As a parent, it can be hard to watch your child struggle financially. College has changed a great deal since you were in school, and the cost of higher education has skyrocketed. As a result, many borrowers must turn to student loans to cover some of the cost, so millions of college graduates have student loan debt when they leave school.
If your child is having issues keeping up with their debt, student loan refinancing can streamline their payments, lower their payments and reduce interest charges. But, it can be difficult for a recent college graduate to qualify for refinancing on their own. As their parent, here are a few things you can do to help:
6 Steps to Get Your Student Started With Student Loan Refinancing
1. Look Up Their Loans
To pay for school, your child likely took out several different student loans. Over time, those loans can be transferred and sold, making it easy to lose track of them. To help your child refinance their student loan debt, help them locate their loans and identify their loan servicers.
- For federal student loans: Ask your child to sign into their Federal Student Aid account. The platform will show what federal loans they have, and what loan servicer is currently handling them.
- For private student loans: Private student loans won’t show up on Federal Student Aid. Instead, your child will have to review their credit report to find their loans. They can do so for free at AnnualCreditReport.com. The credit report will list all active accounts under their name, including student loans.
2. Discuss Their Goals
Before pursuing refinancing, sit down with your child and discuss their financial and career goals. Their priorities will determine whether refinancing makes sense, and what loans to refinance.
For example, if your child plans to work in public service — if they are a teacher or want to work for a nonprofit organization — they may be eligible for loan forgiveness through Public Service Loan Forgiveness. Refinancing would make them ineligible for loan forgiveness, so refinancing may not make sense.
By contrast, if your child is determined to pay off their loans as quickly as possible and they work in the private sector, refinancing is more advantageous.
3. Research different lenders
There are dozens of student loan refinancing companies out there, but they’re very different from one another. Help your child find the best lender for them by considering the following factors:
- Fixed and variable interest rates: Not all lenders offer refinancing loans with fixed and variable interest rates. If your child wants to pay off their debt as quickly as possible, opting for a variable-rate loan can be a smart idea. Variable-rate loans tend to have lower interest rates at first than fixed-rate loans, helping them save money.
- Competitive rates: The rate your child can qualify for can vary widely from lender to lender. Get quotes from multiple lenders to get the best rate possible. With Education Loan Finance, your child can get a rate quote without affecting their credit score*.
- Forbearance options: Most student loan refinancing lenders don’t offer forbearance in cases of financial hardship, but there are a few that do. That perk can be a significant benefit if your child loses their job or becomes ill.
4. Create a monthly budget with your child
Even if your child earns a good salary and has excellent future earning potential, it’s a good idea for them to come up with a budget before moving forward with the student loan refinancing process. By seeing how much they have coming in and how much they spend each month, they can better come up with a plan to repay their loans.
You can sit down with your child and make a budget together. While you can use paper and pen, your child may find programs like You Need a Budget or EveryDollar — which automatically sync with their financial accounts — more intuitive.
Make sure your child considers all of their expenses, including rent, utilities, student loan payments, and extras for entertainment. A portion of the money left over after covering their set expenses can be put toward additional student loan payments, reducing the interest that accrues over the length of the loan.
If your child wants to pay off their debt as quickly as possible, there are a few lifestyle changes you can suggest to help them reach their goals:
Cut back: Review your child’s bank and credit card statements with them and look for areas where your child may be able to cut back. For example, maybe they can skip dining out so often and cook more at home. Over time, the savings can be substantial.
Get a roommate: While it may not sound glamorous, getting a roommate can cut your child’s living expenses in half. If your child puts the money saved toward their student loan balances, they can cut months or even years off their loan term.
Increase income: Boosting income is key to your child’s financial success. If they’ve been working for a while and have been performing well, encourage them to ask for a raise at their next review. Or, they can work additional overtime hours or freelance on the side to earn extra money.
5. Show them how to check their credit report
When your child applies for a refinancing loan, the lenders will review their credit report. Before your child submits an application, help them check their credit.
Your child can view their credit report from each of the three major credit bureaus — Experian, Equifax, and TransUnion — at AnnualCreditReport.com.
Review it alongside your child and look for errors, such as accounts that don’t belong to your child. If there are any issues, help your child dispute them with each credit bureau to improve their credit report.
6. Co-sign their student loan refinancing application
If your child recently graduated, they may have insufficient credit to qualify for a student loan refinancing by themselves. If that’s the case, you can help them manage their debt by acting as a co-signer on the loan.
As a co-signer, you’re applying for the loan along with your child. If your child can’t keep up with the payments, you’ll be liable for them, instead. Because you share responsibility for the loan, there’s less risk to the lender. Having a co-signer makes it more likely that a lender will approve your child for a loan, and give them a competitive interest rate.
Refinancing Student Loans
Student loan refinancing can be a smart way for your child to tackle their debt. However, recent graduates may not be aware of refinancing or how to proceed. As a parent, you can help your child tackle their debt by walking them through the refinancing process. With your help, they can refinance their education loans and become debt-free years earlier than expected.
Looking for more tips as a parent of a college graduate? If you took out student loans in your own name to help pay for your child’s education, parent student loan refinancing can be a smart strategy for you, too. Explore your options, with ELFI’s help.
