5 Crazy Easy Steps on How to Refinance Student Loans

How to Refinance Student Loans

Are you trying to figure out how to refinance student loans?

Are you trying to figure out how you can pay less every month for your student loans or pay them off earlier than 10 to 20 years from now?

There are 45 million Americans who have student loans, with the average student loan debt being $29,800.

And according to Pew Research, 21% of employed adults between the ages of 25 and 39 with at least a bachelor’s degree and outstanding student loans work more than one job just to afford their loans.

If you fall into this category, you may be looking for ways to relieve your monthly payment burden or pay off your loans faster.

Student loan refinancing could help you accomplish both of those goals.

Refinancing your student loans could not only lower your interest rate but could also give you the opportunity to reduce or extend your payment terms.

And it could also simplify your payments by enabling you to consolidate multiple loans into one.

When should you refinance your student loans?

You should refinance your student loans if you find a lower interest rate, want to consolidate your student loans into one payment, or you want to reduce the time it takes to pay your loan off.

You should not refinance your student loans if you need federal student loan protections.

What is the best way to refinance a student loan?

The best way to refinance your student loans is to get multiple quotes from private student loan providers and pick the one with the best deal.

You also want to make sure that they have their own loan protection programs in case you lose your job and can’t make a payment.

Is it hard to refinance student loans?

It is hard to refinance student loans if you have poor credit. You will need a co-signer to help you get the loan.

If you have good credit, it is not hard to refinance student loans.

Student loan companies generally want you to have at least a 650 credit score.

How much does it cost to refinance a student loan?

When it comes to how much does it cost to refinance student loans, the only fees you will pay are application fees and origination fees.

Some lenders will make you pay these fees upfront, while others will allow you to roll the fees into your loan so that refinancing your student loans doesn’t cost you anything.

How to refinance student loans

If you think that refinancing your student loans is the best route for you to save more money, let’s talk about how to refinance student loans.

Here are the questions you’ll want to ask and the steps you’ll need to take along the way when it comes to refinancing your student loans.

1. Consider Your Type of Student Loans

Before learning how to refinance your student loans, you’ll want to make sure that refinancing is right for you in the first place.

With other types of loans (like mortgages or auto loans), it’s rarely a bad idea to refinance if you can get a loan with a better interest rate. 

And the same can be said for your student loans if they happen to be private student loans.

But federal student loans are a completely different story and they will require more consideration. 

When federal student loans are refinanced, they lose eligibility for federal benefits like Income-Driven Repayment (IDR) 

They also lose their eligibility for forgiveness programs like Public Service Loan Forgiveness (PSLF).

And when you refinance your federal student loans and you lose these benefits, you cannot get them back again.

Meaning, you can’t refinance your private student loans back to federal student loans to regain eligibility for federal benefits down the road.

Also, it’s important to point out that the CARES Act is currently providing relief to student loan borrowers.

They are pausing payments and temporarily setting the interest rate at 0% on federal student loans until January 2021.

But if you refinance your federal loans during that six-month period, you’ll lose eligibility for these relief programs.

If you have private student loans, refinancing to a lower rate if you can is pretty much a no-brainer.

But if you have federal student loans, you’ll want to think through the benefits that you’ll lose in the process and carefully weigh the pros and cons.

2. Check Your Credit Score

When you apply for a federal student loan, the Department of Education doesn’t check your credit score.

They know that when you’re 18, you have the crappiest credit possible, so it wouldn’t even make sense to do so.

But after you have graduated and you’re applying for a private student loan, they are going to check your credit score.

They want to make sure that if they give you a loan, that you are going to repay that loan and make payments on time every month.

Many private student loan companies require you to have a minimum credit score of about 650 points.

But, the higher your credit score is, the better your student loan interest rates will be.

A credit score of 700+ will get you the best rates available.

To get the best interest rates on your student loans, it’s best to resolve any outstanding issues that you may have on your credit report.

Go to AnnualCreditReport.com and get your free credit report.

If you discover any errors on your credit reports, you’ll want to dispute and resolve them before you begin applying for refinancing.

This will increase your credit score and allow you to get the best interest rates possible.

But how can you get a private student loan with poor credit?

How Can You Get A Private Student Loan with Poor Credit?

