If you have student loan debt, you could be making payments well into your 30s or even your 40s.
The average college graduate has nearly $30,000 in student loan debt. According to the One Wisconsin Institute’s Student Loan Project, those with bachelor’s degrees take 21.1 years to repay their debt, on average.
Why does repaying student loan debt take so long? High interest rates can cause your loan balance to grow over time, making it difficult to make progress against the principal.
If you’re wondering how to lower student loan interest so you can save money while paying off your loans faster and getting out of debt once and for all, student loan refinancing is an effective strategy.
Plus, student loan refinancing offers a bunch of other helpful benefits and customizable features, too.
Here’s what you need to know to refinance your student loans and maximize your savings.
Why student loan refinancing is so effective
When you take out student loans as a college student, you may be stuck with high interest rates and unfavorable loan terms. Over time, the higher interest rates can cause your loans to balloon, and you can owe far more than you initially borrowed. By refinancing your student debt, you can save money and pay off your debt faster.
To refinance your student loans, you apply for a loan from a private lender for the amount of your existing education debt. You can refinance both private and federal loans. However, there are some drawbacks to refinancing federal loans you should consider before submitting your loan application.
If you’re approved for a refinancing loan, the lender will pay off your existing student loans. Going forward, you’ll have just one loan with a new interest rate, minimum payment, and repayment term. Depending on your credit history and application, you could qualify for a lower interest rate when you refinance, allowing you to save a substantial amount of money over your loan’s life.
7 student loan refinancing tips to help you get the best deal
If you decide that student loan refinancing is right for you, use these seven tips to help you find the right lender and the best loan to save the most money and get the best features.
1. Research student loan refinancing companies
There are dozens of student loan refinancing companies on the market. Since they’re all private lenders, they offer different interest rates, loan terms, benefits, and borrower options. It’s important to research multiple lenders instead of applying to the first one you find; rates and eligibility criteria can vary from lender to lender. Some things to consider include:
- Loan amounts: Lenders often have loan minimums and maximums. If you have a large loan balance, you’ll have to look for a lender that caters to people with high loan amounts.
- Degree requirements: Most refinancing lenders require applicants to have a bachelor’s degree to qualify for a loan. If you didn’t graduate or are still in school, your options are more limited.
- Credit score: Most lenders require applicants to have good to excellent credit. If you don’t meet those criteria on your own, you’ll need a creditworthy cosigner to apply for the loan with you.
2. Check lender reviews and customer feedback
Before selecting a lender, check lender reviews and customer feedback. You can read lender reviews on Purefy and learn about each lender’s loans and policies. And, you can read about firsthand customer experiences on sites like TrustPilot.
3. Determine your student loan payoff goals
When refinancing your loans, think about what your primary goal is before you submit your loan application. These are three of the most common goals:
- You want to save money: If you want to save money, you should look for a lender that offers the lowest interest rates for your credit score and desired loan term.
- You want a smaller monthly payment: If your goal is figuring out how to lower your monthly student loan payment,look for a lender that has longer loan terms, such as 12, 15, or 20 years.
- You want to pay off your loan as quickly as possible: If you want to become debt-free as soon as possible, select a lender that offers shorter loan terms and variable interest rates. You can take advantage of lower initial interest rates to pay off your debt more aggressively.
4. Consider added benefits and features
Not all lenders offer the same benefits and features. When shopping for a lender, make sure you compare the following perks:
- Cosigner release programs: Some refinancing lenders allow you to apply for a cosigner release after making on-time payments for a few years. If approved, your cosigner is removed from the loan.
- Hardship options: If you cannot afford your payments because of a job loss or medical emergency, some lenders allow you to enter forbearance. You can temporarily postpone or reduce your payments for a few months at a time without defaulting on your loans.
- Discounts: Some refinancing lenders offer interest rate discounts for existing customers or for signing up for automatic payments.
5. Decide if you want a fixed-rate loan or a variable-rate loan
Next, figure out if you want a fixed-rate loan or a variable-rate loan when you refinance. With a fixed-rate loan, your interest rate and monthly payment never change. If you opt for a variable-rate loan, your rate will typically start lower than if you chose a fixed-rate loan. However, it can change over time.
Choosing a variable-rate loan is one of the ways to lower student loan interest, and can be a good strategy if you want to pay off your debt ahead of schedule. But if you’ll take several years to repay your loan, selecting a variable-rate loan can be risky since it can fluctuate.
6. Select a loan term
When looking for a loan, pay attention to the different loan terms.
While a longer loan term will give you a lower monthly payment, you’ll usually pay a higher interest rate to get a longer term. And, you’ll pay more in interest over time.
To get the best student loan refinance rates, you typically will need to choose a shorter loan term, meaning eight years or less. If you can afford a shorter loan term, it’s a great way to save money and get rid of your debt sooner.
7. Compare rates and terms from multiple lenders
It’s always a good idea to compare student loan refinance rates and terms from several lenders before making a decision. Rates can vary widely from lender to lender, so it’s smart to get quotes from different lenders so you can find the right loan for you and save the most money.
How to find the best student loan refinancing lender quickly
Now that you know how to lower student loan interest rates and manage your debt with student loan refinancing, you can start the process of finding a lender.
While you can comparison shop on your own, it can be time-consuming and frustrating to research and check a large number of lender websites. Luckily, there’s a better way. You can use Purefy’s Compare Rates tool to get quotes from top student loan refinancing lenders at once all in one place, without affecting your credit score.