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When you refinance student loans, you combine your existing student loans into a new, single student loan with a lower interest rate, lower monthly payment or both. Your new student loan is used to pay off your old student loans. With student loan refinancing, you can choose new student loan repayment terms to save money each month or to pay off debt more quickly.
There are many advantages to student loan refinancing, including:
There are several reasons why you should refinance student loans:
With student loan refinancing, your resulting student loan will be a private student loan with a private lender. Therefore, if you refinance your federal student loans, you would no longer have access to benefits such as public service loan forgiveness, forbearance, deferment, or an income-driven repayment plan, for example. If these benefits are essential to you, then you may want to refinance your private student loans only. However, if you’re comfortable forgoing access to these federal programs to get a lower interest rate and save money, then student loan refinancing for both your federal and private student loans can be an effective strategy for student loan repayment.
Student loan refinancing is available for both federal and private student loans, including undergraduate and graduate student loans from a Title IV-accredited college or university in the U.S. This also includes PLUS Loans for graduate school as well as Parent Loans and Parent PLUS Loans.
You are a good candidate for student loan refinancing if you meet the following criteria:
If you don’t meet these or any other requirements, you can apply with a qualified co-signer such as a parent. A co-signer can help you get approved for student loan refinancing and get a lower interest rate. Each lender has its own underwriting requirements. For example, some lenders may evaluate additional criteria, such as your debt-to-income ratio. Most lenders may require that you graduated from a Title-IV accredited college or university.
Student loan refinancing is a smart strategy if you graduated from college or graduate school, are employed, and have high-interest student loan debt such as Direct Loans, private student loans or Graduate PLUS Loans. You can refinance federal student loans, private student loans, or both.
Federal loans offer certain benefits such as financial hardship programs and public service loan forgiveness, for example, that won’t be available to you after you refinance federal student loans. If this applies to you, then you can still refinance your private student loans. However, if you’re not pursuing public service loan forgiveness or don’t need income-driven repayment plans, for example, then you could refinance both your federal and private student loans.
Before you refinance your student loans, most lenders let you check your estimated new rate before you submit a full application. This is called a soft credit check, and there is no impact to your credit score.
If you like your new rate, you can submit an application to refinance your student loans. At that time, a lender will pull your credit. This is called a hard credit check, and your credit score is impacted by a few points. You can apply to multiple lenders within a short time frame such as a week, and it will only count as a single credit inquiry. When you make on-time payments on your new loan, you can increase your credit score over time. This is because on-time payments comprise 35% of your FICO score, whereas applying for any new loan counts as 10%.
No, a cosigner is not required to refinance student loans. If you meet the requirements to refinance student loans, you can apply without a cosigner. That said, a qualified cosigner may help you get a lower interest rate on your student loans and also could help you get approved for student loan refinancing. A cosigner is a parent, spouse, relative or friend who helps you apply for student loan refinancing. A qualified cosigner must have good credit and income, and the cosigner must independently meet the requirements for student loan refinancing. A cosigner accepts equal financial responsibility for your student loans after you refinance. That said, many lenders allow you to release your cosigner after a certain period of time and once you satisfy certain requirements. Contact your lender for details about a cosigner release.
Student loan refinancing is combining your existing federal and/or private student loans into a new, single student loan with a lower interest rate. With student loan refinancing, you work with a private lender and can choose a fixed or variable interest rate as well as a student loan repayment term of 5-20 years.
Student loan consolidation is combining your existing federal student loans into a new loan called a Direct Consolidation Loan through the U.S. Department of Education. Student loan consolidation won’ lower your interest rate, however. Rather, with student loan consolidation, your interest rate is equal to a weighted average of the interest rates on your current federal student loan debt, rounded up to the nearest 1/8%.
To get the lowest student loan refinancing rate, make sure to compare lenders. Most lenders reserve the lowest student loan refinancing rates for borrowers with strong credit and income as well as a lower debt-to-income ratio. Variable interest rates tend to be lower than fixed interest rates, so you may be able to save money with a variable interest rate student loan. To save interest, you can also choose a shorter student loan repayment term. Typically, a shorter student loan repayment period such as 5 years will have a lower interest rate than a longer student loan repayment period such as 20 years.
When you refinance student loans, you can choose between a fixed and variable interest rate. A fixed interest rate means that the interest rate on your student loan will never change for the duration of your student loan.A variable interest rate means that the interest rate on your student loan can change over time based on movements in prevailing interest rates.
A fixed interest rate will provide you with more certainty and predictability because you will have the same interest rate every month. Since the interest rate on a variable interest student loan can change, you may have a higher or lower monthly payment over time. Typically, the starting interest rate on variable rate loans are lower than on fixed rate loans.