, and whether private loan terms will be more beneficial to you than your current federal loan terms. To learn more about your refinancing options with Laurel Road, visit https://www.laurelroad.com/refinance-student-loans/.
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