How To Refinance Student Loans

how to refinance student loans

Have you taken a look at your student loans recently? If not, then you could be spending a lot more than you need to!

If your loan balance is large, just the mere thought of it probably makes you want to skip over the details. It is much easier to setup an automatic monthly payment and save yourself the headache of dealing with the loan repayments. However, you might not realize that doing this could be costing you much more in the long term.

For most people with student loans, a large proportion of their monthly payment is likely being absorbed by their interest rate. Even if you are making large monthly payments, you might not be reducing the principal balance of your loan much at all. This depends on your interest rate and a few other factors which we will discuss in this article.

Options to Consider Before Refinancing

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If your loan is a federal student loan, you could be eligible for some of the following options:

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Income Based Payment

These type of repayment plans are based on your income and your family size. Some plans that are available are called IBR (Income Based Repayment), PAYE (Pay As You Earn), REPAYE (Revised Pay As You Earn), and ICR (Income Contingent Repayment).

Loan Forgiveness

For public service employees, your loans could be forgiven. If you have made 10 years of monthly payments on your federal student loans, you can qualify for forgiveness of your loan.

Loan deferment and forbearance

Deferment is where your loan payments are deferred or postponed to a later date. Usually this lasts for a year. The benefit of a loan deferment is that no interest is accrued if you have a subsidized federal student loan.

Forbearance has a similar benefit, although the repayment timeline is much more flexible. This gives the opportunity for the student to put off repayment until they have the ability to actually pay. However, unlike loan deferment, interest does accrue with loan forbearance.

Student Loan Refinancing

Refinancing your student loan is a good way to pay your debt off faster and lower your payments, while reducing the overall cost of your loan. If your particular industry or degree didn’t allow you to take advantage of loan forgiveness, then refinancing your student loan is a great solution to save you thousands of dollars in interest costs.

Do You Even Need To Refinance Your Student Loan?

If you are unsure if you should refinance your student loans, here are some questions to help you:

1 – Do you want a lower interest rate?

If you took out private loans that weren’t covered by federal loans, or you obtained student financing when interest rates were high, then you should consider refinancing. In doing so, you will be able to capitalize on getting a better interest rate than what you have now, saving you interest costs both in the present and future.

2- Do you have good credit or a co-sign?

If you have a good credit history then you could benefit from refinancing your student loans. A good credit history means that you will generally have a lower interest rate. Factors that lenders consider when looking at your credit history include: income, credit score, history of employment and your educational status.

If your credit history is not good, you could also lower your interest rates by having a co-sign on your loan.

3 – Do you have a stable and substantial income?

If you have a substantial income relative to the amount of debt you owe, then you could still get a reasonably good refinance deal, even if your credit history is not fantastic. However, you need to factor your other debts such as your car payment, credit cards, etc. It’s not based just off your student loan debt.

Don’t let your bad credit history hold you back. Even if you don’t get a good deal now, once you have paid down your debts, you can still get a good deal a few months later.

When You Shouldn’t Refinance

Once a federal student loan is refinanced with a private lender, you will no longer have access to programs such as loan forgiveness, forbearance, deferment and income-based repayment. This is because the original government loan is paid off by the private lender, and a new loan (from the private lender) is created.

So individuals who stand to gain from these federal programs should take advantage of them first before considering refinancing any student loan.

Maximizing Your Refinance Deal

When refinancing a loan, the goal for most people is to get a lower interest rate than they had before. However, there is something that’s more important than the interest rate…

Although the lower interest rate will help you save money over the long term, if you adjust the term of the loan into a shorter time frame you will save a larger amount. Of course, this will also mean your monthly payments will increase, but with this shorter loan term, you will pay off your loan faster and at a much lower cost.

So if you can manage a higher monthly payment, you will benefit from the saved money and maximize the lower interest rate. If you aren’t able to pay more, you will still benefit from the lower interest rate.

How To Apply For a Refinance

If you’re interested in getting started with refinancing your student loan, or just want more information, there are many sites available for you to get a estimated rate of lenders available. You won’t even need to submit a complete application either.

Credible is by far the best place to go if you are looking for a streamlined process for finding refinancing information. Just submit one application form on Credible’s website, and you will receive offers from 8 pre-approved lenders within 4 business days. This will save you time from having to submit individual applications to each lender in order to compare rates.

Depending on your situation, refinancing can be a great way for you to save a lot of money and be free of your student loans faster than you ever thought possible.

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