By now, you know how useful student loan refinancing can be, especially if you have high-interest student loans. By refinancing your debt, you can save money and pay off your loans faster, freeing yourself from your education loans.
However, there are many refinancing lenders out there, and deciding which company to work with can be overwhelming. Below, find out how to weed through the top student loan refinance companies to find the best lender for your needs.
Determine your student loan goals
Before you even look at lenders, spend some time thinking about your refinancing goals.
Why refinance student loans in the first place? What you want to get out of student loan refinancing will affect your lender options. When people refinance their loans, they typically want to accomplish one of the following outcomes:
- Save money on overall repayment: When you refinance your loans, you may qualify for a lower interest rate. Over the life of your loan, that lower rate allows you to save thousands in interest charges.
- Pay off the debt as quickly as possible: While the Standard Repayment Plan for federal student loans is ten years, many borrowers take 20 years or more to repay their loans. If you want to pay off your loans as quickly as you can, refinancing and opting for a shorter loan term can help you accelerate your repayment and save even more money on total interest accrued.
- Get the lowest monthly payment: If you can’t afford your current monthly payments, refinancing can help. By selecting a longer loan term, you can reduce your monthly payment. You’ll pay more in interest overall with a longer loan term, but you’ll have more room in your monthly budget with easier payments.
Find the right student loan refinance lender to match your needs
Once you’ve figured out your goals, you can look for a lender that matches your needs.
Pay off faster
If you want to pay off your loans ahead of schedule, you want to look for a refinancing lender with shorter loan terms. Some lenders, such as College Ave, Earnest, Iowa Student Loan, and PenFed Credit Union, have loan terms of five, seven, or eight years.
Lenders typically reserve their lowest student loan refinance interest rates for borrowers who opt for the shortest loan terms, so choosing a shorter term can help you get a more competitive rate. More of your monthly payment will go toward your loan’s principal rather than interest charges, so you’ll pay off your loan faster and save more money over your repayment term.
Lower your payments
If you currently have a loan term of ten years — the typical term for most student loans — and can’t afford your existing monthly payments, look for a lender that offers longer loan terms. Depending on the lender, you could extend your loan term to 12, 15, or even 20 years, significantly reducing your monthly payment.
For example, say you had $30,000 in Grad PLUS Loans at 7.08% interest. With a 10-year repayment term, your monthly payment would be $350 per month.
If you refinanced your loans and qualified for a 15-year loan at 6.43% interest, your monthly payment would drop to just $260 per month. By refinancing your loans, you’d free up $90 per month in your budget.
A hybrid approach
If you want to accelerate your repayment, save money, and lower your payments, you can also do that. When you refinance, choose a lender that offers loan terms of eight to 12 years in length. Interest rates will be lower than you’d get with longer loan terms, so you’ll save money throughout your repayment, while maintaining a similar repayment term that you’re used to.
Variable vs. fixed rates
If you want to pay off your debt as aggressively as possible, choosing a variable-rate loan can make a lot of sense. Variable interest rates tend to start lower than fixed interest rates but fluctuate over time along with market conditions.
If you plan on paying off your debt ahead of schedule — for example, within two to five years — a variable-rate loan allows you to take advantage of the low initial interest rate where more of your payment goes toward the principal.
Not all lenders offer both variable-rate loans and fixed-rate loans, so make sure you look for a lender that offers variable-rate loans if that’s an important factor to you.
Drop a cosigner
To qualify for student loan refinancing, you tend to need good to excellent credit and steady income. If you don’t meet the lender’s criteria on your own, you’ll likely need a cosigner.
Being a cosigner is a big responsibility, as the cosigner is obligated to make payments on the loan if you fall behind. The loan can affect the cosigner’s credit and impact their ability to qualify for other forms of credit, such as car loans or mortgages.
When you’re shopping for the best refinancing loan, pay attention to which lenders offer cosigner releases. Not all lenders do, but some will allow you to apply for a cosigner release after making a set number of consecutive monthly payments on time. If you qualify, the cosigner will be removed from the loan, and will no longer have any obligation to repay it.
For example, PenFed borrowers may qualify for cosigner release after just 12 months of consecutive, timely payments. With Iowa Student Loans, cosigner releases are available after 24 months on-time monthly payments.
Married? Consider a Spouse Loan
If you’re married and are sick of juggling multiple student loan payments and loan servicers, there is just one student loan lender that offers spousal loan refinancing: PenFed Credit Union.
With this option, you can refinance your student loans together. Going forward, you’ll have only one loan to manage and one monthly payment to remember instead of several.
Spouse loan refinancing is especially useful if you have one partner who is a stay-at-home parent or is otherwise not working. The lender will look at your combined household income rather than the individual’s income, so you’re more likely to get approved for a loan and qualify for a low interest rate.
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