I don’t believe in debt, but the fact is that many college grads have already stacked their plate with loads of it and now realize that they desperately want to get out. Is a student loan refinance a possible option? I honestly didn’t know much about it since I just paid mine off as quickly as possible, so I asked my friend Nate to give me a rundown of the pros and cons. Hope this helps!
These days graduating with student loan debt can feel very overwhelming. As graduation season comes to an end and repayment begins for many new student loan borrowers, student loan debt is now a reality for the class of 2015. This year, 7 out of 10 graduates have student loan debt, and these same students graduated with an average tab of $30,000! If you are a student loan borrower, you should know that there are options available to help you reduce the cost of your student loan debt.
Over the last few years the popularity of student loan refinance has increased dramatically. As a result, a number of new lenders have entered into the student loan refinance market.
What is student loan refinance?
Student loan refinance is the process of refinancing old student loans with a new private student loan lender at a lower interest rate. In general, you can refinance both federal and private student loans. If you are trapped paying a high interest rate on your old federal and private student loans, student loan refinance can be a great option. Student loan refinance rates start below 2% and range up to 8%. Most approved borrowers tend to fall somewhere in the middle of that range. Due to the influx of student loan refinance lenders, fees have been erased from the industry. There are usually no application, origination, or pre-payment fees when it comes to student loan refinance.
What are the benefits of student loan refinance?
As mentioned earlier, student loan refinance gives student loan borrowers the ability to lower the interest rate they pay on their student loans. The largest student loan refinance company, SoFi, reports that their average borrower saves over $14,000 through refinancing. Other lenders have reported similar statistics too.
There are other important benefits under the surface. When you refinance your student loans you have the ability to choose a new rate type and term length. You can select from variable, fixed, and even mixed rate options. And, most lenders offer 5, 10, 15, 20, and 25 year term lengths. If you are looking to pay off your student loan debt quickly, choosing a shorter term length is a great option to get out of debt sooner and to save money. Moreover, if you are looking to refinance those variable rate private loans into a fixed rate, student loan refinance can give you that protection in case interest rates rise.
Not everyone will qualify for student loan refinancing. Unlike the Department of Education, private student loan lenders use credit worthiness to determine eligibility. In general, student loan refinance lenders are looking for very qualified candidates. You really need to have above a 680 credit score, a debt-to-income below 40%, gross income over $50,000, and a strong track record of on-time student loan payments. Late payments and missed payments will likely make you ineligible for student loan refinance.
The best student loan refinance rates are tough to obtain. If you are looking for that 1.90% teaser rate, you probably need a credit score above 830. If you would like to compare rates from all the top student loan refinance lenders, check out LendEDU. LendEDU is a marketplace for student loans and student loan refinance. This interesting new startup works with all the top student loan refinance companies such as SoFi and DRB.
What are the risks of student loan refinance?
Student loan refinance does have its risks. Student loan refinance will take away your eligibility for federal student loan benefits. Meaning, if you refinance federal student loans you will no longer be eligible for federal student loan forgiveness or income based repayment. Federal student loan forgiveness is available through the Public Service Loan Forgiveness Program (PSLF). In short, if you work for a public service employer and make 120 on-time payments you will be eligible for federal student loan forgiveness. If you are close to federal student loan forgiveness, refinancing would be a poor decision. If you don’t work in the public sector, and you don’t believe you will need income based repayment, then you would likely not be able to take advantage of these benefits anyway.
Have you ever refinanced your student loans? What was your experience?