Student loans can be a pain! And if you plan on paying yours off before you are 80, you've probably considered a few options to pay them off faster. One of those options may or may not have been to refinance a student loan or two. If you've never done any refinancing before, the term alone can be intimidating. So what I want to do here is walk you through the things you should consider before you decide to refinance a student loan.
What is Refinancing Exactly?
Before we can decide if refinancing is right for you, it's best to make sure you have a clear understanding of what it means. The phrase, “refinance a student loan”, means a lender pays off the student loan for you and issues you a new private loan. With this new loan, you will get a new, (hopefully lower) interest rate.
Refinancing a student loan is not the same as consolidating a student loan since consolidating just means adding all your loans into one account with one interest rate. Unlike refinancing, consolidation does not offer any ways for you to save on student loan interest.
If you decide to refinance a student loan, it can go a long way because it means that you can have a lower interest payment which means lower total payments over the life of your loan AND lower monthly payments as well.
So, you could potentially be saving money almost immediately by refinancing your student loans. And depending on the lender you choose, you have the potential to get some decently low rates. For example, variable interest rates for SoFi start at 2.575%, and fixed rates start at 3.375%.
Who Should Refinance a Student Loan?
If you think you may be a good candidate to refinance a student loan, there are some things to consider. For example, do you have a steady income? Have you graduated from college already? And what is your interest rate now? Maybe, you should consider refinancing a student loan if any of the following apply to you:
- If You have federal and private loans
- You want to get a lower interest rate
- If You want lower payments each month than what you are currently paying
- If your credit score is better than when you initially took out the loans
- You are a college graduate
What Should I Know Before I Refinance a Student Loan?
So you may be considering refinancing. Great! Here are a few things you need to have ready.
You should have an idea of what your current credit score is before the refinancing application. But this part is easy. Just go to a site like credit sesame to get your credit score. It is free to do, and it will not adversely affect your credit score. Plus you should just have a good idea of what your credit score is at all times, and they do a good job of telling you when it has changed.
Employment Income Information
You have to state know how much income you are bringing in annually to apply, so have a pay stub or tax return handy if you do not know this number off hand.
College Graduation Information
If you are still in college, the odds of you qualifying for student loan refinancing are slim to none. So make sure you have your college graduation dates handy.
Your Current Loan Information
Your current loan information is probably one of the most important things to know since you need to know how you can make your situation even better. For example, if you are already paying a 2.00% interest rate for your student loans (lucky you if this is the case), then chances are that getting a lower rate than you are already paying may not be of much use to you. So get an understanding of how much more you owe and what is your current interest rate before applying.
If you have all this stuff ready, you can go about applying to refinance your student loan! But first, let's chat about who should not be refinancing their student loans.
Who Shouldn't Refinance their Student Loans
You may want to rethink refinancing your student loans if any of the followings apply to you:
- You are a teacher or some other profession who could qualify for student loan forgiveness
- If you use income-driven payment plans or use forbearance or deferments. (However, SoFi does offer a forbearance program for 3 months to a year but does not offer income driven payment plans for you.)
- You do not have a stable income
- If you are still a student
Where do I go to sign up?
While there are many student loan refinancing lenders out there, I have been very impressed with SoFi.
SoFi, Also known as Social Finance is a finance company that really believes in saving you money. Not only do they do student loan refinancing, but they do personal loans, mortgage loans, life insurance and will even manage your stock portfolio.
In regards to their student loan refinancing plans, they have the lowest rates I've seen in regards to variable rates, and they go above and beyond compared to some other lenders out there. For example, if you happen to lose your job, they will pause your loans for you for up until a year until you are back on your feet again.
And they have career and wealth advisors you can chat with on the phone to help you better finances. Mind you; these advisors do not cost you anything extra. The wealth advisors are available to anyone using their loans!
SoFi will even give you discounted rates for their other loans if you decide to take out a personal loan or a parent loan later down the road. They even claim that their members save an average of $288 a month and a total of $22,359 when they work with them, which sounds incredibly promising.
All-in-all SoFi gave me the warm and fuzzies just because they show they care about the customers and are offering a much-needed service to millennials who are drowning in student loan debt! There are no origination fees, or prepayment penalties and they have a goal in mind to save you as much money as possible! You can check your personalized rates online in just 2 minutes by going to the link below.
Student loan refinancing is not an option for everyone, but it can be an option for many that could save you a lot of money. It is worth doing a little research since you have the potential to be saving $200+ a month! Has anyone here ever refinanced a loan before? Let us know about your experience in the comments.