How to Refinance a Student Loan Entirely Achieved Painlessly

How to Refinance a Student Loan

How to Refinance a Student Loan

Need to know how to refinance a student loan? You’re not alone. Many millennials and Gen X’s are now finding that their student debt is having a massive impact on their current and future finances.

How to Refinance a Student Loan

In fact, if you’re $30,000 in student debt, your 401k balance could be $325,000 lighter by the time you want to retire. Yikes.

Those interest rates are no joke. But fortunately, it’s possible to refinance a student loan. This allows you to consolidate your federal and private loans into a single loan which would have a lower interest rate.

That means lower monthly payments, so you can breathe a little easier each month. You can use the extra money to pay your loans off quicker, contribute to your Roth 401k, or pay off your credit cards.

Read on to learn how to refinance a student loan.

Conquer Your Debt and Refinance a Student Loan

If you’ve got some hefty student loans, it can be a little terrifying just thinking about the details. This is especially true if you feel like you’re barely getting by each month.

For many people, it’s easiest to just set up their monthly payments and try to forget about them. But if you’re ignoring the bigger picture, you may be missing out on cold hard cash.

You may be unaware that a large chunk (often most) of their payments go towards interest every month. So even when you’re paying hundreds of dollars of hard-earned cash, you’re barely making a dent in your student loan.

Refinancing is the answer. Here’s what you need to know about how to refinance a student loan.


Refinance Your Student Loans

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Check Your Credit Score

Your credit score demonstrates how financially responsible you are. Lenders will evaluate your credit score to see if you’re likely to pay on time and meet your financial obligations.How to Refinance a Student Loan

To finance a student loan, you’ll need a credit score of at least 650. If you want numerous options or to maximize your chances of getting approved, aim for 700 or higher.

Consider Your Income and Expenses

Private loan companies have strict underwriting criteria. That’s why they need to see that you have a stable and recurring income.

You’re most likely to get a good refinance offer if you have a solid income relative to the amount of debt you have. But keep in mind that it’s not just student loan debt that lenders are looking at. They’ll also consider any other debt or loans, like a car loan or credit card debt.

If you have a poor income to debt ratio, you can also use a co-signer to improve your chances of getting a good refinance offer. And even if you don’t qualify for the best offer right now, you can try again later.

Focus on paying extra towards your other debts, and once you’ve reduced them you can apply for student loan refinancing in the future.

Demonstrate Employment

You should either have a written job offer or already be employed when you try to refinance a student loan. Some private lenders may provide refinancing while you’re in school or residency, but most will require you to have some type of work experience.

If you’re underemployed (or unemployed) it will be more difficult for you to get refinancing approval, but you can still try with the help of a co-signer.

Think About the Loan Term

The main reason most people refinance a student loan is to get a lower interest rate. And while this will save you money over time, there’s also another piece of the puzzle to consider.How to Refinance a Student Loan

Choosing a shorter loan term will save you the most money. While your monthly payments will increase, your loan will be paid off quicker, and you’ll end up paying much less interest.

If you can afford higher monthly repayments, this can be one of the best ways to get your student loan paid off quickly, so you can move on with your life and focus on other financial goals.

Avoid Fees

Most lenders won’t charge you a fee for refinancing. That’s why it’s best to shop around. If you need to pay an origination fee, ensure that it’s worth paying before you sign on the dotted line.

If you’re going to be paying your loan off over a long period of time, and the lender is offering the best deal, the fee may be worth it. But if you’re hoping to get your loan paid off quickly, stick to lenders that don’t charge extra fees.

Consider Variable or Fixed Rate

Variable interest rates will usually be lower than fixed rates. That’s because they’re a riskier option. It’s hard to predict when rates will rise, which is why it’s a good idea to take a good look at the economy and read the financial news before you refinance.How to Refinance a Student Loan

When interest rates rise, so do your payments. But if you wait until they’ve already risen, you’re unlikely to be able to refinance. For this reason, fixing the rate can be the best option, unless you know you’ll pay your debt off quickly.

Some lenders may have variable rates, but they’ll be capped so you can work out the highest monthly repayment you can expect. Just make sure that you choose an option that won’t make it impossible for you to pay your student loan if rates suddenly rise.

Refinancing Options

According to Credible, the average borrower can save $19,000 by refinancing. Here are a few options for you to consider:

SoFI

Established back in 2011, SoFi focussed on professionals like MBAs, lawyers, and doctors. Now, both undergraduate and graduate degree earners can apply and see average savings of $316 per month.How to Refinance a Student Loan

Laurel Road

Laurel Road offers consolidation and refinancing of both federal and private loans. It also offers options for parents on how to refinance a student loan that they took out for their kids, as long as they’ve now graduated and are working.

CommonBond

CommonBond can help you save $24,000 on average, and offers loans refinancing options for undergraduates, graduates, and parents.

Ready to Refinance?

Are you deciding whether to refinance a student loan? Leave a comment below and let us know your thoughts!

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2 Comments

  1. Wish I had availed myself of the knowledge and direction you are sharing when I was in my 20’s!!! Better late than never!! Thanks!

    • Hi Anna,

      I hope the article was helpful. It’s never too late to learn how to manage your finances. If you’ve made some mistakes (who hasn’t) and are just trying to learn more, you can apply these same concepts on how to refinance a student loan to other forms of debt like car loans and home loans.

      If your student loan debt is paid off, maybe you can impart some of this new found knowledge on your children or close friends and family. They will be indebted to you for it.

      Thanks for commenting.

      Patrick

      Credit Squared

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