Student Loan Refinance: Guide to Essential Aspects

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student loan refinance

For those of you who have a legit credit history and consistent income, exploring student loan refinance options would be one of the best ideas for solving loan debt issues. There are various advantages of this program, and by applying to student loan refinance, you can consolidate multiple student loans into one big loan, reduce the interest rate, and total monthly payment. With millions of American students suffering from debt amounts, it is an ideal solution that should be considered by those people. Let’s discover loan refinancing and related aspects to that matter.

Exploring Loan Refinance

As we already mentioned, student loan refinancing is an effective solution that can handle your loan debt. Both private and federal loans can be refinanced into one and paid through monthly packages. You may have individual loans from various organizations that are not a problem for refinancing. This program offers an easy-to-manage system that covers all the loans, whether their lender or due date is different or not. Another advantage that students can get from this program is about APR.

The total interest rate may get reduced through refinancing, which will help students who have a considerable debt amount; anyone who has at least five thousand dollars in debt can apply for this program. It is a lifesaver for those who have even more debt. One of the crucial questions about the program is how much I can save by using Student loan refinance. Let’s find out.

Various factors can affect this matter. They are:

  • The existing balance of your current loan
  • The interest rate percentage and the applicable amount
  • The term (how much you need to pay to eliminate the debt amount)
  • Whether or not you will make early payments for your new refinanced loan

Interest rate is a very crucial measure for student loans, and they can directly affect the result for students. It is better to keep in mind that the lower the interest rate of the loan, the faster you will be able to repay the debt. Be careful about the matters mentioned above while calculating the amount that you can save with refinancing your student loans.

How does Student Loan Refinance Work?

When the student takes the loan either from a private lender or DOE, they agree on a particular set of terms and conditions. These terms are critical because they include the interest rate of the loan and annual payment schedule. Before you take the loan while starting the university or in the early years, you do not have enough information about what will happen next, so you do not know which terms will apply to you on that scene. Keep in mind that lenders determine the interest rates for private loans according to your co-signer agreement or credit score.

For public student loans, the government decides who much interest rate you need to pay for that loan amount. It is not a set process because student loan refinances give you a chance to change the way you pay back the debt amount whenever you want and are ready to do so. You need to consider the fact that loan refinancing gives you the influence. If a student is unhappy with the situation or the interest rates or simply thinking that they would not be able to back it up, they can handle the loan debt through refinancing. You will have a chance to refinance the loan with better interest rates as you get the new job and better life insurance during the term. 

When to Consider Refinancing?

Here we are going to examine some situations which are considered best for refinancing.

The student’s credit score or the co-signer’s condition does not affect federal student loans. Though they are very crucial measures for private loans, the credit score of the student may get higher over time as they get a full-time job with a higher salary. With a better credit score, you will be able to get a better opportunity for refinancing. Keep in mind that the interest rate also can rise and become higher than what you usually pay. So, the bottom line is, if you have a legitimate career in the workforce and your salary is stable, refinancing the student loans may help you greatly.

Interest Rates on Student Loan Refinance have changed.

Particular economic indicators can affect interest rates if you get the loan from public organizations. You may have higher interest rates when the country’s economic condition was bad, which makes the loans higher. If the current situation for student loan interest rates is stable, you can use it to refinance the loans with fewer interest rates than the previous one.

Economic conditions have not changed, but your daily income improved.

Whenever a student applies for a student loan, they will have a chance to choose either variable interest rates or fixed ones. As you can see from the name tag, the fixed interest rate does not change over time. Unlikely that the variable interest rate may change over time when you would like to use refinancing as a solution. If the interest rates are lower in-country, the variable rates tend to be lower as well. They may fall even below 3 percent in cases where the overall economy is doing badly. If your daily salary is higher and the interest rates are declining, it should be a great sign for the student to use refinancing.

When is it NOT recommended to refinance?

Generally speaking, the student cannot or should not refinance their student loans under some circumstances. Let’s discuss them.

You see a drop in your income while you have a federal student loan.

student loan refinance

Let’s take the current pandemic and apply it to this scene as an example. For instance, if your workplace is affected by Coronavirus, and you would be fired or would like to work somewhere else, it is not an ideal situation for using loan refinance. If you face this type of situation, the best-case scenario is skipping the loan refinance and focusing on student loan relief options and government-income-driven programs for dealing with loan debt.

If a student is about to pursue a loan forgiveness program

Keep in mind that by refinancing your student loans, you are eliminating all the chances of acquiring any governmental loan forgiveness programs such as Teacher Loan Forgiveness and PSLF.

Bankruptcy

For students, it is more difficult to refinance the loans if you declared bankruptcy in recent years. It is mentioned that around ten years must pass since your bankruptcy to get a chance for a student loan to refinance. It is not a written rule, and people who have faced such issues may apply too though the chances are very low.

If it will take more time for you to repay

As we already mention, refinancing your student loans will make you turn loan debt into small annual portions. It is not advisable to take action in cases where it will take longer to repay the loans. For instance, let’s say that you paid five years of the loan debt, and another five years are remaining. If you decide to refinance your student loan from that time, you will get an additional five years while the term is becoming longer because the portion of the annual amount is decreasing. That means, the overall interest rate that you annually pay will also increase five times. So, you will get worse off from that deal. 

