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Saving money is one of the top reasons people consider refinancing their student loans, but whether you do it or not to save money depends on your personal situation. The amount of debt you have, your credit score, the interest rate you qualify for, and the repayment term can all affect your savings potential after refinancing your student loans.
Here’s how much you could potentially save by refinancing your student loans, how to qualify for refinancing, and some pros and cons to consider.
Visit Credible for learn more about refinancing student loans and compare rates from several private student lenders.
How much could you save by refinancing your student loans?
Whether you’re refinancing one loan or a few, you can potentially save money if you’re able to secure a lower interest rate and don’t extend the term of your loan too much.
Refinancing multiple loans into one new loan will streamline your debt repayment. But to save money through refinancing, you need to qualify for a lower interest rate than you got on your original loans. If you’ve improved your credit score since first applying for a student loan, you may qualify for a lower interest rate.
If you stick to the same repayment schedule or choose a shorter repayment term, you will save money. But if you choose a longer repayment term to lower your monthly payment, you could pay more interest over the term of the loan, even with a lower interest rate.
For instance: If you have a $10,000 student loan with a five-year repayment term and go from an interest rate of 7% to an interest rate of 4%, you could save over $800 in interests. Ideally, because you’re spending less on interest, you’ll be able to afford to pay off your student loan sooner than expected, which can help you save even more on interest.
Should you refinance with a co-signer?
If your credit score isn’t ideal, you may need a co-signer with good credit who can help you qualify or get a lower interest rate than you currently have.
Your co-signer is someone who agrees to be responsible for your debt if you fail to repay your loan. Otherwise, both of your credit ratings could be damaged. Because of this risk, it’s important that co-signers understand what they’re taking on and that you have a clear plan in place to make your loan payments on time. Many private student lenders allow you to release a co-signer after meeting certain criteria.
HOW TO DECIDE IF STUDENT LOAN REFINANCING IS RIGHT FOR YOU
How much does it cost to refinance your student loans?
The good news is that there are usually no application or origination fees for refinancing a student loan, and you probably won’t pay a prepayment penalty fee if you pay off your loan early. It’s always a good idea to check the fees charged by the lender before applying.
Since fees aren’t very common when you refinance student loans, your main costs will be interest charges. Refinancing is generally only a good thing to do if you can get a lower interest rate and save money on your student loan payments.
If it will cost you money to refinance your student loans instead of saving money, you may want to delay refinancing. Remember that even if you get a lower interest rate and extend your repayment period, you can still pay more interest over the life of the loan.
You can easily compare prequalified rates from several lenders using Credible.
Advantages and disadvantages of student loan refinancing
Student loan refinancing isn’t for everyone, so it’s important to carefully weigh the pros and cons before making a decision:
- You could potentially save money on interest.
- You can consolidate multiple sources of student loan debt.
- You can choose a new repayment term.
- You will generally not pay any application fees, set-up fees or prepayment penalties.
- You need a high credit score to qualify for good interest rates.
- If you refinance federal student loans into private loans, you become ineligible for federal loan benefits.
- Private student loans are not eligible for the student loan forgiveness recently announced by the US Department of Education.
- There is no guarantee that you will qualify or that refinancing will save you money.
HOW TO PAY OFF $300,000 IN STUDENT LOAN DEBT
How to qualify for student loan refinancing
Here’s a closer look at some general refinance qualifications and how the application process typically works:
- Start by prequalifying yourself. Prequalify with multiple lenders to avoid having your credit hit while you’re still shopping. This gives you an idea of the rates and terms that a lender might offer you.
- Consider your credit score. When you apply for refinancing with a lender, your credit score is one of the most important factors a lender will consider when deciding whether to lend you money and what type of interest rate. interest for which you will be eligible. Lenders also consider other factors, such as your income and debt-to-equity ratio.
- Apply online. Most private lenders, such as banks or credit unions, allow you to apply online, but some may require you to apply in person. You will usually need to submit supporting documents, such as government-issued IDs, proof of income, and tax forms.
- Start making payments. If you are approved, the lender will disburse the funds so that you can repay your old loans (some lenders can repay them for you). Then you will start making payments on your new loan as agreed.
It’s important to compare different lenders to see which one offers you the lowest interest rate and the best terms.
To start refinancing your student loans, visit Credible and compare prequalified rates from several lenders.