How Can I Best Refinance My Student Loans? 2022

How Can I Refinance My Student Loans?

The continued decline in interest rates has allowed student loans to join mortgages and automobile loans in the market for refinancing.

 

The Fed’s actions opened the door to student loans borrowers who could refinance their loans for as little as 2% in some places. That would be good news, especially for the 34-and-under age group who owe nearly half of the $1.4 trillion in student loan debt.

For many of them, this may be their first attempt at refinancing so knowing the steps to take and the questions to ask will help save money on interest rates and possibly pay off the loan sooner.

First steps to refinancing student loans

To refinance your student loans, call the lender and ask them to walk you through their loan application process. Lenders will assess your financial portfolio and background; If they like what they see, they will extend the offer. The higher your income and credit score, the better shot you have at locking in a lower rate.

Don’t confuse student loan refinancing with student loans consolidation.

Refinancing is the term we use when talking about private student loans. Consolidation refers to federal student loans. If you want to secure a lower interest rate, you need to refinance your loan. You can still do this with federal student loans; However, you will lose your eligibility for federal loan forgiveness programs and repayment plans.

This is why refinancing may not be for everyone. You should be confident in your job security and your ability to maintain a high income before breaking your federal loan lifeline. Even if you’re refinancing a private student loans, there are usually fees to factor into your decision-making process.

The point is: Don’t let the benefits of refinancing overshadow the drawbacks.

We can help you weigh the pros and cons of student loans refinancing, so when it comes time to sign the contract, you’ll know exactly what you’re getting into.

How to Refinance Your Student Loans

 

 

Refinancing student loans is a very straightforward process. Here are the steps you need to take to complete it:

1. Do your research on refinancing interest rates: Look at average rates and qualifications at different lenders. Make sure you visit all three major lending sources: banks, credit unions, and online lenders.
2. Evaluate loan terms and choose your lender: Choose the lender whose terms best match your needs and goals.
3. Prepare your documents and fill the application: Prepare your documents and apply.
4. Don’t stop paying your student loans: Don’t ditch your old lender before hearing back from your new lender. Keep track of your payments to avoid late penalties and fees.

Be patient and don’t rush into a bad deal because you’re eager to sign a new one. The difference in some interest points can be thousands of dollars over the life of the loan.

Here’s an example to show how much refinancing can save you.

Suppose you have a $30,000 loan with an interest rate of 6%. After 10 years of paying $333.06 per month, you will have accrued over $9,967.38 in interest alone.

This time let’s say you have the same $30,000 loan but with a 4.5% interest rate instead. After 10 years of paying $310.92 per month, you will have paid 7,309.83.

By finding a lender to lower your interest by 1.5%, you save $2,358 over 10 years. You can also save more money by paying more than the monthly requirement.

Now that you know what you stand to gain (or lose), let’s dive a little deeper into the steps involved in student loans refinancing.

Do your research on refinancing interest rates

Rates will vary depending on where you go. Student loans refinance lenders will use your income and credit portfolio to gauge your risk as a borrower; The lower the risk, the lower the rate.

There is no way to be sure what you will be offered in advance as standards vary by lender. Some place a premium on high income while others salivate over a good credit score. Research the average interest rates for your credit bracket so you can minimize the risk of being shorthanded by a lender. Know your value (or what the lender perceives as your value) before negotiating terms and conditions.

FAQs about student loan refinancing

Who is eligible for student loan refinancing?

In general, you need to have a credit score in the mid to high 600s, a debt-to-income ratio of less than 43 percent and a steady source of income to refinance student loans, but requirements vary. . by the lender.

Getting pre-qualified is a great way to see if you qualify for student loan refinancing. While prequalification doesn’t guarantee you’ll be approved, it can help you see if you meet the minimum criteria set by lenders.

How long does it take to refinance student loans?

Once you fill out the loan application and submit the required documents, your refinance request can be approved within a few days or a few weeks.

Can You Refinance Federal Student Loans?

