If you’re burdened with student debt and worry about making payments on your federal loans then it’s time to stop worrying! Whether federal, private, or both, consolidation or refinancing your student loans may help you lower your student debt, better manage payments, and aim towards other investment plans. Here, we have curated a complete guide on student loan refinance/ consolidation!
This Blog Includes:
- Student Loan Refinance vs. Consolidation
- How to Refinance Student Loans?
- How to Consolidate Student Loans?
- How Does Refinancing Student Loans Work?
- Student Loan Consolidation Calculator
- Benefits of Student Loan Refinancing
- Downsides of Refinancing
- Requirements to Qualify for Refinancing
- Best Student Loan Refinance and Consolidation Companies
- Tips for Comparing Student Loan Refinance Lenders
Also Read: How to Get an Education Loan for Studying Abroad?
Student Loan Refinance vs. Consolidation
Although the terms ‘consolidation and ‘refinancing’ are often used interchangeably, they are two distinct repayment choices.
|Student Loan Refinance||Student Loan Consolidation|
|Combines private and/or federal loans into one private loan||Combines multiple federal loans into one federal loan|
|They combine federal and private loans||They only combine federal loans|
|You are allowed to lower your interest rates||You are not allowed to lower your interest rates|
|You can save money||You can’t save money. Your payments may get lowered by extending the loan term but the interest will increase.|
|You are not allowed to access federal loan protections, repayment options, and forgiveness programs.||You are allowed to access federal loan protections, repayment options, and forgiveness programs.|
Also Read: Loans to Study Abroad
How to Refinance Student Loans?
In a nutshell, you should decide whether refinancing is right for you, find lenders, compare them and start applying.
- Decide if refinancing is right for you: You can decide if you really want to refinance your federal student loans or private loans. It makes sense only when it saves money but everyone should not go for it. Refinancing federal student loans will make you unsuitable for income-driven repayment and student loan relief due to the coronavirus pandemic, whereas refinancing private student loans has few drawbacks. It won’t make you qualify for federal programs.
- Research best lenders: Most lenders appear to be relatively similar at first sight. However, depending on your situation, you should look for specific aspects and research the same in detail.
- Get the estimation on rates: Once you’ve found a few lenders who suit your criteria, enquire about rate quotes from each of them. Finally, the best refinance lender for you is the one with the lowest interest rate.
- Select a lender and loan terms: Select the loan terms such as if you want them to be fixed or variable rates. It is suggested to go for fixed rates rather than variable rates as they are comparatively low and change monthly and quarterly.
- Attach documents and apply: To move forward with a lender, you will need some documents to complete the application process. Sign the final paperwork to accept the loan. But before that, the following are the supporting documents you might need to submit.
- Government-issued ID
- Residence proof
- Loan or payoff verification statements
- Employment proof
- Proof of graduation
How to Consolidate Student Loans?
The best way to consolidate student Loans is to log in to studentloans.gov and tap on “Complete Consolidation Loan Application and Promissory Note”. Gather all the documents needed to finish the application process. Candidates are eligible for student loan consolidation after they graduate or leave school.
- Enter student loans you want or do not want to consolidate.
- Decide on a payback plan. You can choose a repayment schedule that is based on your loan balance or one that is based on your income. You’ll need to fill out an Income-Driven Repayment Plan Request form if you choose an income-driven plan.
- Before submitting the form online, read the terms. Continue to make regular payments on your student loans until your servicer confirms that consolidation is complete.
Also Read: 5 Things to Keep in Mind to Apply for an Education Loan
How Does Refinancing Student Loans Work?
When you refinance student loans, you obtain a new loan from a different lender in order to pay down your previous student debt. Your new loan will have a different interest rate and payback duration, which means you may pay less interest or make lower monthly payments. Refinancing can also be used to consolidate numerous student loans into a single obligation, making repayment easier to handle.
Refinancing is only available from a private lender. That is, if you refinance your federal student loans, you will lose access to government benefits such as income-driven payments, loan forgiveness programs, and more flexible deferment and forbearance options.
Refinancing is not a viable option if you want to maintain your federal student loan perks. Instead, you can use a direct consolidation loan to combine all of your federal debts into one payment. This calculates the average of your student loan interest rates and rounds them up to the nearest one-eighth per cent. Your new repayment time can be up to 30 years, but you keep all federal advantages.
If you don’t mind losing federal benefits or simply have private student loans, refinancing may be a better option for you. A calculator can help you figure out how refinancing can help you save money or cut your payments.
Student Loan Consolidation Calculator
Below is the step-by-step guide on how to use the student loan consolidation calculator:
- Enter all your details about your federal and private student loans.
- Check your loan balances and weighted average interest rates.
- Choose the option to lower your interest rates.
