Student loan refinance is on a lot of people's minds as of late. Your existing loan amounts, or interest rates may not be appealing right now. You may also have growing job worries with the pandemic impacting the economy. Let's investigate why you should consider refinancing your student loans.Student loan refinance is on a lot of people's minds as of late. Your existing loan amounts, or interest rates may not be appealing right now. You may also have growing job worries with the pandemic impacting the economy. Let's investigate why you should consider refinancing your student loans.
Why You Should Consider Refinancing your Student Loans?
If you are looking for a lower monthly payment, obtaining a student loan refinance may be perfect for you.
Whenever you hear someone mention about refinancing a student loan, it might make you think of a long and stressful process. In reality, the process typically involves getting a private lender to pay off your current student loan.Then the private lender may offer you a new loan with (hopefully) the interest rates and payment terms that fit into your daily lifestyle. Here are 4 great reasons to refinance your student loans.
- It costs nothing to explore refinancing, yet always read the fine print about late fees and other future costs.
- You may get lower monthly payment plans.
- You may get better interest rates.
- You may be able to save more money through the life of the loan.
Trying to figure out when to refinance a student loan will be based on several factors. Due to the COVID-19 pandemic, private lenders are offering astronomical lower interest rates. So you may find a student loan that is more appealing. Also, consider refinancing student loans when you have good credit. If you already have several other loans, refinancing could help spread out your payments better.
Always keep in mind that just because your best friend refinanced their loans doesn't mean it is the best time for you to do the same. With many businesses still closed, job instability could cause you to miss a payment. Then you would likely have to deal with the late fees and other expenses that could throw your finances out of whack. You may also have bad credit right now. So you may see fewer private lenders willing to take on the added risk.
According to the Consumer Financial Protection Bureau, you should also avoid refinancing federal student loans. Federal student loans offer additional benefits that aren't found with private loans, such as repayment options and federal loan forgiveness. So if you're asking the question, "Should I refinance my student loans," always compare the pros against the cons.
How Do You Refinance Student Loans?
You'll first want to look at the type of student loan that you want to refinance. Both private loans and federal loans may be refinanced.
To refinance private student loans, use the following steps:
- Step 1: Research private lenders that offer student loan refinances based on the type of loan you have and the current circumstances. Some lenders may work with people who haven't graduated or may even have bad credit.
- Step 2: Obtain rate estimates from lenders that fit your criteria. You may have to enter basic private information on certain lender sites to get a personalized rate estimate and to prequalify.
- Step 3: Select whether you want a variable or fixed interest rate and the length of the repayment plan. Fixed interest rates mean that the interest rate will stay the same. Variable interest rates may start low but could change every month or quarter.
- Step 4: Choose a lender and loan terms that best fit your finances. Then you will complete the loan application. Send in this required paperwork: proof of residency, proof of employment, proof of graduation, loan verification statements and a government-issued ID.
- Step 5: Sign the loan application approval form.
- Step 6: Wait for loan payoff as you'll want to keep making loan payments to your existing lender. After the new lender has paid off the loan and sent out a confirmation letter, you can start making payments on the new refinanced loan.
How Do You Qualify for Student Loan Refinancing?
Qualification requirements will vary based on the private lender. You may have a good chance at qualifying if you meet the 4 following factors:
Have Good Credit: You may find lenders that will refinance student loan applicants with no credit or bad credit. But you will likely increase your chances of getting the best loan repayment terms and interest rates with a good credit FICO score that is 600 or higher.
Have a Good Debt to Income Ratio: Debt to income ratios are what lenders use to gauge whether you can repay the loan. They will consider your total income and compare it to the amount of expenses you have.
Attended an Eligible School: Private lenders may look at whether your school is authorized to receive federal student aid before moving forward with the application to refinance student loan. Only a few lenders will typically offer refinancing to students without a degree.
Have a Cosigner: Cosigners may be helpful when you don't have good credit or can't fulfill income requirements. The cosigner is usually a parent, but could also be a spouse, relative or family friend. They will need to meet the lender's requirements of having good credit, having a stable income, and having work/home stability.
How Much Can you Save When Refinancing?
According to theInstititute for College Access & Success, graduating students had an average debt of $29,200 in 2018. Through consolidation and refinancing, students could spread out payments. The amount that you could save will be based on the type of loan you presently have, the new loan that you will obtain during refinancing, and the interest rates. Also, keep in mind that if you obtain a student loan that has variable rate terms, the amount you save could differ at the end of the repayment loan term.
Can You Refinance Federal Student Loans?
Yes, but tread carefully when considering on whether you should refinance federal student loans. When you refinance a federal loan, it will change into a private loan. You cannot refinance a federal student loan into another federal loan.
With the CARES Act, a federal student loan borrower will have a six-month forbearance. It became retroactive on March 13, 2020. You may not have to make current payments. You also won't accrue interest up to September 30, 2020, according to the U.S. Department of Education's Federal Student Aid Office. If you decide to get a student loan refinance option, you will give up the forbearance and will have to start making monthly payments to the private lender.
Federal interest rates have been temporarily set to 0% during the forbearance period. Typical interest rates for these loans when first disbursed on/after July 1 2019 and before July 1, 2020:
- Perkins student loans: 5% regardless of the first disbursement date
- Direct Plus Loans: 7.08%
- Undergraduate Direct Subsidized Loans: 4.53%
- Undergraduate Direct Unsubsidized Loans: 4.53%
- Graduate or Professional Direct Unsubsidized Loans: 6.08%
Even with federal student loans, you may still be asking the question on, "how to refinance student loans?" The steps to refinancing federal student loans will typically be like refinancing private student loans. Check out lenders that may offer refinancing for federal loans and fill out an application for approval.
What Companies Offer Refinancing for Student Loans?
Some companies offer flexible terms and competitive student loan refinance rates. They should also offer borrower protections and fee transparency terms. Here are some companies that may offer the student loans that you desire.
• Sponsored Listing: College Ave: 3.64% to 8.99% APR variable rate and 4.64% to 8.99% APR fixed rate
• Splash Financial: 1.99% APR variable rate and 2.88% APR fixed rate
• Earnest: 3.21% APR variable rate and 3.21% APR fixed rate
• Sponsored Listing: Sallie Mae: 1.25% APR to 9.44% APR variable rate and 4.74% to 11.85% APR fixed rate
• Sponsored Listing: Citizen's Bank: 2.72% APR variable rate and 3.49% APR fixed rate
All variable and fixed rates may vary over time.
How to Move Forward with Student Loan Refinancing?
If you want student loan refinance options, there are many ways to personalize your search. Many lenders feature a student loan refinance calculator on their websites. You can input your personal financial information right into the fields. This feature could help give you a more accurate outlook on your possible rates. Then you may search for the lender based on your needs.