Top 5 Questions When Refinancing Student Debt

You’ve taken the steps to learn more about refinancing, that’s great to hear! Refinancing can be a good idea because you can potentially get a lower interest rate, a lower monthly payment, and change the terms of your student debt. But of course refinancing is a big decision, so you should carefully think about it before you enter the process.

Below we have listed top 5 questions most people ask themselves when they start thinking about refinancing their student debt.

1) What are my goals in refinancing my student debt?

The first thing is to understand what your main goals are in refinancing your student debt. There are a lot of great reasons to refinance your student loans including reducing your total payment amount, locking in lower interest rates, reducing monthly payments, or getting rid of your student debt faster. This can often help you choose the best lender and rate.

If you want some help in doing the heavy lifting, check out our student debt plan where we can help you evaluate your goals.

2) What interest rates can I get?

When you refinance your student loans, you are replacing old loans with new loans. You should first find out what your current interest rates are. It is most beneficial to refinance the higher your interest rate is. Federal student loans often have interest rates between 4% to 7% while private student loans can go as high as 12%. After you find out your interest rate, you can check what rates lenders can offer you.

We have seen rates as low as 1.95% with some lenders (check out our lender marketplace for more rates), though this can vary based on your financial profile and the amount of debt you have.

3) What is my financial profile?

You will need to know your financial information such as your credit score, income, and how much you can afford to pay each month for your student debt. Lenders will evaluate this information to see what type of interest rate and term they can offer you. It can often be beneficial for you to refinance now, as your credit score may have improved from when you took out the previous loan so it will be easier to qualify for a refinancing.

To find out your credit score, you can check out Credit Karma or Mint.com. For monthly payments, the federal government recommends you allocate 10-20% of your budget towards student debt repayment. It can often be beneficial to create a budget to figure out the appropriate amount you should set aside for payments.

If you have a weak credit score, low income, or unstable job you might want to look into whether a cosigner is an option. For those who had a cosigner when they originally took out student debt, refinancing may also help them release their cosigner.

4) What is my total loan payoff amount?

Your total loan payoff amount is how much you will be paying for your student loans in full which includes how much you pay and the interest you will incur. This will be dependent on your principal (how much money you borrowed), your interest rate (how much you paid to borrow the money), and your term (how long the loan is outstanding for).

When you refinance you will be getting a new interest rate and term. What term you choose will affect your loan payoff amount . For example, a longer term will mean you pay more interest and have a higher loan payoff amount whereas a shorter term will mean you pay less interest and have a lower loan payoff amount.

5) Do I need flexible repayment terms in the future?

If you have loans through the federal government, it’s definitely important to understand what you give up when you refinance through a private lender. Federal student loans can offer you flexible repayment plans, forbearance options, and deferment options. You should be comfortable with being able to make continuous monthly payments when you refinance.

There will be some lenders that can offer you perks similar to the federal government but in a narrower time frame (e.g., 1 to 2 years). This is often a perk that you should look into when choosing a lender.

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