Before taking the steps toward refinancing, you must first ask yourself if refinancing is the best course of action for you. Only consider refinancing if you can secure a minor interest rate or more manageable payment terms. You’ll also need to meet the eligibility criteria set by the lender, such as income and credit score requirements.
Before applying to refinance a student loan, ask yourself the following questions:
- Is my credit score high enough to qualify?
- Do I have enough income to negotiate a lower interest rate?
- Am I refinancing private student loans, federal student loans, or both?
- Will refinancing save me money or help me pay off my student debt faster?
- Do I have other debt that I need to work to pay off first?
- Is my debt-to-income ratio low enough to qualify for better refinance rates?
- Will I have a better chance of being approved with a co-signer?
- Am I willing to forego federal student loan forgiveness programs to refinance?
Keep in mind that refinancing your student loan debt often means that federal loan forgiveness programs cannot forgive your loans, as it would convert your federal loans into private loans.¹
Ways to Refinance Student Loans
If you decide that student loan refinancing is the right option for you, follow these steps.
- Do your research. Research the lenders and what they are offering. Find the eligibility requirements you can meet and the features that best fit your needs. Consider factors like flexible payment terms, whether you want a fixed or variable interest rate, and whether you can apply without a co-signer.
- Look for the best rates. Compare rates with banks, credit unions, and online lenders. The goal is to find the lowest rate possible. You may be able to prequalify with some lenders to see what rates they might offer.
- Choose your loan terms and lender. Select the lender and terms that best suit your needs.
- Submit an official application. Gather all your documents. Lenders will ask for your social security number, proof of income and address, proof of graduation, government-issued photo identification, and other documents. If you are applying with a co-signer, you will also need to submit their information.
- Fill out the paperwork. Once approved for the loan, you will need to sign the paperwork to officially accept the loan. You can usually do it online or in person.
- Keep paying your old loans. Once you’ve been approved, you may still have to wait a couple of weeks before your new lender pays off your old loans. While you wait, continue to pay your current loans until you finish the process with your new lender.
Depending on if you are looking to refinance federal or private student loansthere are some nuances that you need to know.
How to refinance federal student loans
You can refinance your federal student loans, when you refinance a federal student loan, it becomes a private student loan.¹ This change is because you must refinance with a private lender like a bank or online lender.
Refinancing federal student loans disqualifies you from any government-sponsored forgiveness initiatives and programs. Consider whether you agree to waive Department of Education protections such as deferral, income-based reimbursement, and patience. If you want to keep these protections, you’d probably be better off consolidation of your loans instead of refinancing them.
How to refinance private student loans
Private student loans are easier to refinance since they are already with a private lender. You just need to search for a lender with better interest rates and apply for approval.
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