Best Options for Refinancing Student Loans

Getting through college is a great achievement. What’s not so great is the pile of student loans waiting for you after you graduate. If you’re struggling to pay back your loans and you’re considering refinancing, let Benzinga help you navigate your best options and important factors to consider during the refinancing process. 

When you look at student loan refinancing, it could be your graduate student loan, an undergraduate student loan from years ago or you might be carrying student debt for your kids. In any event, this is much like the mortgage refinance process. You’re looking for the best rate and terms to reduce the cost of the loan, cut down interest payments and manage your debt properly.

Let's take a look at the best options for refinancing student loans.

Refinancing Student Loans

How do you refinance student loans? It’s a lot easier than you think. Use these 4 easy steps to make some headway with your student loans so that you can both uncover the best private student loans, alter your repayment options, create your own debt cancellation plan and save money.

1. Compare Rates from Various Lenders

Before jumping into a contract with a lender, make sure you look into various lenders and compare interest rates, fees and the quality of customer service. These are the main factors that impact your long-term refinancing experience, so take time to find the best options that work for your budget and banking preferences. 

Interest rates on these loans are offered as variable or fixed. Variable rates can fluctuate with the market while fixed rates stay the same over the course of time.

Most lenders ask for information such as your monthly mortgage, income, total loan debt and credit history to give you an estimated rate and a range of loan terms. If you can, you should look into lowering your debt-to-income ratio, paying off other debts and raising your credit score so that you get the best possible refinancing options.

2. Choose a Lender and Loan Term

Does your credit history meet the right criteria according to the institution you’ve applied to? Lenders may be able to offer you various repayment term lengths. A longer term can help lower your monthly payments and free up some of your monthly income but you’ll accrue more interest in the long run. 

At the same time, you should compare the aforementioned rates against available terms and your potential monthly payment. Some lenders might offer low rate but short terms. You need to find a balance that will make it easy to pay off the loan in the timeframe you prefer.

Besides interest rates and terms, factor in prepayment penalties. Some lenders enforce prepayment penalties for trying to pay off the loan earlier than outlined in the loan agreement since institutions profit from charging you monthly interest. Make it a point to prioritize lenders without these penalties if you think you want to pay off your loan ahead of schedule. 

If you’re between jobs after graduation, you can also prioritize lenders with unemployment protection or economic hardship forbearance programs. 

After you’ve compared your options, you can choose the lender and term that works best for you. 

3. Apply for Refinancing

To lock down your refinance, you’ll submit documentation such as loan statements and proof of income and you need to agree to a hard credit check. You will most likely need:

• Your Social Security card or government ID
• A valid driver’s license or passport
• Proof of income such as pay stubs or a job offer letter
• Official statements for all your federal and private loans 

If you’re applying with a cosigner, you’ll also provide your cosigner’s information. 

4. Keep Paying Off Your Debt as You Wait for Your Loan

The process for approving a refinance loan application usually takes 2 to 3 weeks. While you wait, it’s important for you to continue paying off your current loans. Only stop paying your current servicers when you get the green light from your new lender. Additionally, you want to keep your credit score as high as possible because lenders might check your credit again as the loan approaches its closing date.

Best Lenders for Refinancing Student Loans

If you’ve already tried searching for lenders, you might have found a few that were not offering optimal loans. You’re looking at closing costs, a new repayment term, a new loan amount in some cases and more.

Here are some of the best and most accessible lenders for refinancing your student loans. 

Refinancing Student Loans With a Cosigner

The hardest part of finding a refinancing option for your student loans is making sure you qualify. While it’s wise to work on your credit score, you might also want to have a cosigner join you on the loan. Having a qualified co-signer can help you get approved and get offered lower interest rates. This could be a relative, spouse or a trusted close friend who is comfortable having equal financial responsibility for your loan. 

You want a cosigner who has a good to excellent credit score and a stable monthly income. Some lenders will even allow you to release your cosigner from their responsibility for the loan after you get approved, and if you meet certain requirements. 

Credit Score

As mentioned above, your credit score is based on your financial history and lenders take that into account when putting together a loan offer. Some lenders don’t enforce a minimum credit score for applicants, but the lenders that only offer loans based on a credit minimum generally require a score in the mid-600s and higher. 

Student Loan Refinance Timing

If you think you’re paying too much in interest or if you have high monthly payments, refinancing your student loans might be a smart choice. If you have enough steady income to pay off your loan fast, lenders might offer terms that work with your timeline. 

Refinancing vs. Consolidation

Consolidation involves combining multiple student loans into 1 loan. Consolidation allows you to keep certain loan benefits and lets you potentially change your repayment plan for a lower monthly payment or an extended term. You can even combine multiple loans under a single consolidation plan.

Refinancing, on the other hand, allows you to take on new loan with a new term and rate. You can refinance multiple government and private loans, but refinancing must be done through a private lender since the government doesn’t offer the option to refinance. 

In both cases, you can change your student loan payment, adjust your student loan rate and better control your school loans. This is also helpful if there are parent student loans that might get in the way. In some cases, you might want to refinance your mortgage at the same time.

Types of Student Loans Eligible for Refinance

Both government and private student loans are eligible for refinancing through a private lender. Because private lenders might not offer favorable options that you get with government loans, review each loan package carefully as you might experience quite a change when moving to a private lender.

For example, you might not be able to refinance a consolidation loan because that loan might have the best rates you can get. Reach out to your loan servicer to see what’s possible.

Refinance Your Student Loans Today

Don’t let the stress of looming student loan debt overshadow the pride you feel after finishing your degree. Remember to compare multiple refinancing options and lenders to make sure you’re getting the best offer.

Also, consider cosigning with a responsible loved one to maximize your chances of getting approved and finding the best rates/terms. From graduate students to handling post-forbearance payments and adjusting your repayment options, there’s an option for every student.