The average college student graduates with around $37,172 in student loan debt and pays an average of $351 on those loans every month. To complicate matters, these loans are often a mixture of federal and private loans that are spread out across multiple lenders. Borrowers looking for a way to save money and simplify their finances consider refinancing their student loans. There are, however, a few things to consider before refinancing your student loans.
How does student loan refinancing work?
Borrowers can apply online or in person to refinance their student loans. You’ll need to provide information about the student loans you want to include in the new refinanced loan. Lenders have different minimum and maximum dollar amounts for student loan refinancing, so make sure that your request falls in the acceptable range for that lender. You will also need to provide verification of your income and employment history. The lender will also check your credit history and credit score.
When you refinance your student loans with a private lender, you can include any combination of private and federal student loans. The borrower’s credit history determines the interest rate on the new loan. Borrowers with good credit may receive an interest rate that is lower than those on their existing student loans. Private lenders usually offer loans with maturities that range from five to twenty years.
Why wouldn’t I refinance my student loans?
Under the right circumstances, refinancing your student loans can help you simplify your monthly finances while saving money. Refinancing, however, is not always the right choice. If you refinance your federal student loans with a private lender, you lose all of the benefits that the government offers to borrowers. For example, federal student loans have very generous deferment and forbearance benefits for borrowers who lose their jobs or face other financial hardships. Private lenders generally do not provide the same flexibility for borrowers who have trouble making their monthly payments. If you may consider seeking federal student loan forgiveness in a public service loan forgiveness program, you won’t be eligible after refinancing your federal loan.
When you apply to refinance your student loans with a private lender, the approval decision and interest rate in the offer depend on your credit history and credit score. Lenders also want to see that the borrower has a minimum annual income and has maintained steady employment for at least two years. If you can’t meet those requirements, you’ll need to have a co-signer on your loan. Some lenders allow the co-signer’s obligation to be released from the loan after the borrower makes a specific number of on-time payments. Other lenders, however, don’t provide this option. If you need a co-signer, you’ll want to check the lender’s policy for releasing the co-signer from financial liability.
When is a good time to refinance my student loan?
If you don’t have anyone willing to act as a co-signer on your loan, it’s best to wait until a few years after college graduation to refinance your student loans. Use that time to establish good credit habits and work on your career. Then, you’ll be in good financial standing to get the best interest rates possible when you refinance your student loans.
