Way too many of us know what it’s like to have student loan payments. If you’re struggling to make the monthly payment and you still want to repay your loans within the original 10-year timeframe, you might consider refinancing your student loans.
First, you need to understand the pros and cons. Don’t do it just because your friends did and they say it’s a good idea. Depending on which option you choose, you can end up paying thousands of dollars more in interest if you choose the lowest monthly payments and the longer repayment plan.
Unless you absolutely have to because of financial hardship, don’t refinance your student loans to extend your repayment length. Refinancing is a good tool to save you money and help you pay off debt sooner.
This basic guide can help you start the student loan refinance process.
However, I don’t recommend refinancing under these two conditions:
- You won’t save money from a lower interest rate
- You’re extending the repayment term even though you can afford the current monthly payment
What Refinancing Student Loans Looks Like?
Here’s how to start the private refinancing process.
Combine Private and Federal Student Loans
You can refinance as many student loans as you like. And you can combine your federal and private loans together. To decide which loans to refinance, ask these two questions:
- Is the new interest rate lower than my current interest rate?
- Is there a prepayment penalty?
If you answer “No” to either of these questions, you should consider a different refinance lender or stick with your current repayment plan.
Compare Interest Rates
If you use a loan comparison site, you might get offers from different lenders. Make sure you compare all their offers and look at the loan APR. This is the interest rate you actually pay on your loan amount. APR includes the interest rate plus any add-on fees that some lenders charge.
Depending on how many years you have been in the workforce, you may qualify for a better interest rate now than when you were a student. This is because you have a good credit score.
Look At The Total Loan Fees
You should also compare how much total interest you will pay with the new loan versus your current loan. If you’re paying more (hopefully not), are you comfortable with the additional amount?
Any legit lender will have these fees detailed in the loan documents before you sign your life away (again). You can also use a student loan calculator to compare your fees as well.
No Hard Credit Check
Most refinancing lenders do a “soft credit pull” to see what rates you prequalify for. Until you accept their credit offer to refinance your loans, they don’t do a hard credit check.
In other words, getting a free rate quote doesn’t affect your credit score.
Choosing a Lender
Ok. I’m going to be honest here and put a shameless plug for Credible. If you choose to refinance through Credible and click the links on this page, I might get a small referral fee. Thank you if you do as that’s how I keep this blog running.
I’ve been researching student loan refinancing (and personal loans in general) for several years. Unless you have a relationship with your local bank, I prefer loan comparison sites like Credible. This is because they save time. You get free loan quotes from multiple banks in a single request.
They have roughly 10 lending partners. One of them actually happens to be my personal bank which I’ve used since high school (before I knew refinancing student loans and Credible were “a thing).
What Are People Saying About Credible?
For many people, debt relief could be achieved by refinancing student loans. However, student loan refinancing is a relatively rare financial product, and it can be difficult to find a bank or financial institution that offers it. Even more challenging is the process of comparing different refinance options from different institutions for the best interest rate. Credible is a lender marketplace designed to make the process quicker and easier by providing prequalification rates to eligible borrowers from reputable lenders quickly and at no cost.
Credible has a total of 2,068 reviews on Trustpilot, and the overall satisfaction rating from customers is a 9.5 out of 10. The number of “excellent” ratings is 87 percent. Reviewers appreciate the ease of comparing prequalification rates, the speed of the application process and the reliability and efficiency of the service, as well as the wide array of lending options available. Their customer support is also top-notch.
Credible offers several advantages over its competitors:
- Personalized results
- Secure online application
- Quick and easy process
- Near-instantaneous results
- Specific rates rather than general ranges
- Free to use
In addition to these advantages, prequalification through Credible has no effect on the borrower’s credit score because it requires only a soft credit pull. Access to multiple rates from different lenders empowers one to choose the best option for one’s situation. Try Credible for free today.
Federal Consolidation vs. Private Refinancing
Most likely, the bulk of your student loans are federal loans. This means you may have the option of federal student loan consolidation.
Consolidating loans doesn’t lower your interest rate but you keep your student loan forgiveness benefits.
If you’re on an income-driven repayment plan or on track for the PSLF (Public Service Loan Forgiveness) benefit, consolidating can be a better option.
Private refinancing forfeits these loan forgiveness benefits. But if you don’t qualify for them or don’t plan on using them, you’re really not losing anything. Instead, private refinancing can be the better option as you might be able to save money.
Which option are you choosing?
- Private refinancing
- Federal consolidation
- Keeping your current loan
Leave us a comment to tell us which decision you reach.