Student Loan Refinancing
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Managing Your Student Loan Debt
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How to Refinance Parent Student Loans
Parent’s Guide to Student Loans
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Discover, which started out as a credit card company, now offers a wide range of financial products and services, including private student loans. If you borrowed Discover student loans to get through school or to help your child, but now you’re making payments, it may be a good idea to consider refinancing them with another lender.
Here’s why student loan refinancing for Discover student loans might be the right choice and how to take advantage of record-low interest rates.
Discover offers a range of private student loan options for both undergraduate and graduate students. The types of loans the bank advertises includes:
Depending on the type of loan you have, your terms – including your interest rate – can vary. Now that you’re making payments on your debt, you may be wondering, can you refinance Discover student loans? The answer is yes, and there are a few different reasons to consider it:
Discover student loan refinancing through another lender can come with several different benefits. Here’s how the process could help you.
With record-low interest rates available, you could qualify for a much lower interest rate than what you’re currently paying.
For example, let’s say you have $20,000 in student loans with Discover with a 10-year repayment term. And because your credit wasn’t well established yet, you have a 9% interest rate.
Now, let’s say your credit has improved dramatically, and your income is in a good place, so you qualify for a 4% interest rate and keep the same repayment term. Comparing those two options, you’d save $51 per month with the new loan and $6,103 in total interest over the life of your loan.
Refinancing Discover student loans can also allow you to switch from a variable interest rate to a fixed rate or vice versa. While variable interest rates typically start off lower, they fluctuate based on the current market rates, and because interest rates are so low right now, the chances of your rate going up are high.
By switching to a fixed rate, you could lock in a low rate and avoid the extra cost associated with higher interest rates in the future.
If you can qualify for a lower interest rate by refinancing Discover student loans, you can save big without any major drawbacks.
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Once you’re ready to refinance your student loans with Discover, here are the steps you can take to complete the process effectively.
Before you do anything else, it’s important to think about why you want to refinance. What are your goals for the process, and how can refinancing make an impact on your financial situation?
For example, do you want to pay off your student loans early or extend your repayment term and lower your monthly payment? Do you want to cut your interest rate or simply consolidate your monthly payments for more simplicity?
Think about what goals you want to achieve with refinancing, and you’ll have a better chance of finding the best fit for you.
Unlike the U.S. Department of Education, which standardizes its interest rates for everyone who qualifies, private lenders have their own set of interest rates and criteria for determining whether you qualify.
As a result, shopping around and comparing rate quotes from multiple lenders is the most important step you can take to maximize your savings. If you simply go with the first offer you get or try to go through your bank or credit union because it’s convenient, you may end up with a more expensive loan.
The prequalification process is the best way to compare student loan refinance rates from the top lenders. With just a soft credit, you’ll get an initial quote based on the information the lender can see on your credit report — once you submit a full application, they’ll run a hard credit check and give you a final offer.
If you want to save time and the headache of dealing with multiple lenders individually, consider using Purefy’s rate comparison tool to do your shopping around. The process is similar to what you’d go through with each lender — provide some information about yourself and your loans — and Purefy can provide rate quotes from several lenders. This makes the process go much more quickly and can make it easier to compare because your options are side by side.
As you compare rates, it’s important to make sure that you’re comparing apples to apples. Remember, variable rates may look appealing because they start out lower, but it’s generally best to avoid them with student loans, especially if you have years to pay off what you owe.
Take your time to compare interest rates, as well as other factors, with each lender to find the one that’s best suited for you and your goals. For example, you’ll want to look at the repayment options, customer satisfaction ratings and other features that may cause one lender to stand out compared to the others.
Take your time with this process. Even if you’re in a rush, it’s worth it to vet each lender thoroughly to ensure the best choice.
Once you’ve chosen your lender, visit its website or click through from the Purefy rate comparison tool to be directed to its website. From there, you can submit your official application.
On the application, you’ll typically be asked to provide certain personal information, such as your name, date of birth, Social Security number and contact information. You’ll also need to provide details about your student loans, including who’s servicing them and what the payoff amounts are.
In most cases, you’ll also usually need to share some documents, which can include income verification like a pay stub, W-2 form or bank statements, as well as a government-issued photo ID. The actual documents you need can vary depending on the lender, so consider calling beforehand, so you can make sure you have them on hand when you need them.
As soon as you submit your application, the lender’s underwriting team will run a full credit check and give you a final offer based on the information it finds. If the terms are roughly the same as the initial quotes, you may have little reason not to accept it. But if the terms are significantly worse, you may want to revisit the first few steps.
Once you’ve decided to accept the lender’s offer, you’ll need to sign a loan agreement and potentially other paperwork to complete the process. The lender will use your loan funds to pay off your existing loans directly, so you don’t have to worry about that process.
You will, however, want to continue making payments on your Discover student loans until you get confirmation that they’re paid off. Then you can set up automatic payments on the new loan. If you end up making a payment on your old loans and you end up with a positive balance, your original lender will refund the difference between what you and your new lender paid and what was actually owed.
Discover student loans can be the best fit for many student loan borrowers, and depending on your situation, it may be better to keep your loans where they are. That’s especially true if your eligibility for student loan refinancing is in question.
However, if you’ve decided that refinancing your student loans is the best option for you, it’s important that you take action as soon as possible. Student loan interest rates can fluctuate often, so the sooner you lock in a low interest rate, the more you’ll save.