Main Benefits of the Student loan Refinancing?

The main reason why so many students want to get refinancing is that it allows them to change their current loan into a more favorable deal for handling. The eligibility for this program can specifically target your current credit score, the history of payment, overall financial goals, and current income. It is easy to lower your current payments and repay the loan debt both cheaper and faster through refinancing. Another benefit of the program is the accessibility. Anyone eligible can complete the process online without visiting any governmental organization or office for documentation etc. As there are many benefits that loan refinancing provides us with, there are also threads that you need to be aware of. What are those?

Risks

Higher Interest Rates

If the current interest rates are high, it will cost you considerably more money to repay the loan debt

Too Many Fees

It is undeniable that fees are sometimes worth paying, but that does not always the case. Students need to make sure that the fees never outweigh the savings because it will cost them a lot of cash.

Less Forgiveness Repayment Schedules

Federal student loans can be forgiven through public loan forgiveness programs. These programs apply to those students who have low yearly income. You need to make sure that you have a high enough salary to deal with annual loan payments. Otherwise, you will lose the chance to apply to those public programs.

Do you qualify for this program?

To be eligible for applying student loan refinance you need to have either

  • Stable income
  • Co-signer
  • Good credit history

Most applicants need to focus on credit history because it is the major factor in the analysis of your loan. At least three years of responsible credit history is a great reference that you can utilize for getting the refinance. For private loans, there are other options which are based on the preferences of loan lenders. For instance, lenders such as Earnest and SoFi are focusing more on your workforce experience and academic success while deciding whether or not you are eligible for refinancing the loan. Co-signers can also affect the process positively. Based on the economic condition and income of the co-signer, the bank would decide whether you are eligible. Ensure that your co-signer understands the process clearly because if you cannot pay the amount, the full responsibility will go to that person.

How can you compare student loan refinance rates in 2020?

Credible

Credible is an excellent source for comparing the results and choosing the best option for yourself. The credible can provide you with real-time personalized loan refinance options that come from leading private loan lenders. You can also see the possible student loan refinance rates in 2020 for the specific loan refinance agency that you would like to work with. Through Credible, you can fill out the same application for various private loan lenders. For loan refinancing, Credible works with multiple banks, including:

  • Earnest
  • iHelp
  • Rhode Island Loan Authority
  • Collage Ave
  • Citizens Bank
  • MEFA

By checking the system, they can provide you with exact student loan refinance rates for 2020 through these organizations. You need to provide them with

  • The University that you attended and your academic degree (Master, Bachelor, Ph.D.)
  • Estimations regarding the yearly income
  • Your current loan balance
  • Monthly payments
  • Name, Address, and Date of Birth

What are the Top Student Loan Refinancing Lenders today?

student loan refinance rates 2020

The leading student loan refinancing lenders are considered as SoFi and Earnest. Both of these agencies are effectively solving issues regarding the loan refinance. They offer low variable APR for those students who qualify. The main advantage for students who would like to refinance the loan in the background, which can be helpful during the process. For instance, imagine that you graduated from a legitimate university with good grades. After graduation, you found a high paying job and could be able to repay the loan debt. Even though you might have a low credit score, these qualities may help you refinance the loan through the companies mentioned above. You can be an attractive candidate for loan refinancing with a bad credit score too. So, do not get discouraged and reach out to these types of lenders to analyze your specific case personally.

SoFi

SoFi is an agency that helps students throughout the loan refinancing process. The main advantage for students who would like to work with this company is that they mainly focus on the prospect of the students rather than the debt amount or credit score that they have. They offer great rates and have a very seamless approval process. SoFi can help you in a variety of ways, such as providing you with on-staff wealth advisors or giving you unemployment protection.

Earnest

Whether you have a federal or private student loan, you can always use Earnest as a solution. The company allows you to collect all the small and big loans into one package and repay it with better conditions and lower annual amounts. There is a package that this company offers to students who are called Precision Pricing. Through this package, you will be able to choose the term whether you would like to repay in 5, 10, or 20 years. For instance, let’s say that you have a loan debt and want to refinance it with Earnest.

They offer you a ten-year term for the amount though you would be unable to pay it off in 10 years. Then, you calculate it and tell them that you can make it in 12 years. While other private student loan lenders will give you separate student loan refinance rates for ten and 15 years, Earnest will adjust it. So, they will calculate the rate for 12 years and according to your future payment plan while ignoring 15-year term conditions. With this package, you will not feel overwhelmed and will be able to save money while paying for your loan debt. 

What is the best time to apply?

For those of you who wonder when it is best to apply, let’s put it simply: Do it as soon as you are eligible. The thing is that, if you apply for student loan refinance program early, it can help you to maximize your potential savings before you apply to keep in mind these things for acquiring better results if you are dealing with the student loans in 2020 you need to know that until September 30 of 2020, all federal student loan payments are paused. They are free of charge regarding the interest rates. Another tip for students would be evaluating all the possible options. You need to see offers from various companies, and analyze their interest rates, calculate your future payment plans to get the best deal in your student loan refinancing process.