A refinance is when you get another loan to pay off your existing student loans. It is up to 1-2 years before you graduate. The interest rate is usually much lower than your current loan when you refinance. It can also allow for a more manageable repayment plan, making paying back your debt much more manageable.
For many college students, student loan debt can be overwhelming. But even more frustrating is when your student loan payments are too high for you to manage, and maintaining a financial budget becomes difficult.
If you are struggling with debt and find yourself unable to get ahead, a refinance might be your answer. This guide will go through all the steps needed to refinance your student loans from start to finish!
5 Steps Of Refinancing Student Loan
1. Decide What to Refinance and Check Your Rates
When you add up your student loan debt, you might be shocked at how much money you owe. That’s why it’s essential to refinance what you can afford. For example, if you have loans with a 6 or 7% interest rate, refinancing them down to a 4% will save you a lot of money in the long run.
You can also check out your current interest rate to see what they are. For example, if your current loan has a 6% interest rate, you can refinance down to a 4% interest rate. However, make sure that you want to do this if you cannot afford the higher cost of your loans.
If you are interested in refinancing but would like an idea of what type of loan you like best for your situation, try comparing loan options at StudentLoans.gov. It can be hard to choose between a Direct Consolidation Loan and a Federal Family Education Loan. The best way is to look at the interest rates and repayment plans available. You can decide which one fits your situation the best.
2. Compare Your Options
Refinancing your student loan is similar to refinancing a mortgage. The most significant difference is that it can be much more expensive. Student loan refinancing fees are standard and can cost you thousands of dollars. There are two types of student loan refinancing: federal and private.
Federal student loan refinancing occurs when you consolidate your federal loans into one loan, making getting a lower interest rate easier. When the federal process isn’t an option for private student loan refinances- you most likely need to have private loans to get a lower interest rate.
When comparing rates, make sure that you are comparing apples to apples. When you compare, make sure that the new loan payments and term length are the same for both loans. Student loan refinances comparison can be challenging. Many student loan companies won’t tell you which loans they have in the marketplace and don’t require you to apply for any specific loan type. If you are evaluating different types of loans, make sure that you include the same interest rate over the same terms for all of your loans to make an apples-to-apples comparison.
3. Get Pre-Approval From Your Bank or Credit Union
The fastest way to obtain a private refinance is to go directly to your bank or credit union and ask for pre-approval for the new loan. However, there is a catch: you don’t want to apply for the loan during high-stress times—like when you are planning to get married, move, start a family, etc. Refinancing during these times can result in higher mortgage rates or a denied loan because of a low credit score or high debt-to-income ratio.
Refinance student loans just like you would refinance your home mortgage. Find out the interest rate and how much you will pay each month. Get the contact information for the lender and make sure you sign up for mailings so that when the time comes, you won’t forget to apply.
4. Compare Loan Options to Figure Out What Works Best For You
First, ask each option to send you a quote or estimate your monthly payments. Then, hold on to the one with the lowest total cost! Remember, though: that not all loans are created equal. Some are much better than others at helping you save money in interest and fees over time. Compare the lender’s loan terms and interest rates to determine which will be the most affordable.
In addition, when possible, make sure to compare both the Federal and Private options for student loans.
Also, look at your credit score because some lenders will only work with borrowers if their credit score is in a particular range.
If you have a low credit score, maybe you need to spend some time working on your credit before you apply for your loan. Many programs can help you build up your credit score, so you can look into those options before applying for your loan.
One way to ensure that you don’t lose money when refinancing student loans is to opt for a pre-paid consolidation loan. Some refinance companies can get lower interest rates on these loans than on fixed-rate loans because the interest rate is locked in before the fact.
5. Apply for a New Student Loan
Once you’ve got your rates locked in and know that you are approved for the right kind of loan, you will be able to apply, if it is a Federal loan, online or over the phone. You might need to provide some required paperwork and application forms—like copays and your most recent IRS tax return. If it’s not a Federal loan, the application form might include a basic credit check and financial information.
The next step is to submit your application. Then, you will wait for your loan to be processed. Once your application has been processed, you can expect to sign a legally binding contract with your lender. If you are not completely satisfied with the agreement terms, you can always cancel it and remove yourself from the contract.
Student loan refinancing is a safe and simple way to lower your monthly payment. It can save you thousands of dollars over the life of the loan by lowering the interest rate and allowing for fewer monthly payments.
They are difficult to refinance because many red tapes are involved with private loans. To find out more about how to apply for private student loans, do an online search on your company’s website or call them directly.