Refinancing your student loans is an important step that can help you save money over time. If you have a better credit score or if your financial status has improved since the time you took out your initial loan(s), you may be able to get a better interest rate and get your loans repaid faster. This will make it easier for you to take care of other aspects of financial management. Before refinancing your student loans, however, make sure you keep these key details in mind.
What’s the Benefit?
While there are many different reasons to refinance student loans, you should carefully consider what the benefit will be to you, personally. What are you hoping to accomplish? What benefit are you hoping to achieve?
Do you want to save money? If so, consider whether you’ll actually be able to save money by refinancing. Is your credit in good shape? Are you likely to get a better deal than you were able to get initially? If so, refinancing may be a great move for you. On the contrary, if you have poor credit or already have great interest rates, refinancing might not be the best move. You can check to see if you can potentially save by refinancing your student loans without impacting your credit score.
Do you want to lower your monthly payments? Many millennials, in particular, discovered when they graduated that paying off their student loans wasn’t as simple as everyone made it sound. You may have to work a less lucrative job for a period of time before you’re able to get a high-paying career that corresponds with your major. You might even find that getting work in your field is nearly impossible. Worse, you may have worked for a period of time in your industry, but suffered a financial setback that left you struggling to meet your student loan payments each month. In some cases, refinancing can lower your payments- especially if it’s been a while since you graduated and you’ve been able to pay down the amount of your loan. Before refinancing, it’s important to talk with your lender about whether or not they can work with you to lower your payments.
Are you hoping to simply consolidate your student loans in one place? If you took out several loans to get through school, especially if you took them out from different lenders, refinancing may allow you to more easily keep track of your payments, your interest rates, and other key terms of your loan(s).
What Factors Really Matter?
When you’re aiming to refinance to reduce your interest rates, you need to know what factors come into play. Is it worth refinancing? Private lenders will take a hard look at many factors that play into your finances, including:
Your credit score. Your credit score is one of the most important factors in obtaining any type of loan–and refinancing your student loans is no different. It may be hard to get better interest rates or even better payment rates on your loans with a low credit score. Do you typically make your loan payments on time, or do you often find yourself struggling to make those payments, making them late, or even skipping a payment altogether? Private lenders will look seriously at your current ability to pay for your loans before deciding whether to offer you terms to refinance–and before they decide what terms to offer you.
Your income. People who have a high salary often don’t need as many concessions as those with a low one, but at the same time, it’s often easier for them to get great loan rates. A high income at a stable job makes you a good risk for lenders, while a low-income position may leave them wondering if you’re going to be able to pay them back. If you’re currently unemployed and/or not receiving income, it may not be the right time to refinance your student loans, since lenders may see you as a high-risk borrower.
Your debt-to-income ratio. How much debt do you have? If you coasted through college on nothing more than your student loans and haven’t taken on a great deal of debt since then, your debt-to-income ratio probably looks pretty good. However, if you’ve accumulated a great deal of debt–a mortgage; a car loan; credit card debt–you may have more trouble getting good rates for a student loan refinance. You may also struggle if you’ve made a recent large purchase on credit. Take timing into consideration before you opt to refinance your student loans.
Should You Apply to More Than One Lender?
If you’re thinking about refinancing your student loans, you aren’t stuck with the first lender you apply to. In fact, it’s often reasonable and even expected for you to apply to more than one lender. When you’re applying, consider what factors matter most to you. Do you want to work with a local bank or credit union? Are you hoping for great interest rates? Do you need flexibility in your payment options? Before you settle on a specific lender, see what others might offer you. You may be surprised by how much of a difference there is between one lender’s offer and that of another.
Do You Work in a Profession with Student Loan Forgiveness?
If you took out federal loans, you may have more options than you think. If you work for a nonprofit organization, or for certain federal programs, you may qualify for student loan forgiveness. Doctors and nurses who work for such organizations, teachers who work in some low-income districts, and people who work for a range of federal programs need only make 120 qualifying payments before they can see the rest of their loans forgiven in full. If you work in one of those professions and you are eligible for student loan forgiveness, you may not want to opt for a private loan through refinancing as private loans typically do not offer such forgiveness benefit.
Do You Have a Cosigner?
If your own credit is poor or you weren’t able to secure great rates on your own, consider how having a cosigner can help improve your ability to get a great rate when you refinance your student loans. A cosigner could be a spouse, a parent, or another family member who is willing to help you out. If you’re considering a cosigner, remember that they’re doing you a favor and binding their credit to your financial decisions. If you do use a cosigner, you are responsible for making your monthly payments on time to avoid creating a negative impact on their credit.
Do You Have a Variable Interest Rate on Your Loan?
In an effort to save money, some students opt for loans with variable rates. Unfortunately, variable rates come with their own set of challenges–like the anticipated federal reserve rate hikes coming through 2020. If you’re paying on loans with variable rates, you may suddenly find yourself getting hit with higher interest rates. This can make it harder for you to pay off your loan. If your loan has a variable rate, you may need to act quickly to lock in a lower interest rate before the hikes hit.
Are You Still Within Your Grace Period?
Most of the time, before you can successfully refinance your student loans, you’ll need to graduate and spend time working. Some students, however, may find that they need to refinance their loans shortly after graduation. If you have great credit and have already started work in your field, you may find that you’re in a position to refinance. Before that happens, however, consider whether you’re still in your grace period.
Are you thinking about refinancing your student loans? Do you still have questions or concerns? Whether you’re unsure about if student loan refinancing is right for you or you’re not sure where to start, Lendkey can help. Contact us today to learn how we can make it easier for you to acquire or refinance your student loans.