Refinance Student Loans

How Student Loan Refinance Can Help You

For the longest time, it’s been at the core of the American dream: study hard, be a well-rounded student, and go to college. The underlying assumption is that with a college degree in a subject of your choice, you’ll be able to go out and get a great job. However, the economic realities of a college education are becoming more costly.

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The average graduate has an estimated $25,000 in student loan debt when they graduate college. And that number is only continuing to climb, with many educational institutions charging to the tune of $50,000 per year for tuition. Further, in many fields a bachelor’s degree is no longer enough to get ahead. In fact, it may not be enough to get to a job. Many professions require as much as four years of post-graduate work, all largely financed with loans. With doctors, lawyers, and MBAs graduating with monthly loan payments in excess of $2000 (and that’s for 30 years), there’s one very common question:

How do I refinance student loans?

A number of different factors come into play with student loans. The first step is understanding what you owe, to whom, and through what kind of loans. College educations are typically paid for through the following combination of resources:

1. Scholarships

They are awards given to a student for college expenses, often for merit or achievement, which do not need to be paid back.

2. Government grants

These grants are similar to scholarships but typically based on financial need, government grants do not need to be repaid.

3. Direct payments

In the case of direct payments, students or parents make direct, out of pocket payments to college or university.

4. Government loans

These loans come from the Department of Education, and may be subsidized (no interest or low interest, especially while you are in school) or unsubsidized (higher interest rates, which may accrue while you are enrolled).

5. Private loans

Private loans typically have a higher interest rate, and are often used as a last resort or to fill gaps in the otherwise government mandated profiles.

To get started, put together a list or a file with the following information to refinance student loans:

• total amount
• the refinance student loan rate
• the type of loan
• the servicing agency
• the year it was issued
• when your payments started
• your monthly payment amount
• your account number

An excel spreadsheet can be a great place to centralize all this information about refinancing student loans.

Once you’re organized, you need to decide which route is the best for you. Several are available:

Consolidation: student loans consolidation allows students with multiple loans to combine these balances into a single account, with one payment. This may lower your monthly payment, lower your student loan rates, and streamline the process of managing your debt. Considerations for consolidation include whether or not you are eligible, whether or not your specific loan types are eligible, and if it’s a smart move to combine your interest rates. Consolidation may not be the right choice if you have subsidized loans and would end up paying more money.

Deferment or Forbearance: If you are having trouble making your payments due to a specific situation such as unemployment or being enrolled in school, you may be eligible for a deferment or forbearance. These are both mechanisms that temporarily put your loans on hold.

Refinancing: Refinancing may be your best option if you’re seeking to lower a high interest rate on a loan, or if your goal is to combine loans into a single payment that may not be otherwise eligible for consolidation. When you refinance student loans, you take an additional loan and use the proceeds to pay off the first.

Here is a video showing some ideas about student loans refinancing and consolidation.

Considerations for Refinancing Student Loans

When you begin the process to refinance your student loans, there are several steps you can take to ensure you get the best rate.

The first step is to make sure that your credit is as good as it can be. Ensure that your student loan is current, and that you’ve made several months payments on time. If this is an issue, consider signing up for an automatic debit program. Obtain a copy of your credit report, and make sure that all information reported is accurate. Dispute and correct any errors, particularly those that are negative. Finally, find out what your credit score is to get an idea of the rates you’ll qualify for. The better your credit, the more likely you are to be able to refinance and the lower the interest rate will be that you can qualify for.

Take a look at current interest rates to get a sense for the current interest rates. Student loan rates that are controlled by government programs typically adjust on July 1, so if you want to take advantage of a particularly low interest rate bear that in mind. If you are looking at private lenders, shop around as rates may be different. Look at consolidation sites online such as bankrate.com to get a feel for the best options out there.

Be sure to factor in incentives that specific programs might offer. Some lenders will lower the interest rates if you make so many months of payments on time. Another option to lowering your interest rate is to sign up for an automatic payment plan.

In order to refinance student loans, options to consider include government programs, banks, student educational finance companies and credit unions. Credit unions often have some of the lowest interest rates, although you may need to meet certain criteria (such as living in a specific geography or working for a certain company) in order to participate.

Once you’ve decided what your best option is, prioritize your different options and then file your applications. Since loan refinancing can be a substantial amount of effort and paperwork that involves in person meetings, references, and reams of paperwork from your credit history to copies of current payroll records, block out a schedule of time to tackle as much as possible. Make copies of important documents, and never send originals if they are the only copy you have. Consider applying to two or three companies simultaneously to streamline your work process. Finally, continue to pay your existing loans on time throughout the refinance process to avoid any late payment notices on your credit report.