Here’s How to Get the Right Student Loan Refinance for Every Situation

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Student loans can make your financial life more challenging and refinancing them can make it easier to repay your student debt. So if you’re wondering why you should refinance student loans, it really depends on your situation and your student loan payoff goals.

As you consider both of these, you’ll have a better idea of understanding when to refinance student loans and when to hold off. Here’s what to know.

Why refinance student loans: Situations where it might be a good fit

There are several reasons to refinance student loans, but it’s not necessarily for everyone. Here are some goals where the benefits of student loan refinancing can help:

  • Looking to save money: Lowering your monthly payment and interest charges is possible if you can qualify for a lower interest rate than you’re paying right now. Just keep in mind that the best rates are reserved for people with excellent credit and a solid income — or at least someone who has a cosigner with those attributes.
  • Looking to lower your monthly bill: Scoring a lower rate can reduce your monthly payment, but it may not be enough to meet your budget needs. If this is the case, you can also opt for a longer repayment term with a student loan refinance. Many lenders offer terms of up to 20 years. Note, however, that a longer term will result in higher total interest charges.
  • Looking to pay off debt sooner: If you have the budget for a higher monthly payment, you could also choose a shorter repayment term — options can go as low as five years. Paying off your debt sooner will not only free up that cash flow early but also save you money on interest.
  • Want to refinance but have poor credit: If you’re wondering when to refinance student loans, having bad credit may not seem like the best time. But if you have a family member who’s willing to cosign your loans, the lender will also consider their credit and income, which could help you get the financing you want.
  • Want to take over parent loans: It’s not uncommon for a parent to take out student loans to help their child pay for college. Whether they borrowed Parent PLUS Loans or private parent loans, refinancing can allow the child to take over the loans after they graduate and have an income.
  • Want to combine student loans with your spouse: Combining your student debt with your spouse’s can simplify your repayment process and also provide some other key benefits that one spouse may not qualify for, but the other does. PenFed Credit Union offers a spouse consolidation loan that can help you achieve this goal.
  • Want to choose your lender: If you have federal student loans, you didn’t get to choose your loan servicer when you first received the loan funds. While you can choose a new servicer through the Direct Loan Consolidation program, that process slightly increases how much you’ll pay in interest. With refinancing, you’ll have a variety of lenders from which you can choose, and many offer features and benefits that you may not find with federal loan servicers.

So why refinance student loans? These are all situations where the benefits of student loan refinancing can help you get on the right track with your debt repayment.

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Comparing student loan refinance companies and options

Understanding when to refinance student loans is important, but so is finding the right lender. There are many private lenders that offer student loan refinancing, including big national banks, online lenders and credit unions.

As a result, it can be incredibly daunting to find the right lender for your needs. The good news is that many lenders allow you to get prequalified before you actually submit an application. This process allows you to get an idea of what your interest rate and monthly payment would look like based on a soft credit check, which doesn’t hurt your credit score.

If a lender doesn’t provide a way to get prequalified, it may not be worth the hard inquiry’s hit to your credit score.

Even then, you’d need to go through the prequalification process with each individual lender, which can be time-consuming. To help with the process, Purefy’s Compare Rates tool allows you to get prequalified with many lenders at once.

Simply share a few details about yourself and your student loans, and you’ll be able to compare rate offers side by side based on your credit profile.

Of course, these rates aren’t final. Once you submit an application, the lender will run a hard inquiry and give you a final offer based on the information it finds. But a soft inquiry is generally enough to get a ballpark figure.

As you compare your options, here are some features to keep in mind:

  • Interest rate: Make sure you know what type of interest rate you’re looking at. Variable rates start off lower than fixed rates, making them more attractive. But over time, they’ll fluctuate with market rates, which means you could end up spending more in the long run. The more lenders you compare, the easier it will be to find the lowest rate.
  • Fees: Student loan refinance lenders typically don’t charge an upfront origination fee, but they may charge late fees, returned payment fees and other costs.
  • Term options: Even if two lenders offer the same repayment term options, you may not qualify for all of them. Consider what you need your monthly payment to be and which terms are available to find the right fit.
  • Other features: While the monthly payment, interest and fees are the most important features, there may be others that can make one lender a better fit than another. For example, some offer cosigner release, which allows you to remove a cosigner after you’ve met certain payment and credit criteria. Others may offer interest rate discounts if you set up autopay or have another account with the lender. Unemployment protection, discounts on future loans and deferment and forbearance options are other things to keep in mind.

The bottom line

There are several benefits of student loan refinancing, and if the process can help you with your situation, it may be worth shopping around and exploring some options. As you do so, look for lenders and features that can best suit your needs and help you achieve your debt payoff goals.

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