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Last update: November 24, 2023

Student Loans Refinancing: The Complete Guide

This guide helps you choose the perfect student loan refinance options tailored to your financial needs.


Want to simplify your loan payments and potentially save thousands of dollars? Refinancing your student loan might be the answer. Student loan refinancing is a financial strategy that involves using a new loan to pay off your current student loans, typically with a lower interest rate—sounds tempting? Let's uncover the secrets to lowering your interest rates, simplifying your payments, and saving you a ton of money.

    What is student loan refinancing?

    Student loan refinancing is the process of taking out a new loan, typically with better terms or a lower interest rate, to pay off your current student loans. This isn't limited to just one loan either; If you've got multiple loans, you can combine 'em into a single one.

    When you refinance, you're often aiming to get a lower interest rate than what you currently have, which can save you some serious cash over the life of the loan.

    Before you commit to a student loan, it's essential to weigh the pros and cons, like you would with any financial decision. Let's dive into the good, the bad, and the "might-make-you-think-twice" aspects of student loans.

    Benefits of student loans

    • Lower interest rates

    • Simplified payments

    • Flexible repayment terms

    • Possibility to remove a cosigner

    Drawbacks of student loans

    • Loss of federal loan benefits

    • Canceling a student loan is difficult

    • Variable rates can increase

    • Impact on credit score

    TuitionHero tip

    Refinancing federal student loans with a private lender may help you get a lower rate. However, keep in mind that it will turn your federal loans into a private loan and lead to the loss of federal benefits, including income-based repayment plans and loan forgiveness programs.


    Student loan refinancing vs. consolidation

    Student loan refinancing and consolidation are two ways to potentially save money and simplify the repayment process. Knowing the difference is critical for making the right decision and avoiding mistakes..

    Loan refinancing

    Refinancing replaces an existing loan with a new one, often with better terms or a lower interest rate. This is common when a borrower's credit score improves, or interest rates drop.

    Great for students who:
    • Have high interest loans

    • Recently improved their credit score

    • Want to change their loan term

    Loan consolidation

    Consolidation simplifies your loans by combining multiple loans so that there's just one monthly payment to manage. However, loan consolidation usually won't lower your interest rate.

    Great for students who:
    • Want to manage fewer loan payments

    • Want to keep federal loan benefits

    • Want to change their loan term

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    What to consider before refinancing a student loan?

    There are several factors you should consider when refinancing a student loan. Let's break it down so you can make an informed decision about your financial future.

    1. Eligibility requirements

    Lenders have specific criteria for refinancing , so you'll want to make sure you fit the bill before you apply. This criteria can include your credit score, income level, job stability, and whether you've completed your degree. Familiarize yourself with these requirements to avoid wasting time on unsuitable lenders. Below are a few things that may impact eligibility:

    1. Citizenship or nationality status

    2. Proof of stable income

    3. Credit score and credit history

    4. Degree completion

    2. Interest rate type

    When you refinance, you can choose a new interest type. Interest rates are the cost of borrowing money, expressed as a percentage of the principal loan amount. They come in two flavors: fixed and variable

    Fixed interest rates are predictable, as they stay the same throughout the life of the loan. Federal student loans only come with fixed rates. These rates can change for new loans each year, but your rate remains the same once you take out a loan.

    Variable interest rates can change over time based on market conditions. Private student loans can have either fixed or variable interest rates, which are determined by the lender. These rates are often based on your creditworthiness, term length, and repayment options.

    3. Interest rate percentage

    When refinancing, you should aim for a lower interest rate than your current loan. A lower interest rate can significantly reduce the amount you pay over the life of your loan. However, always be aware that the lowest advertised rates are usually variable and could rise in the future.

    4. Repayment terms

    Refinancing provides an opportunity to adjust your loan term . A shorter term means higher monthly payments but less paid in interest over time, while a longer term lowers your monthly payments but increases the total interest paid. Consider your current financial position and long-term income expectations when choosing your term.

    5. Cost of the loan

    It's essential to calculate the total cost of the loan before deciding to take it on. This includes not just the principal amount, but also the interest, origination fees, or any additional charges. Take a look at the annual percentage rate (APR) to get an idea of the total cost of the loan for a year, including interest and fees. Keep in mind that you may be able to reduce your loan costs by making extra payments or paying off the loan early.

    6. Monthly payments

    After calculating your total loan cost, you need to understand your monthly payments. Your monthly payments will be determined by several factors including your total total loan amount, your loan term (the length of time you have to repay the loan), and the interest rate. Also whether the interest rate is fixed or variable will impact if your payments can change over time.

