How to Refinance Student Loans in 7 steps

The constant drop in interest has made it attractive to refinance student loans. Ideally, refinancing student loans can assist you in obtaining a reduced interest rate, lowering your monthly loan payments, and improving repayment terms.

 

Refinancing isn't always a smart move, nor is it always possible for every student loan borrower. There are several drawbacks to refinancing federal student loans that you should be aware of. The major drawback to refinancing federal student loans is that it can strip you of your eligibility for student loan forgiveness programs and repayment plans.

 

However, if you refinance student loans under the right conditions, it could save you lots of money over the life of your loan. In general, refinancing a student loan can help you get out of debt faster and possibly lower your payments, but it is dependent on whether you qualify for a good deal. 

 

So if this is your first try at refinancing student loans, you have to know what is involved to make the right decision. This article will show you how to easily refinance your student loans.

 

What is Student Loan Refinancing?

Student loan refinancing is when a borrower takes out a new loan to pay off their old loans, at a lower interest rate. Effectively, this moves your loans to a new company. The new company will make a payment covering the full balance of your loans and any outstanding interest. From then on, you’ll make payments to your new lender until you’ve repaid the new loan.

 

Reasons to Refinance Student Loans

You can choose to refinance if you:

1. Have a cosigner and want to release them from your loans by refinancing on your own, without a cosigner

2. Have a credit score of 650 or higher and refinancing would enable you to reduce your interest rate and save money over time

3. Have multiple student loans and want to bundle them into one single monthly payment

4. Want to move your loans to a different company for another reason

5. Want a lower monthly payment

 

Steps to Refinance Student Loans

Before you start the application process to refinance your student loans, the first step to refinancing student loans is to take some time to figure out what you want. Come to the table knowing which loans you want to refinance, how quickly you will be able to pay them off, and how much you can afford each month.

 

Here is how to move forward once you’ve decided you want to refinance.

1. Check your current credit 

2. Shop for the best rates

3. Choose a loan offer

4. Fill out an official loan application.

5. Sign your loan documents

6. Continue paying your old loans until your new lender pays them off

7. Start paying your new loan

 

 Check your Current Credit

It is wise to get an understanding of where your credit currently stands before filling out loan applications. If you find out that your credit isn’t in the best shape, first work to improve your credit before trying to refinance.

 

The better your current situation, the lower your refinance rates may be, and the more money you could potentially save over time. The ideal borrower is someone with a good credit history, including a minimum credit score of 650, a relatively low debt-to-income ratio, and stable employment.

 

You can also request a full credit report for free from AnnualCreditReport.com. The federal government requires each of the three credit bureaus—Experian, Equifax, and Transunion to provide consumers with a free credit report once per year. The credit report would show information credit card companies and other lenders have about your account status and credit checks.

 

Shop for the Best Rates

There are a lot of different student loan refinancing companies out there, and you must do your research to find the best student loan company for you. It is not just about the interest rates, search for a suitable lender who is understanding, flexible, and treats you like a real person. Most importantly, find lenders with the lowest rates to finance your student loans. Search online to compare lenders’ rates and fees.

 

Choose a Loan Offer

Once you have reviewed several loan offers, you will be better equipped to choose the one that suits you best. The lender you choose to work with may let you select your preferred repayment terms as well.

 

A shorter loan term (e.g., five years) might help you secure a lower interest rate and pay off your debt faster. However, your monthly payment is likely higher. If you extend the loan term, on the other hand, you could reduce the size of your monthly payments and make managing your budget easier. 

 

 

Fill Out an Official Loan Application.

After choosing a lender, proceed with signing the final disclosure documents. Get together everything you need to complete your application. Just remember, you will save both yourself and your lender a lot of time (which equals money) and stress if you come ready with all the right paperwork, as it will make the process smoother and faster.

 

You may be required to provide your lender with copies of documents and information, such as:

Proof of citizenship (i.e. – Social Security number or a permanent resident card number)

Valid Government-Issued ID (i.e. – driver’s license or passport)

Proof of income (i.e. – pay stubs or a job offer letter)

Student loan Statements

Proof of graduation

Proof of employment (paystubs, W-2, etc.).

 

Different lenders might have slightly different requirements, but the gist will be the same. You could also be prompted to create an account so you can revisit your information later. If anything is missing, the lender will notify you. You can also call or chat with customer service if you have any questions.

 

After entering this data, the lender will instantly run a soft credit check. Again, this check won’t impact your credit score. If your income and credit score meets the lender’s eligibility requirements, you’ll see a range of offers you can choose from.

 

If you’re applying with a cosigner, you’ll also provide that person’s information. You’ll upload any supporting documentation to your online account with the lender.

Sign your Loan Documents

Once your loan is approved, you will be required to sign your loan documents. Technology has made this step considerably easier as most student loan companies now handle their entire process online for ultimate convenience, unlike before when you would have to sign loan documents in person, fax them, or mail them in. So, you sign the loan documents to authenticate the process.

Continue Paying your Old Loans until your New Lender Pays Them Off

Keep in mind that your new lender may not pay off your former loans right away. Sometimes the process can take a few weeks to complete. While you wait for them to pay off the loan, continue making any student loan payments that come due so that you don’t face late fees or potentially negative credit reporting. This means that after signing your loan documents, you keep making payments on your old loans until the transfer officially goes through. Only stop paying your current servicer when you get the green light from your new lender that the loan has been paid off.

 

Repay the Refinanced Loan

Once the original loan has been satisfied, it is then time to set up a new payment schedule for your current, refinanced student loan. Many lenders offer an interest rate discount when borrowers enroll in auto-pay to make payments, which also makes remembering to pay less stressful.

 

Factors to Consider Before you Refinance Student Loans 

1. Type of Interest: before you refinance your student, consider the type of loan as it may have an impact on the refinancing. For instance, refinancing a Federal loan will make one lose Federal protections such as; income-driven repayment plans, federal forbearance and more.
2. Current Interest Rate: most persons choose to refinance when the interest rate is low in other to save money and pay less. So, consider the current interest rate before seeking to refinance student loans. Ensure that the interest rate is low before embarking on refinance. 
3. Monthly Payment: if you have an unfavourable monthly plan, you can seek to refinance your student loans but you must work on getting a favourable repayment plan when you refinance a loan.
4. Remaining Time Left: if your loan is almost paid off, it is cheaper to stick with the loan you already have. This is because refinancing it into a longer repayment period could increase the overall amount of interest on your loan. However, if the loan is still new, then refinancing will be a great idea.

 

In Conclusion

Before you start any refinancing process, ensure you have researched it to know what you want and what to expect in the process. This research will help you make an informed decision on it at all times. Always use a student loan calculator to compare your current loan with any new loans you are considering.