If you are trying to refinance student loans with poor credit, you’ll likely need a co-signer to qualify for a private student loan.

A few lenders offer loans without credit or co-signer requirements — but their interest rates are higher.

Can I Get A Student Loan With A 600 Credit Score?

Depending on the lender, you can get a student loan with a 600 credit score.

For most student loan companies, 600 is the minimum credit score you can have to get approved.

If you have a 600 credit score, it might be worth trying to find a co-signer so that you can get a reduced interest rate on your student loans.

3. Get Pre-Qualification Quotes

Now that you know your credit score, it’s time to start the loan-shopping process. 

Rather than requiring you to complete full loan applications, most refinancing lenders can give you a pre-qualified quote with only a soft credit inquiry.

This is preferable because soft credit inquiries don’t affect your credit score.

With many of the top lenders, you can visit their sites and have a pre-qualified quote in just a few minutes.

If you’d like to compare pre-qualified quotes from multiple lenders at once, you can also use a lender marketplace like Credible or LendingTree.

Both of these platforms work with many of the best student loan refinancing lenders and are completely free to use.

4. Compare Your Student Loan Offers

If more than one lender sends you a preliminary loan offer, you’ll want to compare each of your options carefully.

Yes, the interest rate that each lender is offering will be important.

But here are a few more factors you’ll want to consider:

  • Loan Terms: How long will you have you to repay the loan?
  • Type of interest rate: Is the interest rate fixed or variable?
  • Payment flexibility: Can you defer payments if you decide to go back to school? Can you apply for a hardship forbearance if you lose your job?
  • Loan discharge policies: Will the lender discharge your loan if you die or become totally disabled?
  • Fees: Are there application or origination fees? Are there any prepayment penalties?

You’ll also want to consider customer service. You can get a feel for this by calling them on the phone and seeing how well they answer questions.

If you can’t get ahold of anyone or it takes 53 minutes to have a couple of questions answered, it’s probably best that you stray away from this company.

Will the lender service the loan themselves or outsource servicing to a third party?

If they do outsource loan servicing, do they still have an in-house customer service number?

What kinds of things are their current customers saying about them on review platforms like Trustpilot?

Before you choose any lender, you’ll want to have clear answers to each of these questions.

The lender with the lowest interest rate is not always the best choice.

Instead of just going for the lowest interest rate, look for the lender that offers the best blend of low-interest rates with good benefits. 

5. Complete the Student Loan Application

Once you’ve chosen the lender you’d like to work with, you can move forward with filling out their full application.

Know that the loan underwriters will likely want to see a variety of documents during this step.

You can expect that you’ll need to prove your:

  • Identity  — by providing your driver’s license, birth certificate, or other government-issued ID
  • Address  — by providing utility bills, insurance documents, bank statements, etc.
  • Income — by providing a pay stub from within the last 30 days and your most recent tax return

Your lender will also need you to give them details about your existing loans.

To speed up the underwriting process, ask your current lenders for your “10-day pay-off number.”

This will tell your new lender exactly how much money they’ll need to send to your lenders to pay off your existing balances.

Know that once you submit your full loan application, your lender will usually perform a hard inquiry on your credit report.

This will ding your credit score a little.

But, if you submit multiple loan applications within a short time span, the credit bureaus will typically view them as only one inquiry.

Is It Hard To Get Approved For A Student Loan?

Depending on your credit score and income, it is not hard to get approved for a student loan.

Student loan companies want to make sure that you are a safe person to lend money to.

If you don’t earn enough money or have bad credit, you will need to bring a co-signer.

Do Student Loans Affect Your Credit Score?

Student loans affect your credit score just like any other debts do. But if you are refinancing your student loans, it can improve your credit score.

This is because refinancing usually lowers your debt to income ratios, which means that your credit utilization is lower.

Credit utilization makes up 30% of your credit score.

Receive Loan Approval

If everything goes well during the underwriting process, your lender will notify you to tell you that your loan application has been approved.

From this point, things will move quickly.

Your new lender will pay off your existing loans and should instruct you where to direct your payments moving forward.

You may also want to consider signing up for auto-pay, especially if it will qualify you for an interest rate discount with your lender.

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