You can refinance federal student loans, although you’ll need to do so with a private lender. This means you’ll give up access to federal protections like deferment and forbearance, as well as benefits like income-driven repayment plans.

Can you put a student loan in someone else’s name?

Some lenders allow you to transfer student loans to someone else. Some parents do this with loans taken out for their child’s education – transferring the loan to the child once they are in the workforce. However, keep in mind that the loan will have new terms and new rates, depending on the credit of the new borrower.

Can You Refinance Student Loans With Bad Credit?

There are many lenders that refinance student loans for people with bad credit, however if the lender accepts a low credit score, it will almost certainly offer higher rates. As with new student loans, you can often apply for a refinance with a creditworthy co-signer, which can help you qualify if you have poor credit.

Does Refinancing Student Loans Hurt Your Credit Score?

When you submit an application to a refinance lender, the resulting hard inquiry can knock a few points off your credit score. However, this effect is temporary and likely will not cause significant damage.

If you are approved, the resulting opening of new loan accounts and closing of original accounts may also temporarily affect the length of your credit history, which is a factor in your credit score. But again, the effect is usually small and temporary. Refinancing can improve your score in the long run if it helps you more consistently make payments on time and in full.

Read Also: How Do Best Acquisition Loans Work? 2022

Evaluate the loan terms and choose your lender

This is where you weigh the pros and cons of all lender terms and conditions.

 

Some things to ask yourself when evaluating loan terms:

• Will you go with a fixed rate or a variable rate?
• How much time do you want to spend paying off the loan? 10 years? 20?
• What are the credit score requirements?
• Can you put up collateral (car, house) to secure the loan and possibly improve the interest rate?
• Are there any prepayment penalties?
• Are there any origination fees?

Many lenders will charge you an origination fee, often expressed as a percentage of the loan. They range between 1%-10%, so they can be either slight or significant.

A 10% origination fee on a $30,000 loan is $3,000. It is itself a “small” loan. Make sure your new loan fees don’t eat into the savings you get from paying off your old loan.

Choose the terms based on how you want the repayment process to proceed. Keep in mind that shorter repayment periods mean larger payments and vice versa.

Prepare your documents and fill the application

Gather everything you need to complete your application. This step is simple so it can easily be skipped. Just remember, if you come to the phone prepared with the proper paperwork, you’ll save both yourself and your lender a lot of time (which equals money) and stress.

Here are some things you want to keep in mind when applying to refinance your student loans:

• Social Security Number or equivalent
• Driver’s license, government-issued ID or passport
• Verification of income ie pay stubs, tax returns etc.
• Student loans statements

Don’t stop paying your student loans

Don’t stop making those payments even if you’ve been pre-approved for your new loan. You don’t want your new lender to see that you’ve missed a payment, especially in those critical moments as they decide whether or not to finance your new loan. This is not to mention the late fees you may accrue. No matter how you look at it, it’s a good idea to stay on top of your payments.

 

Student loans repayment process

When you refinance your student loans, you take out a brand new loan with a new lender. For the rest of the loan, you will pay your new lender. Your old lender will no longer be a factor once all the paperwork is gone through.

However, some borrowers worry about paying more to their old lender before their new agreement is approved. You’ll have to pay when your due date arrives, but if you’re approved for a new loan, any payments you made while you’re waiting for approval will be refunded.

So, don’t worry about paying extra; Just make sure you pay on time.

Can refinancing help me pay off my debt faster?

Refinancing can help you pay off your debt faster in several ways. There is a way to reduce the length of the loan. For example, you can refinance a 60-month loan into a 45-month loan, which can get you debt-free 15 months earlier than scheduled.

Another way to pay off debt faster is to refinance at a lower interest rate and increase your monthly payments at the same time. That way, you’ll pay less in interest each month, while paying less in total over the life of the loan.

Refinancing at a lower interest rate can get you out of debt faster if you continue to make the same payments as you were making, or more. In other words, it will take you longer to get out of debt if you lower your monthly payments. The only reason to reduce your monthly payments is if you are struggling to make ends meet.

