If you’re like most college students, you may have graduated from school with student loans. Even if you took out federal student loans, interest rates can be high, causing your loan balances to grow over time. If you want to save money and pay off student loans as quickly as possible, student loan refinancing may be a smart strategy for you. However, there are literally dozens of refinancing companies out there, so how can you find the right one for you?
What Is Student Loan Refinancing?
When you refinance federal or private student loans — or even parent student loans — you take out a loan for the amount of your existing education debt. The loan you take out has different terms than your old ones, including interest rate, length of repayment, and minimum monthly payment. When you refinance your debt, you can opt for a new loan term. You can extend your repayment term to up to 20 years to reduce your monthly payment and make it more affordable. Or, you can qualify for a lower interest rate and save money over the course of your repayment. You can even pay off your loans months or years ahead of schedule, freeing yourself from your debt.
How to Find the Best Student Loan Refinance Companies
When you’re shopping around for a lender, there are five steps you should follow before selecting a loan:
1. Assess Your Loan Eligibility
Because refinancing loans are offered by private lenders, eligibility criteria can vary from lender to lender. You may qualify for a loan from one lender, but not another. At ELFI, borrowers must meet the following student loan refinancing requirements:
- You must be a U.S. citizen or permanent resident
- You must have at least $15,000 in student loan debt
- You must have a bachelor’s degree or higher
- Your income is at least $35,000
- Your credit score is 680 or higher
- Your credit history is 36 months old or older
- Your degree is from an approved post-secondary institution and program of study
If you don’t meet the minimum lending requirements on your own, you may need a co-signer to apply for a loan with you. A co-signer is usually a parent, relative, or friend with good to excellent credit and steady income. The co-signer is responsible for making payments on the loan if you fall behind.
2. Get Instant Rate Quotes to Compare Interest Rates
Before submitting your loan application, it’s a good idea to compare offers from different lenders so you get the lowest student loan refinance rates. Some lenders — like Education Loan Finance — allow you to get a rate quote online in minutes without affecting your credit score.* With the prequalification tool, you can explore your options and choose what repayment terms and interest rate types work best for you before applying for a loan.
3. Look at What Borrower Protections Lenders Offer
When you refinance federal student loans, you lose federal benefits like access to income-driven repayment plans and federal forbearance programs, so it’s important to pay attention to what benefits the refinancing lender offers. Not all refinancing lenders have borrow protections, so make sure you read the fine print before selecting a lender. Otherwise, you could end up in a tough spot if you can’t afford your payments. For example, if you’re unable to pay your loan because of a financial hardship or medical issue, you may be eligible for a temporary forbearance with ELFI. You could postpone your payments for up to 12 months, giving you up to a year to get back on your feet without worrying about your loans.
4. Compare Repayment Terms
When comparing loan offers, there are a few key factors you should consider:
- Interest rate types: Some lenders offer fixed and variable-rate student loan refinancing. Fixed-rate loans have the same interest rate — and monthly payment — for the entire life of the loan. Variable-rate loans have lower interest rates at first than fixed-rate loans, but they can fluctuate over time, causing your payment to change, too. Variable-rate loans make sense if you want to pay off your student loans as quickly as possible because you can take advantage of the initial lower rate.
- Interest rate: The rate you receive will affect how much interest accrues on your loan during your repayment.
- Length of repayment: A longer loan term will give you a more affordable monthly payment, but you’ll pay more in interest over time. A shorter loan term will have higher monthly payments, but you’ll pay less in interest charges. And, shorter loan terms tend to have lower interest rates than loans with longer terms.
Learn More: Choosing Student Loan Repayment Terms
5. Research the Lenders
Refinancing lenders vary widely in terms of customer satisfaction and accessibility. Before choosing a lender, research reviews online to get an idea of what to expect as a borrower.
Read our Reviews: ELFI Reviews
Are There Penalties for Early Repayment?
According to the office of Federal Student Aid, the federal loans you take for college incur no penalties for early repayment. Can you keep the same benefits when you refinance? You’ll need to make sure the lender you choose allows you to make extra payments toward the principal of the loan, as opposed to paying off fees and accrued interest first. This way you’ll be sure to enjoy the rewards of your responsible financial behavior, and actually reduce debt and pay your loan down faster.
Are There Further Discounts Available?
You might already know that you should ask about available discounts when comparing insurance policies, but did you know you can also get discounts through loan refinancing? You might not save the same amount as with a greatly reduced interest rate, but every little bit helps. Some lenders will reduce your rate by a small percentage (say 0.25%) if you select an automatic payment method. You might also be eligible for discounts related to good behavior like on-time, consecutive payments. Or you could get bonuses for referrals. If there are discounts to be had, you definitely want to know about them, and the best way is to ask.
Tackling Your Student Loan Debt
Refinancing your student loans is a great way to save money, lower your payments, or pay off your debt early. But choosing the right lender is key. If you’re not sure if refinancing is right for you, use the ELFI student loan refinancing calculator to find out how much you can save and how it would affect your monthly payments.*