- Remember that refinancing with a private lender can help you save money on both your federal and personal student loans, whereas the other choices will only affect your federal loans. It’s possible that a mix of two or maybe all three approaches will work best for you
Benefits of Student Loan Refinancing
The following are the benefits of student loan refinancing:
- Lower interest rate: Depending upon the credit, students can take advantage of lower interest rates through refinancing. After refinancing their loans students can use the saved money to repay their loans faster.
- Reduces monthly payments: If you are going to refinance your loan for a longer period of time, then your monthly payments will get reduced thereby decreasing your financial burden every month. One important thing worth noting here is that you are going to end up paying more interest due to the extended duration of the loan term.
- Combines multiple loans: If you refinance your loans then your multiple loans will be combined into a single one, which will eliminate a lot of hassle and confusion.
- It will remove cosigners: Refinancing a loan helps to remove the cosigner. This will remove the responsibility of paying off your loan from the cosigner.
If you need a student loan for your higher studies, make sure you check out Fly Finance!
Downsides of Refinancing
Alongside the benefits, there are a few demerits also of refinancing student loans.
- Restricted options in case of bad credit: If you have a bad credit score, it will become hard for you to avail the refinancing option. Also, if you don’t have a good credit score then you won’t be able to take advantage of the best interest rates.
- It will eliminate the federal benefits: Refinancing federal loans into private ones will remove federal benefits such as federal forbearance and student loan forgiveness programs.
- Limited repayment options: As compared to federal loans, private loans have limited options when it comes to repaying the loan amount. For instance, private refinanced loans don’t give the person options of extended repayment or income-driven plans.
Must Read: List of top International Student Loans
Requirements to Qualify for Refinancing
Following are the general requirements to qualify for student loan refinancing that every lender asks for:
- Good Credit Score: In order to avail the option of refinancing it is very important that you should have a good credit score. For that matter, a good credit score is considered to be 700 or higher. While some lenders do offer to refinance to people who have a bad credit score, these generally come with a higher interest rate as compared to the interest rates that you get when you have a good credit score.
- Income proof: Some of the lenders do have a prerequisite of minimum income while others may not ask for it. Though in both cases you need to provide proof of your income.
- A low debt-to-income ratio: Lenders look for a low debt-to-income ratio as it signifies the amount you owe in debt payments every month as compared to your income.
- Loan details: The lender will ask for every information related to your loans such as current lenders, loan balances and the school you attended.
Best Student Loan Refinance and Consolidation Companies
Below are the best student loan Consolidation companies:
- Earnest Student Loan Refinance
- PenFed Student Loan Refinance
- SoFi Student Loan Refinance
- Laurel Road Student Loan Refinance
- Education Loan Finance Student Loan Refinance
- LendKey Student Loan Refinance
Student loans are the key to managing your debt and finances. A private lender helps you take out loans for your existing debt and lower your interest rate which automatically reduces your monthly payment. Here are some of the best student loan refinance leaders:
- Rhode Island Student Loan Authority
- PenFed Credit Union
- Citizens Bank
- Laurel Road
- PNC Bank
Also Read: Documents Required for Education Loan
Tips for Comparing Student Loan Refinance Lenders
Because the purpose of refinancing is to save money on interest, you’ll want to go with the lender who offers you the lowest interest rate you qualify for. Variable rates are typically lower than fixed rates, but they may rise in the future; choose a variable rate only if you intend to pay off your loan promptly.
Refinance loans, like private student loans for people attending school, are not required to provide the same consumer safeguards as federal loans, such as income-driven repayment schedules or forgiveness. However, some refinance lenders offer borrowers who are having problems making payments more than the customary 12 months of forbearance throughout the loan term, as well as extra loan modification alternatives.
Refinancing is usually best for people with high wages and stable jobs. However, life is unpredictable. Consider finding a lender with a more flexible forbearance policy if you believe you may need to suspend payments or reduce your monthly expense.
Also, if you opt to refinance with a co-signer, look for a lender that has a co-signer release policy so you can take on the complete repayment obligation whenever possible. This will protect your co-credit signer from any negative marks that may result if you are behind on payments.
Also Read: Education Loan for MBA in 2021
Yes, if you meet the requirements for a lower interest rate. A lower interest rate means a reduced monthly payment, which frees up cash for other expenses. You might also choose a shorter payback schedule, which will allow you to get out of debt faster and save money on interest in the long run.
Student debts can be refinanced, but only through a private lender. The federal government does not refinance student loans. Federal student loan consolidation is possible, but it will not lower your interest rate or save you money.
Refinancing will lower your credit score temporarily but may improve it in the long run. Refinancing can dramatically reduce your debt amount and/or monthly payment, and lenders prefer to see both. Your score will usually drop a few points, but it will usually rise again within a few months.
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