    A longer term generally means smaller monthly payments, but you'llend up paying more in interest over the life of the loan. A shorter term means higher monthly payments, but less interest paid overall.

    7. Cosigner release

    A cosigner release is an option offered by some lenders thatallow the removal of your cosigner from the loan after you've demonstrated reliable repayment, typically over a few years. This frees your cosigner from any financial liability linked to your loan, providing peace of mind for both parties. This feature isn't available with all lenders, so make sure to check if its offered if it's important to you.

    8. Forgiveness and deferments

    Borrowers may have access to programs and policies that allow them to defer loan payments or even cancel them altogether. You'll want to look into if the loan you're considering has a cancellation, deferment, or forbearance clause.

    Student loan cancellation means the borrowers will no longer have to make any more loan payments and their remaining loan balance is forgiven. Students can also postpone their payments under certain conditions. Let's explore when your loans may be eligible for cancellation:

    • Public Service Loan Forgiveness (PSLF): Government or non-profit workers may have remaining balance forgiven after 120 qualifying payments.

    • Disability Discharge: Loans may be forgiven for those with total and permanent disabilities.

    • Perkins Loan Cancellation: Loans may be forgiven if the borrower works in certain public service jobs or professions, such as teaching, nursing, law enforcement, or the military.

    • Closed School Discharge: Loans may be forgiven if your school closes before you graduate.

    Student loan cancellation means the borrowers will no longer have to make any more loan payments and their remaining loan balance is forgiven. Students can also postpone their payments under certain conditions. Let's explore when your loans may be eligible for cancellation:

    • Public Service Loan Forgiveness (PSLF): Government or non-profit workers may have remaining balance forgiven after 120 qualifying payments.

    • Disability Discharge: Loans may be forgiven for those with total and permanent disabilities.

    • Perkins Loan Cancellation: Loans may be forgiven if the borrower works in certain public service jobs or professions, such as teaching, nursing, law enforcement, or the military.

    • Closed School Discharge: Loans may be forgiven if your school closes before you graduate.

    Forbearance is like asking your student loans to "chill out" for a bit. It's another way to temporarily postpone your loan payments when facing financial challenges. Unlike deferment, forbearance is often granted at the discretion of your lender, and interest will continue to accrue on your loan during this period. Common reasons for forbearance include:

    • Medical expenses: If you're dealing with hefty medical bills, your lender might grant you forbearance.

    • Change in employment:If you lose your job or experience a reduction in income, forbearance can offer temporary relief.

    • Other financial difficulties: Unexpected expenses, like a car repair, can make it tough to keep up with loan payments.

    9. Lenders reputation

    Ensure the lender you're considering for refinancing has a good reputation. Make sure you check out other customers' experiences by reading online reviews. A lender with a solid reputation will likely provide better service and have fewer bumps along the road.

    Also, consider the lender's customer service track record. If issues ever arise or circumstances change, you'll want a lender who is easy to contact, helpful, and responsive.

    TuitionHero tip

    Our detailed lender reviews make it fast and easy to find private student loan lenders that you can trust.

    10. The fine print

    Be sure to review the terms of your student loan, and make sure you're comfortable with the loan's terms before committing to it. When you read the fine print, make sure you ask yourself:

    1. Are there penalties for paying your loan off early?

    2. How much are late payment fees?

    3. Are there any loan forgiveness programs?

    4. Are there other additional fees or penalties?

    How to refinance your student loan

    Ready to get your student loans refinanced? Here's how you can do it in 4 easy steps:

    1. 1

      Research and compare lenders

      Give us some basic details, and we'll show you some loan rate estimates. TuitionHero can show you rates in just a few minutes, without affecting your credit score. Don't just look at rates though. Be sure to consider the whole package, like repayment protections and fees.

    2. 2

      Gather necessary information

      Before you apply, gather essential details and documents such as your Social Security number, proof of income, tax returns, and specifics about your school and program. If you're adding a cosigner, make sure to get their info as well.

    3. 3

      Wait for loan approval

      After submitting your documents and application, you'll need to wait for the lender to review and approve it. This can take anywhere from a few days to a few weeks, depending on the lender and the type of loan. Remember to be patient and stay in contact with your lender.

    4. 4

      Review and sign

      Once your loan is approved, carefully review the terms and conditions, including the interest rate, fees, and repayment options. This includes the repayment schedule, interest rates, penalties for late or missed payments, and any other relevant terms. Make sure you know your responsibilities as a borrower before accepting the loan.