Before you start the process of refinancing, consider other possible options. For example, if you’re having trouble paying your student loans but anticipate getting back on financial track within the next few months, requesting forbearance may be a better choice, especially if you can’t get better terms through refinancing.
But if you can qualify for a lower interest rate or can see how refinancing student loans can help you achieve your debt payoff goals, start the process of refinancing and see how much it can benefit you.
At the same time, consider the potential drawbacks of refinancing that could impact you. And don’t forget to shop around and compare interest rates and other terms to make sure you find the best lender for you and your situation.
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With the option to refinance with a repayment plan from five to 20 years, you can gain more control over your repayment plan. For example, if you have job security and you have the budget for it, reducing your repayment term will increase your monthly payment but result in less total interest and a sooner debt payoff date.
In contrast, if you need a lower payment, you could go up to 20 years. This will generally result in more total interest paid, even if you have a lower interest rate. But it can also give you the payment relief you need.
It’s also a good way to drive down your debt-to-income ratio, which is important if you’re looking to buy a house in the future.
Your debt-to-income ratio, or DTI for short, is the percentage of your gross monthly income that goes toward debt. Mortgage lenders like to see a DTI of less than 43%, and because student loan payments can often be high, they can make up a huge chunk of your debt.
By extending your repayment term, you could reduce your DTI to a more acceptable level, making it easier to get into the house you want.
While you picked Discover student loans in the first place, you may not have had much of a choice based on your credit and financial information. Alternatively, you may have chosen Discover without doing much research into other private student loan companies.
Regardless of the circumstances, if you’re dissatisfied with Discover student loans, refinancing them will empower you to choose your new lender based on your refinancing goals. For example, if you need a cosigner to refinance, some lenders allow you to release them from the loan once you’ve made a certain number of payments and you can qualify on your own.
Others may offer other benefits, such as unemployment protection, interest rate discounts, relationship perks and more.
If you didn’t get a chance to shop around for your original loans or you simply want a different experience, refinancing can help.
Discover only offers private student loans, so you don’t have to worry about losing out on the same benefits the government provides to federal student loan borrowers.
But there are still some potential drawbacks to keep in mind.
You may have a good chance of getting approved for student loan refinancing if your credit score is in the mid-600s and you earn $30,000 or more. But in order to be eligible for the best rates out there, you’ll need a much higher score and likely a higher income.
According to Purefy data, the average borrower who refinances their student loans has a credit score and annual income of 774 and $98,156, respectively.
In other words, if your credit and income aren’t in stellar shape, you may have a hard time beating your current loan terms. The good news is that the top student loan refinance companies offer prequalification, which allows you to see whether you have a good chance of getting approved and what your interest rate and loan terms might look like — all with a soft credit check which won’t impact your credit score.
Also, if your credit or income isn’t good enough to get better terms, you could get a creditworthy cosigner to apply with you and approved your chances of getting more favorable terms.
Again, Discover offers both fixed and variable interest rates. If you’re pulled to the lender’s variable rates because they’re so low, you may end up regretting the decision down the road.
This is because Discover may update its variable interest rates every three months, and if market rates go up, so will yours. So if you do plan to refinance Discover student loans, consider a fixed rate that won’t place the risk of future rate increases on your shoulders.
If you decide to refinance Discover student loans to get a longer repayment term, you’ll end up leaving money on the table — and you may even pay more in interest, even with a lower interest rate.
For example, let’s say you have $20,000 in Discover student loans with a 9% interest rate and a 10-year repayment term. If you refinance at a 4% interest rate but double that repayment term to 20 years, your monthly payment will drop by $132, but you’ll only save $1,315 in total instead of the $6,103 you’d save with the same repayment term.
And if your new interest rate is 5% instead of 4%, you’ll ultimately pay $1,276 more in interest over the life of the new loan.
That’s not to say it doesn’t make sense to opt for a longer repayment plan, especially if your budget is tight. But it’s important to keep it in mind as you make your decision.
There are a few different things you’ll want to consider as you determine when you should refinance your Discover student loans. Here are some aspects of the situation that can tip the scales in your favor.
The higher your credit score and annual income, the better your chances of scoring a low interest rate on your refinanced student loan. If your credit still needs some work, take some time to improve it before you apply.
Start by checking your FICO credit score using a free service like Experian or Discover Credit Scorecard. There are other free credit monitoring services available, but most of them offer a VantageScore credit score, which most lenders don’t use.
Next, get a copy of at least one of your credit reports — Experian offers free access to your Experian report, but you can also get free access to each of your three reports through AnnualCreditReport.com. You can get a free copy of each every 12 months.
As you review your credit report, look for potential issues that you can address, such as paying down high credit card balances and disputing inaccurate information. If you have major negative items on your credit report, such as a delinquency or default, a foreclosure or a bankruptcy, you may need to wait several years before you can get approved.
If your plan is to transfer your student debt to your child through refinancing, the sooner you start the process, the less you’ll have to pay.
If your child hasn’t had the chance to build a credit history or earn a high income, you may need to cosign the loan. But this will still shift the responsibility of making payments to your child — though you will be responsible for paying if they can’t.
And remember, many lenders offer cosigner release, so once your child has made the requisite number of payments and has great credit, you can remove yourself from the loan.
In early 2021, fixed student loan refinance interest rates hit a record low. And because you have private student loans that aren’t eligible for federal coronavirus relief or forgiveness, there’s no reason you shouldn’t at least test the waters and get some quotes.
If you wait, interest rates may increase again, and you may miss out on some of the savings you could have had.
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