Refinancing student loans is great way to renegotiate the terms of your loan or snag a lower interest rate if you have a good credit score. However, refinancing may not be the right solution for everyone. Ask yourself these X questions to determine whether or not refinancing is the best option for you.

What Is My Main Goal For Refinancing Student Loans?

Not everyone chooses to refinance their student loans for the same reasons. Some refinance to lower their monthly payments because they are struggling financially. Others choose this option to increase their monthly payments so they can clear their debt faster. Still others may choose to refinance for a lower interest rate.

So why do you want to refinance your student loans? A lot will depend on your current financial circumstances.

1. If you have a steady, high-paying job, refinancing with higher monthly payments may be a great option for you. You’ll pay off your loan faster and save thousands of dollars in the process.
2. On the other hand, if you’re struggling financially, refinancing with lower monthly payments can help make the monthly payments more affordable. You will end up paying more on your loan in the long run. But for the present moment it will help you avoid the dreaded default.
3. If you’ve managed to build your credit score, lenders will offer you a lower interest rate on refinancing. Even a marginal rate reduction can save you thousands of dollars in interest over the life of the loan.

No one option is right for everyone. It’s important to be clear about which of these outcomes you are hoping to achieve when you refinance student loans. This will help you choose a loan that’s best suited for you.

Am I Sure I Want To Give Up My Federal Student Loan Protections?

Refinancing federal student loans is not a decision you should rush into without giving it serious thought. These loans come with several protections including:

• Alternate repayment plans such as affordable income-driven repayment plans
• Deferment or forbearance options under certain circumstances
• Federal student loan forgiveness if certain criteria are met

Income-driven repayments, deferment, and forbearance shield you if your financial situation is uncertain and you’re struggling with payments. Forgiveness wipes out part of your debt if you choose to teach in underserved schools or work in specific public service roles.

When you refinance, federal student loans get converted to private loans and you lose all the protections associated with the original loans. This action is irreversible. It’s advisable to consider your income and your financial circumstances before choosing this option. Only refinance federal student loans if you’re confident you won’t need the associated protections now or any time in the future.

Do I Meet Lenders’ Refinance Requirements?

Every lender sets their own eligibility criteria for refinancing student loans. Before you make plans to refinance, have you checked that you meet lenders’ requirements?

Most lenders will require you to meet these criteria to get approved for refinancing:

• Have a minimum credit score of 650
• Hold a steady job with consistent income
• Have completed your degree
• Graduated from a college located in the US
• Have a low debt-to-income ratio preferably under 50%
• Be up to date with your mortgage or rent payments
• Do not have any student loans currently in default

Very few lenders will waive these basic requirements. If they do, they will charge you a higher interest rate to offset their risk.

Have I Compared Rates And Terms From Different Lenders?

Signing up with a lender offering the lowest interest rates could be a mistake. Very often, lenders entice prospective borrowers with rock bottom rates and then make up for it with hidden fees. Depending on the hidden charges you may end up with a loan that’s far more expensive than you expected.

While scoring the lowest rate is important, it’s just as important to consider these other factors when comparing lenders:

• Hidden charges such as origination fees
• Repayment options
• The option of fixed or variable interest
• Special considerations for borrowers experiencing financial hardship

Even after you’ve identified a lender offering the best terms, don’t rush into signing any loan agreement. Take time to go through the fine print carefully. Better still if you can get a third person to take a look at the lender’s terms and conditions. Don’t hesitate to get clarifications if you have any doubts.

Reaching out for clarifications is also a great way to evaluate the lender’s customer service. If they can’t be bothered to answer your questions now, chances are they aren’t going to help you later either. That’s reason enough to cross them off your shortlist and consider another lender.

Comparison shopping is an important step in your student loan refinance process. It is key to finding the best lender for you and getting the best rates and terms on your refinanced loan.

• Check out our reviews of the top student loan refinance lenders! 

Do The New Payment Terms Meet My Needs?

When you refinance, it could change the number of months or years you have to repay the loan. In most cases, it may also change the cost of the loan.

If you increase the monthly payments, it will reduce the life of the loan and also lower the cost of the loan. Not only will you be debt free faster but you will also save thousands on the interest. However, you must make sure that you can afford to make the higher monthly payments. This is not the option for you if you are already struggling to make your payments.

If you lower the monthly payments, it will increase the life of the loan and also increase the overall cost of the loan. You will take longer to pay off your debt with this option. You will also pay more by way of interest. However, it will reduce the risk of defaulting now, which may be worth it. You can always refinance again when your financial situation improves.

Before signing any refinance agreement, understand the monthly payments and how long you’ll be obligated to make these payments. Recalculate your income and expenses to make sure you can meet the new monthly payments. Having a clear understanding of the new payment terms is a crucial first step when refinancing student loans.