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    Frequently Asked Questions

    We've got answers to just about any question you can think of.

    Nope! Student loans don't automatically destroy credit. In fact, they can help you build credit if you make your payments on time and consistently. However, missing payments or defaulting on your loan can negatively impact your credit score. So, staying on top of your repayment game is key!

    Not exactly. When you take out a student loan, the funds are usually sent directly to your school to cover tuition and other fees. Any leftover money can then be disbursed to you for living expenses, textbooks, and more. So, while you don't get a big check upfront, the loan helps you cover your education costs.

    Student loans and scholarships are like apples and oranges. Student loans are borrowed money that you have to pay back with interest. On the other hand, scholarships are free money awarded based on merit or need, and you don't have to pay them back! So, grab those scholarships when you can!

    To determine how much to borrow, start by estimating your total education costs, including tuition, fees, housing, textbooks, and other expenses. Then, subtract any scholarships, grants, or other financial aid you've received. The remaining amount is what you'll need to cover with student loans. Remember, only borrow what you need!

    Yes, there are some rules to follow. Student loan funds are meant for education-related expenses like tuition, fees, books, supplies, and living expenses. You shouldn't use them for non-education expenses like vacations or shopping sprees!

    There sure are! On the bright side, you can deduct up to $2,500 in student loan interest on your taxes, which may lower your taxable income. But if your loans are forgiven, the amount forgiven may be considered taxable income. Always consult a tax professional to ensure you're making the most of your tax situation.

    To find out if you qualify for a loan deferment, check your loan servicer's website or give them a call. Deferment options depend on the type of loan and your personal circumstances, like going back to school, unemployment, or economic hardship. If you qualify, you may be able to pause your loan payments temporarily without penalty. Just keep in mind that interest might still accrue during the deferment.

    Absolutely! While non-US citizens might not be eligible for federal student loans, you can still explore private student loans. Some lenders offer loans specifically for international students studying in the US. Just remember, you might need a creditworthy US citizen or permanent resident as a cosigner to secure the loan.

    The amount you can borrow depends on the type of loan and your education level. For federal student loans, there are annual and aggregate limits. For example, dependent undergraduate students can borrow up to $31,000 in total, while independent undergrads can borrow up to $57,500. Graduate students can borrow up to $138,500. Private student loans often have higher limits, but remember to only borrow what you need!

    Getting a student loan involves a few key steps: Fill out the FAFSA (Free Application for Federal Student Aid) for federal loans, research and compare lenders for private loans, gather necessary information, submit your application, and wait for approval. Once approved, review the loan terms, sign the agreement, and receive the funds. Remember, it's crucial to explore all your options and choose the one that best suits your needs.

    When you pass away, the fate of your student loan debt depends on the type of loan. Federal student loans are discharged upon the borrower's death, meaning they're forgiven. For private student loans, it depends on the lender's policies – some may forgive the debt, while others might try to collect from your estate or your cosigner if you have one.

    Yes, you can! While you may need your parents' financial information for the FAFSA, federal student loans don't require a cosigner. For private student loans, though, you might need a cosigner with good credit if you don't meet the lender's requirements on your own.

    The average time to pay off student loans varies depending on factors like the loan amount, interest rate, and repayment plan. For federal loans, standard repayment plans are typically 10 years. However, extended and income-driven repayment plans can last up to 25 years. For private loans, repayment terms can range from 5 to 20 years.

    To choose the right lender, compare interest rates, repayment options, customer service, and any additional benefits they offer. Look for reviews and ask for recommendations from friends, family, or financial aid advisors. Don't forget to consider federal loans, as they often come with more flexible repayment options and borrower protections.

    To check your application status, log in to your lender's website or contact their customer service. For federal loans, check your FAFSA status online or contact your school's financial aid office. Remember, it's essential to be proactive and follow up on your application to ensure a smooth process.

    To pay less interest on your student loans, consider making extra payments, paying off higher-interest loans first, or refinancing to a lower interest rate. Remember, the faster you pay off your loans, the less interest you'll end up paying over time.

    You can check your federal student loan balance through the National Student Loan Data System (NSLDS) website. You can log in to your lender's website or contact their customer service for private student loans. Staying informed about your balance can help you manage your repayment strategy effectively.

    To calculate your monthly payments, use an online student loan payment calculator, which considers your loan balance, interest rate, and repayment term. This helps you estimate your monthly payments and plan your budget accordingly.

    Submit student loan payments through your lender's website, mail, or by phone. Some lenders also offer auto-debit options that automatically withdraw your payment from your bank account each month. Make sure to pay on time to avoid late fees and maintain a good credit history.

