How to Refinance a Student Loan

Student loan refinancing can save you money. How? By getting you a lower interest rate and/or monthly payment. We show you how.

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Introduction

Refinancing a student loan can save you money in interest and lower your monthly payments. If you have private loans, you may be able to get a lower interest rate. If you have federal loans, you can’t get a lower interest rate, but you may be able to extend your repayment term.

When you refinance a loan, you’re essentially taking out a new loan with different terms. You’ll want to compare rates and terms from multiple lenders to make sure you’re getting the best deal.

Here’s what you need to know about how to refinance a student loan.

What is Refinancing?

Refinancing is the process of taking out a new loan to pay off an existing loan. When you refinance, you may be able to secure a lower interest rate, which could save you money over time. You may also be able to extend or shorten your loan term.

There are a few things to consider before you decide to refinance your student loans:
-First, determine if refinancing is right for you. Take a close look at your current loans and ask yourself if you can qualify for a lower interest rate. If so, refinancing could save you money in the long run.
-Next, compare rates from multiple lenders. Make sure to compare apples to apples—look at the total cost of the loan, including fees, rather than just the interest rate.
-Lastly, consider whether you want to extend or shorten your loan term. A longer term could lower your monthly payments, but you’ll end up paying more in interest over time. A shorter term could mean higher monthly payments, but you’ll save on interest overall.

Refinancing is not right for everyone—you should carefully consider all of your options before making a decision. But if done correctly, refinancing could save you money on your student loans.

Who Can Refinance?

Anyone with a student loan can refinance, whether it’s a private loan or a federal loan. If you have multiple student loans, you can choose to refinance one or all of them. Keep in mind that you can only refinance with a private lender – you cannot refinance federal loans with the government.

When to Refinance?

The first question you should ask is “should I refinance my student loans?” Here are some key factors to consider:
-Your employment status: Are you employed full-time? Do you have a steady income? If not, it may be difficult to qualify for a refinanced loan.
-Your credit score: Refinancing typically requires a good to excellent credit score. Check your credit report and score for free with Credit Karma to see where you stand.
-Your current interest rate: Take a look at the interest rate you’re currently paying. If it’s much higher than the current market rate, refinancing could help you save money.
-Your loan term: The loan term is the length of time you have to repay your loan. If you have a longer term loan, you may be able to get a lower monthly payment by refinancing, but you’ll likely pay more in interest over the life of the loan. Alternatively, if you have a shorter term loan, refinancing could help you pay off your debt faster.

How to Refinance?

1. Check your rate with multiple refinancing lenders.
2. Compare rates and terms to find the best fit for you.
3. Verify your eligibility for refinancing ( credit score, employment, income, etc.)
4. Choose a variable or fixed-rate loan, depending on your needs.
5. Submit your application online or in person.
6. If approved, sign loan documents and begin making monthly payments

Pros and Cons of Refinancing

The pros and cons of refinancing a student loan depend on each borrower’s individual circumstances. There are many reasons to refinance a student loan, but the most common reasons are to get a lower interest rate, save money on monthly payments, or both.

Lower Interest Rates
One of the biggest reasons to refinance is to get a lower interest rate. If you can qualify for a lower rate, you’ll save money on interest over the life of your loan. Even a small difference in interest rates can make a big difference in how much you pay over time.

For example, let’s say you have $50,000 in student loans at an 8% interest rate. Over 10 years, you’ll pay $65,000 in interest if you don’t refinance. But if you refinance to a 7% interest rate, you’ll only pay $60,000 in interest — that’s a savings of $5,000 over 10 years.

Save Money on Monthly Payments
If you extended your repayment term when you consolidated your loans or if your income-based repayment plan has low monthly payments that don’t cover the full amount of your accrued interest, you may be paying more in interest than you have to. Refinancing can help by reducing your monthly payments so that more of your payment goes toward the principal balance of your loan.

For example, if you have $50,000 in student loans at an 8% interest rate and 10-year repayment term, your monthly payment will be $536. If you extend your repayment term to 20 years when you consolidate your loans, your monthly payment drops to $320 — but you’ll end up paying more in total interest because stretched-out repayment terms mean higher overall costs. refinancing back to a 10-year repayment term could save you money by lowering your monthly payment while still keeping overall costs down.

Conclusion

In conclusion, refinancing a student loan is a great way to save money on interest payments and can make your monthly payments more manageable. If you are considering refinancing, be sure to compare rates and terms from multiple lenders to find the best deal.