Last update: 11/28/2020
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Student loan refinance is reducing your current loan burden by taking out a new private loan on lower interest rates to finance your existing high interest rate student loan.
There are several benefits that come with refinancing your loans. The standard benefits that come with refinancing are lower interest rates, flexible payment options, forbearance options with some lenders, no origination fees, no application fees, and no prepayment penalties if you choose to pay off your student loan early.
Another benefit to refinancing is that you can have loan consolidation repackaged all your loans under one single payment. This makes it convenient for the user and you would also have shifted to a new loan servicer if you were unhappy with the previous arrangement.
Federal student loans have a really bad rep with their customer service. An extra benefit for those wishing to switch to refinancing student loans with a private lender is improved customer service. Many lenders have kept their focus on improving customer service while some even offer personal loan advisors with refinancing student loans.
Some lenders do offer auto pay discounts which stands usually at 0.25%. Most lenders will provide rates inclusive of this discount, so you need to make sure you ask for rates exclusive of auto-pay discounts.
In addition, there are incentives for new users to sign up to their refinancing products, which can be in the form of cash bonuses upon signing up, cash bonus for every successful referrer, or even refinancing credit if you sign up through alternative channels.
Student loan refinance is the issuance of new private loans to pay of an existing federal student loan. This allows you to reduce your interest rates at the expense of government protection programs.
Student loan consolidation is simply repackaging all your loans into a single loan. This reduces the problems associated with multiple monthly payments. Loan consolidations can also be done through student loan refinance.
Eligibility: Federal student loans are the only types of loans that are eligible for direct loan consolidation. On the other hand, private and federal loans can be consolidated through student loan refinancing. With student loan refinance, you can replace all your existing loans with a single and new private loan.
Interest rates: With federal student loan consolidation, interest rates do not decrease. Your new interest rate is the average of all the interest rates from the previous loans which you are consolidating. While on the other hand with student loan refinance, you are able to get a new reduced interest rate or the lowest refinance rates on your new private loans. It will be dependent on your credit score and your profile. If you are qualified with a good job and an amazing credit score, expect the best student loan refinance rates. With student loan refinance you could potentially save on thousands of dollars on your student loans.
Loan repayments: With federal student loan consolidation, the standard loan period is 10 years. However, you can avail different repayment plans that can stretch your loan period up to 25 years. As for student loan refinance, it offers more loan payment options. Typically, most of the private lenders will offer 5, 7, 10, 15, and 20 years loan repayment terms. Selected lenders in the market offer even more flexible repayment options. You can go for shorter loan periods with higher monthly payments or lower monthly payments over a longer loan period.
High interest private loans: If you’re currently paying high monthly payments for the private loans you have accumulated, then it makes sense to shift to a loan provider with the lowest refinance rates. This will help you to save money and the decision to refinance private student loans is much easier to make than if you had federal student loans.
Change in the credit score: If your credit score is much better than the time you applied for your loans; you should consider refinancing. Again, this could be done to save you money.
Lower financial capacity: If you do not have enough money left by the end of the month to service your current loan, then we suggest you look towards refinancing. However, keep in mind that your new loan comes with new payment terms.
Personal eligibility looks at your citizenship status and age status. For example, if you’re residing in the USA and do not have any permit residency or a US citizenship, then you’re not eligible for refinancing. These types of eligibility requirements are the most common among all the lenders.
Loan eligibility comes down to how much you are looking to borrow, your current loan principle balance and the conditions your previous debt is tied to. These types of eligibility requirements vary across different lenders. Some might have a minimum cap on the refinancing such as $15,000. If you’re looking to a loan lower than the lenders minimum refinancing requirement, you will not be eligible for the loan refinance. Some lenders might not be able to issue you the refinance because the education you availed might not be from an accredited institute.
Financial eligibility is considered very important and deciding factor on who should receive the refinancing facilities. The financial eligibility involves credit score, your employment status or a written job offer if you’ve joined recently, fulfilment of your financial responsibility by being on top of your monthly bills, and a positive credit report.
What credit score do I need to refinance student loans?
Its challenging to get your loans refinanced if you have a bad credit score. You would require a co-signer to guarantee payments in order for you to get your student loans refinanced. However, there are some lenders that do not allow you to sign up with a co-signer.
Typically, most lenders are looking towards a credit score in the upper 600’s. Minimum credit score required can start from 650 and go up to 680 depending on the lender.
Besides paying off your student loans quicker and sticking to the standard loan period, there are three ways you can reduce your student loan interest rate and they are:
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