How to Refinance Your Student Loans

Are you still worried and wondering how to refinance your student loans?

Well you just landed on the right blog post.

You may have loved college, but no one loves student loans. Refinancing is when you take out a new loan to replace old debts, and you can refinance your student loans just like you can any other type of debt.

With student loan refinancing, you turn federal loans into private loans, allowing you to consolidate your debt to help you pay one bill a month. Depending on your loans, you may even be able to refinance them at a lower interest rate. 

Many people refinance their loans while others choose not to. Deciding to do so will depend on your unique situation. Here’s how to refinance your student loans. 

 

1. Decide If It’s Right for You

How to Refinance Your Student Loans

Refinancing isn’t right for everyone. To refinance your loans, you need a fair or better credit score and good financial health to qualify for lower rates.

Eligibility criteria differ from lender to lender, so you’ll also have to do your research to find the right lender for you. If you refinance federal loans, you will no longer be eligible for government-sponsored programs, including different repayment plans and any debt relief available.

It’s also typically best to refinance student loans only when you have job stability because you may need a different repayment plan in the future. 

 

2. Find the Right Lender

Many student loan refinancing programs are similar, but all lenders offer different features. For example, some lenders require you to have obtained your college degree to refinance your student loans, while others don’t. 

 

3. Get Estimates

estimates

After identifying at least a few student loan refinancing lenders, you can get interest rate estimates to help you make the best choice. Of course, when refinancing your loans, you want the lowest rate possible.

Luckily, getting rates is fairly easy. You can either call the lenders to discuss your situation or look at their websites for more information. 

 

Some lenders may ask that you pre-qualify to give you an estimate of your interest rate, while others may ask that you submit an application.

Depending on the lender, you should expect a credit check that may or may not affect your credit score.

Once you submit an actual loan application, you’ll get a hard credit inquiry that may lower your score for a brief period of time. 

 

4. Choose Your Lender

Once you have all of the rates, you can choose a lender. Of course, there are other things to look for in a lender than just low rates, such as trustworthiness.

However, once you’ve determined which lender is right for you, you’ll need to choose your loan terms. Lenders typically offer different terms depending on your needs.

For example, you’ll be able to choose between a fixed or variable interest rate and the length of the repayment period.

Most borrowers prefer fixed interest rates because you’ll know how much you’ll pay each month. With variable interest rates, you’ll get lower interest rates at first, but they increase over time and may even change monthly. 

Choosing a shorter repayment period can help you save more money over the life of your loan, but it will require higher monthly payments. However, you can choose a longer repayment period if you want lower monthly payments. 

 

5. Fill Out the Application

All student loan refinancing lenders will require you to fill out an application to determine whether or not you can receive the loan.

However, just because you are pre-qualified doesn’t mean that you automatically get a loan when you decide. Instead, you’ll need to submit a complete application, which asks for information about your current student loans and financial situation.

To complete the application, you’ll need the following documents:

  • Loan verification statements
  • Proof of employment
  • Proof of graduation
  • Proof of residency
  • Government-issued ID or license

 

The application will also require you to provide the lender with permission to do a hard credit check to confirm your interest rate. 

 

6. Sign Off on the Loan

Once you’re approved, you’ll need to sign paperwork to accept the terms of the loan. You’ll have a grace period after signing the paperwork to cancel the loan if you change your mind, but it typically only lasts around three days, so it’s always best to be sure you want the loan before signing any documents. 

If you’ve been denied the loan, a lender will likely tell you why to help you learn what’s necessary to be approved.

For example, you can be denied for having a low credit score, which tells you that you need to improve your credit score before applying for a loan again.

Additionally, a lender might request that you find a co-signer to improve your chances of getting accepted next time. 

 

7. Loan Payoff

Once the loan begins, your new refinanced loan will pay off your existing student loans. From this point on, you will make a single monthly payment to your refinance lender.

Of course, you should still make payments to your other lenders until your refinance loan pays them off. If you overpay, your previous lenders will issue a refund. 

Any student loan interest you pay on your previous loans and current refinanced student loans is tax-deductible, so make sure to track your interest loan payments using professional tax software. However, it’s important to note that refinanced student loan debt can only be deducted when the new loan is only used to refinance student loans.

You cannot deduct the interest rate from your annual taxes if you roll up other types of debt into your refinanced loan. 

 

Should You Refinance Your Student Loans?

Some people aren’t eligible to refinance their student loans because of their credit history and financial situation.

For example, you may not qualify for a refinance loan if you’re currently between jobs or have a low credit score. Additionally, refinancing student loans isn’t right for everyone. 

Refinancing is best for those with high-interest private loans and good or better credit scores because it can reduce the amount they pay in interest.

However, there are downsides to refinancing student loans, especially federal student loans. For example, if you refinance federal student loans, you will lose all the benefits offered, such as different types of repayment plans.

If your finances aren’t secure, you might not want to lose those safeguards, even if you have a good credit score. Refinancing decisions are irreversible, so always ensure you make the right decision for yourself and your finances. 

Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a contributing writer at 365businesstips.com where she shares knowledge about general business, marketing, or financial tips. During her free time she enjoys being outside, staying active, reading a book, or diving deep into her favorite music.

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