    Yes, you can change your repayment plan for federal student loans by contacting your loan servicer. Private student loan repayment plans depend on the lender, so reach out to their customer service to explore your options. Remember, switching plans might affect your interest and overall repayment terms.

    You can consolidate federal student loans through a Direct Consolidation Loan, which combines multiple loans into one loan with a single monthly payment. Private student loans cannot be consolidated through this process, but you can consider refinancing them with a private lender. Keep in mind that consolidation might affect your interest rate and repayment options.

    Repayment terms vary depending on the type of loan and repayment plan you choose. Federal student loan repayment terms range from 10 to 25 years, while private loan terms typically range from 5 to 20 years. Be sure to understand your specific loan terms and choose a repayment plan that best fits your financial situation.

    For federal student loans, there are several income-driven repayment plans: Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). These plans base your monthly payments on your income and family size, and can offer loan forgiveness after 20 to 25 years of qualifying payments. Evaluate your financial needs to determine if an income-driven repayment plan is the right choice for you.

    Yes, there are several loan forgiveness programs for federal student loans, including Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and income-driven repayment forgiveness. These programs can forgive the remaining balance on your loans after meeting specific requirements, such as working in a qualifying public service job or making a certain number of qualifying payments. Make sure to review each program's criteria to determine your eligibility.

    In the unfortunate event of a borrower's death, federal student loans can be discharged, meaning the debt is canceled. Some private lenders also offer death discharge, but policies vary, so it's essential to review the terms of your specific loan. A death certificate is typically required as proof to discharge the debt.

    Defaulting on student loans can have serious consequences, such as damage to your credit score, wage garnishment, and loss of eligibility for deferment or forbearance. For federal loans, default occurs after 270 days of missed payments. For private loans, default timelines vary by lender. If you're struggling with payments, contact your loan servicer or lender to discuss your options before defaulting.

    Yes, federal student loans can be discharged if you become totally and permanently disabled. You must provide documentation, such as a physician's certification or proof of disability benefits, to qualify for discharge. Some private lenders also offer disability discharge, but terms vary. Make sure to review your loan agreement and contact your lender for more information.

    Discharging student loans in bankruptcy is challenging but possible. You must prove that repaying your loans would cause "undue hardship," which typically requires meeting strict legal standards. Consult with a bankruptcy attorney to determine if pursuing student loan discharge in bankruptcy is the right choice for you.

    Student loans cannot be discharged simply because you return to school. However, you may qualify for deferment or in-school forbearance, which allows you to temporarily pause payments while enrolled at least half-time. Contact your loan servicer or lender to discuss your options for managing payments while in school.

    If you can't make your student loan payments, consider contacting your loan servicer or lender as soon as possible to discuss options such as deferment, forbearance, or changing your repayment plan. Taking action early can help you avoid late fees, damage to your credit score, and the risk of default.

    Transferring the ownership of a student loan to someone else is generally not possible, as the loan is a legally binding agreement between you and the lender. However, some lenders may allow you to add or remove a cosigner, which can impact the responsibility for repayment. Be sure to review your loan terms and contact your lender for more information.

    Conclusion

    As you journey down the road to refinancing your student loans, the path might seem confusing at times. But with the right info, you'll conquer those loans like a champ! We hope this guide has enlightened you on student loan refinancing, so you can make educated decisions and confidently invest in your financial future.

    TuitionHero is your one-stop shop for comparing and choosing the perfect refinancing option. We're by your side, every step of the way. And remember, when it comes to controlling your finances and future, you're the ultimate hero!

    Key takeaways

    • Student loan refinancing involves using a new loan with better terms or a lower interest rate to pay off existing student loans

    • Advantages of refinancing include potentially lower rates and simpler payments

    • Disadvantages include the loss of federal loan benefits (if refinancing federal loans)

    • Refinancing can be done multiple times, whenever interest rates change or your financial situation improves

    • Eligibility for refinancing depends on factors like credit score, income stability, and degree completion

    • Refinancing differs from consolidation, as consolidation combines loans but won’t lower your interest rate

    • The process involves researching lenders, gathering necessary information, waiting for loan approval, and reviewing and signing the loan agreement


    Editor

    Yerain Abreu avatar

    Yerain Abreu is a seasoned Content Strategist with a Master's degree in digital marketing. He focuses on college finance, a niche carved out of his journey through the complexities of academic finance. These firsthand experiences provide him with a unique perspective, enabling him to create content that's informative and relatable to students and their families grappling with the intricacies of college financing.


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