When it comes to finances, many people have questions. Students and recent graduates, especially, are learning how to manage their money and deal with their debts. It makes sense, therefore, that they would have many questions surrounding student loan refinancing. Here we’ll discuss many of the FAQs about student loan refinance.

Let’s start off with the most basic question of all: what is student loan refinancing? Student loan refinancing involves taking a new loan from a private lender to pay off one or more existing student loans. The goal of refinancing is to get a new loan with better terms.

Should I refinance student loans?

In general, refinancing student loans is a good idea as it allows you to change the terms of your existing loans. If your finances and credit score have improved, your new loan will have a lower interest rate. If you’re struggling to meet monthly payments, you can extend the term of your loan to reduce the monthly payments.

Can I refinance federal student loans?

Yes you can but you must understand the downside of choosing this option. When you refinance federal student loans they get converted to private loans. As private loans you lose all the benefits and protections associated with federal student loans. This is something to think about especially if you’re pursuing forgiveness. Take time to assess the risk – rewards of giving up these protections before you choose to refinance federal student loans.

Which lender should I pick?

Pick a lender that’s offering the lowest interest rate without charging any origination or other hidden fees. Most lenders don’t charge any fees. However, some offer rock bottom interest rates to attract borrowers and offset this low rate by charging additional fees.

• Learn more about the best lenders and compare their rates side by side right here!

Can I refinance student loans multiple times?

Yes, you can. Technically, there is no limit to the number of times you can refinance student loans.  (Though hard credit checks do affect your credit score so it’s not advised to refinance recklessly). Refinancing when your finances improve will get you progressively lower interest rates, racking up your savings.

What’s a good rate for student loan refinancing?

There is no set rate for student loan refinancing. Lenders will calculate a personalized rate for you based on your financial situation. Your credit score, monthly income, and debt-to-income ratio are the three main factors that will impact your rate for refinancing. A good rate for you is any rate that’s lower than your current rate. Even the smallest decrease in interest rates can make a big difference over the life of the loan.

How can I score the lowest interest rate on student loan refinancing?

Interest rates for student loan refinancing are based on your credit score and your debt-to-income ratio. Working on improving your credit score and lowering your debt-to-income ratio are two things you can do to score lower rates.

What is a good debt-to-income ratio?

A 40% debt-to-income-ratio is what the Federal Reserve has set as an indication of financial stress. Most lenders use this as the basis for their evaluation. Anything lower than 40% is considered good and should get you approved more easily. You’ll pay a lower rate of interest too. To calculate your debt-to-income ratio, add up all your monthly debt payments and divide that by your gross monthly income.

How do I find the best rate for me?

Lenders usually publish a set rate on their site. It’s important to know that this is not the rate you’ll pay. Every lender sets their own standards for calculating personalized rates. Comparing multiple lenders is the best way to find one that’s offering the lowest rate given your financial situation. The most efficient way to do this is by using a student refinance loan calculator. This allows you to compare several lenders at the click of a button and you’ll get the results right away.

Can I refinance student loans with bad credit?

Most lenders will reject your application outright if your credit is bad. Bad credit indicates that you’re an irresponsible borrower. Lenders prefer to avoid the headache of collecting delayed payments and will reject your application. The few who do approve will charge you higher interest to compensate for the higher risk they are taking. The solution is to apply with a creditworthy cosigner. In this case, the lender will take the cosigners financial credentials to set your interest rate.

Can I refinance my Parent PLUS Loans?

Yes, you can refinance Parent PLUS loans. Parent PLUS loans are the most expensive of all federal student loans. Ideally, the earlier you refinance these loans, the more you’ll save with the lower interest rate. You can even choose to increase the monthly payments so you can clear your student loan debt faster. However, you will lose the Public Service Forgiveness protection if you refinance Parent PLUS loans. If you’re not pursuing forgiveness, you’ll save a lot by refinancing PLUS loans as soon as you qualify for a lower rate. If you are pursuing forgiveness, weigh your options before refinancing. In some cases, it’s still better to refinance and save on the interest.

What are the different student loan refinance options?

Lenders will offer you various options so you can customize your loan terms based on your short and long term goals. One option is the choice between fixed and variable interest rates. The other option is the choice between short and long repayment terms.

Should I get a fixed or variable rate for student loan refinancing?

There are pros and cons to both options. With a fixed rate, your monthly payments remain the stay till you’ve cleared your debt completely. This makes it easier to budget and make long term plans. The downside is that you won’t benefit from falling interest rates. Also, starting fixed rates are typically higher than starting variable rates. With a variable rate, your monthly payments can change anytime depending on market fluctuations. Your monthly payments may decrease when weak markets cut down interest rates. On the other hand, they may increase if stronger markets push rates up.

Ideally, you should choose fixed rates if you’re looking for a longer repayment term as that helps even out the rates. Variable rate is the better option if you’re looking to pay off your loans quickly. This helps you benefit from the lower starting rates and also reduces the impact of any increase in rates.

Should I choose a short or long repayment term?

This depends on your financial circumstances and your long-term financial goals. Choosing a short repayment term will save you more money over the life of the loan. However, it will increase your monthly payments substantially. This is a good option for you if you can afford the higher monthly payments. Extending the repayment term will lower your monthly payments and free up cash for your everyday expenses. However, you will pay more interest for the extended loan period. This is the better option for you if your budget is tight and you’re at risk of defaulting on your loan