If you want to get yourself out of debt as soon as possible, you need to make the highest monthly payments you can afford without overstretching your resources or exhausting your cash flow.

How to refinance your student loan in 5 steps

1. Check your credit.
2. Shop for the best rate.
3. Choose a loan offer.
4. Fill out an official loan application.
5. Sign your loan documents and start paying your new loan.

1. Check your credit

When you apply to refinance your student loans, one of the first steps a lender will take is checking at least one of your credit reports and credit scores. This is why you should go over your reports from Equifax, TransUnion and Experian regularly to check for any mistakes or errors. If you discover inaccurate information on a credit report, the Fair Credit Reporting Act (FCRA) gives you the right to dispute those items with the appropriate credit-reporting agency.

It’s also wise to get an understanding of where your credit currently stands prior to filling out loan applications. If you find that your credit isn’t in the best shape, you can work to improve your credit before you try to refinance

2. Shop for the best rate

Researching student loan refinancing rates and checking with multiple lenders to find the best rate is a key element in successfully refinancing your student loans. In fact, rate shopping should be something you do anytime you’re looking for a new loan or credit card.

Search online to compare lenders’ rates and fees. If a lender offers a prequalification tool, take advantage; these types of applications require only a soft credit inquiry on your credit report. Getting prequalified can help you see the type of rates and loan terms you might qualify for if you refinanced. You can use this information to see if refinancing would leave you any better off in terms of your monthly payment or total interest paid.

3. Choose a loan offer

Once you’ve reviewed (and hopefully prequalified for) several loan offers, you’ll be better equipped to choose the option that suits you best. The lender you choose to work with may let you select your preferred repayment terms as well.

A shorter loan term (e.g., five years) might help you secure a lower interest rate and pay off your debt faster. However, your monthly payment would likely be higher. If you extend the loan term, on the other hand, you could reduce the size of your monthly payments and make managing your budget easier. The trade-off would be more interest paid over the life of the loan and more time passing before you eliminate the debt.

4. Fill out an official loan application

Once you’ve narrowed down your preferred lender and loan offer, you’ll need to fill out an official loan application. Even if you went through a lender’s prequalification process, you will need to complete this step before your loan can be approved.

At this point, the lender will likely run a hard credit inquiry to access your full credit report. The lender will also want additional information that you didn’t include on your prequalification form. If you’re applying with a co-signer, you’ll need to provide their information as well.

You may need to provide the lender with copies of documents and information such as:

Social Security number (SSN).
Driver’s license or government ID.

Loan payoff statements from existing student loan lenders or servicers.
Proof of graduation.
Proof of employment (paystubs, W-2, etc.)

5. Sign your loan documents and start paying your new loan

Once you’re approved for your loan, you’ll sign your loan documents. Technology has made this step considerably easier; where you once had to sign loan documents in person or fax or mail them in, most student loan companies now handle their entire process online for ultimate convenience.

Once your documents are signed and filed, you will begin making payments on your new loan just like you were with your old one. However, keep in mind that your new lender may not pay off your former loans right away; sometimes the process can take a few weeks. Continue making any student loan payments that come due in the meantime so you don’t face late fees or potential negative credit reporting.

How Much Will Refinancing Save?

You can potentially save thousands of dollars over the life of your loan by refinancing. There are three main benefits of refinancing student loans:

You can get a lower monthly payment by freeing up cash for other expenses.

You can pay off your loan faster, saving you money in interest.

A lower monthly payment lowers your debt-to-income ratio, which can make it easier to qualify for a mortgage or other major purchase.

Unlike refinancing a mortgage, there are usually no fees for refinancing student loans. This includes origination, application and prepayment fees. But read your loan agreement carefully so that you know the costs you may incur in the future, such as late fees.

If you decide to refinance student loans, compare multiple lenders to see which one offers you the best deal. If you have similar offers, give more weight to lenders that offer the most flexibility in payments and the longest forbearance options. Consider that the best student loan refinances also offer bonuses.