Student loan refinancing involves exchanging your current student loans for a new loan with new terms. This can only be done through private lenders. The Federal government doesn’t offer student loan refinance.

Why would anyone want to refinance their student loans?

Refinancing is the only you can change the terms of your existing student loans. You may want to do this for a number of reasons:

• Lower Interest – If your credit score has improved since taking the first loan, you’ll qualify for a lower interest rate. You’ll also get a lower interest if you refinance when markets are down.
• Clear Debt Faster – If you can afford the higher monthly payments, you can refinance to reduce the loan term. Not only will you clear your debt earlier but you’ll also save thousands in interest over the shorter term.
• Lower Monthly Payments – If you’re struggling financially, you can refinance to extend the loan term. This will lower your monthly payments. You will pay more in accrued interest over the longer term. But you’ll avoid the more serious consequences of defaulting on your payments.
• Variable and Fixed Rates – If markets are down, you can lock in the lower fixed rate for the loan term. This protects you from market volatility and also makes it easier to budget.

What are the downsides of student loan refinance?

There are really no downsides to refinancing private student loans. Private student loans don’t come with any benefits or protections so you have nothing to lose by refinancing. If your credit score has improved significantly and you qualify for a lower rate, you should definitely refinance.

You have to be more careful with federal student loans though. Federal student loans come with a few important benefits and protections but there’s no refinancing option. You can only refinance with private lenders. When you do this you’ll lose the benefits and payments associated with the original loan including income-based repayments and forgiveness. Refinance federal student loans only if you’re sure you won’t need to use these protections.

Can I refinance only my private student loans and keep my federal student loans?

Yes, you can. You can choose to do a partial student loan refinance where you only refinance some loans and keep the others as is. In this case, you’d only refinance your private student loans and keep the federal student loans federal.

If you have multiple private student loans you can choose to refinance only a few. You can even opt for a partial refinance on a single student loan. This is known as underpayment and involves asking the lender to pay off only a part of the balance.

Take some time to calculate which option would save you the most money before refinancing.

When is the best time for refinancing?

Ideally, you should consider refinancing when your credit score has improved and you qualify for a lower rate. Refinancing when your score is good and market rates are down will get you an even lower interest rate.

You can refinance multiple times, which means you can refinance again when your score improves some more. You’ll qualify for an even lower score, adding to your savings.

What are the costs associated with refinancing?

Refinancing doesn’t cost anything. Most reputed lenders don’t charge any fees for this service. Don’t get it for granted though. Some lenders offer rock-bottom interest rates and make up for it with ‘miscellaneous fees. These could be in the form of origination fees or service charges. These details will usually be hidden in the fine print. Before signing any contract, always take time to read through the terms and conditions in detail.

What are the requirements for student loan refinance?

The specific requirements may vary among lenders. Most lenders will require a good credit score, a low debt-to-income ratio, and a certificate of graduation.

Can I refinance student loans with bad credit?

Generally, you’ll require a minimum credit score of 650 – 680 to be approved for refinancing. Most lenders won’t approve your application if your score is lower than their stated minimum. The few lenders who do approve will quote a higher interest rate to offset the higher risk involved.

What I can do to get a lower interest rate when refinancing student loans?

Your credit score and debt-to-income ratio are the two most important factors in determining your loan interest rate. Work towards boosting your score and lowering your debt-to-income ratio to get a lower interest rate on your loan. These are some concrete things you can do:

• Make all loan and credit card payments on time every month
• Keep your credit utilization ratio low
• Cut back on unnecessary expenses
• Look for ways to increase your income
• Keep old credit accounts open to increase the length of your credit history

How do I choose the best student loan to refinance term for me?

Choosing the shortest term possible will save you the most. However, it will also increase your monthly payments substantially. Before choosing a shorter term, you must make sure you can afford the higher payments. Choosing too short a term can put you at high risk of default, which has serious consequences.

The first thing to do is calculate your total income and essential expenses for each month. Determine how much of the leftover cash you can afford to put towards your total monthly debt payments. Use a refinance calculator to figure out the best loan term based on how much you can afford to pay every month.

How do I choose the best lender for me?

Comparing lenders using the process of elimination is the best way to identify one that’s a good match for you. Not all lenders offer the student loan refinance option.

Start by doing a search for student loan refinance lenders. This will eliminate all those who don’t offer this service.

Then eliminate by minimum credit score requirements. Some lenders impose high credit score requirements. Eliminate those whose minimum score requirements are higher than your credit score.

Go through the qualifying criteria of the remaining lenders on your list and only shortlist those whose criteria you meet.

Compare the interest rates of the shortlisted lenders. Check if they charge any refinancing fees. Make sure to read through the fine print to look for hidden fees.

Fortunately, Refi.Me can help you compare lenders and rates side by side. Just follow the link below.