Sky-high interest rates. Monthly payments that eat up your paycheck. A huge balance. Managing student loan debt can be difficult, and high interest rates can cause you to pay back far more than you originally borrowed for school.
Refinancing your student loans can be a smart strategy to take charge of your debt. With this approach, more of your money can go toward the principal rather than interest, helping you save money.
However, not all student loan refinance companies are created equal. It’s important to do your homework on prospective lenders to ensure you make the right choice for you.
What is student loan refinancing?
Student loan refinancing is a strategy you can use to better manage your debt. With refinancing, you work with a private lender to take out a new loan for the amount of your current balance, using it to pay off the original loans. The new loan has different terms than your old debt. You’ll get a new repayment term, interest rate, and monthly payment.
If you have good credit and a stable income, you could qualify for a refinancing loan that has a lower interest rate than your old loans. The lower rate will help you save hundreds or even thousands of dollars over the length of your loan, and you could get out of debt much faster.
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9 questions to ask before refinancing
There are many student loan refinancing companies out there, and each lender has its own eligibility requirements, rules, and interest rates. Before submitting your loan application, ask these nine questions so you can make an informed decision.
1. Will getting a quote affect my credit score?
The interest rate you’re offered is dependent on factors like your credit score, income, student loan balance, and loan term, and it will vary from lender to lender. It’s a good idea to compare offers from several different student loan refinance companies so you get the best rate.
However, getting a quote from a lender could affect your credit score, unless they offer a soft credit pull option. With this approach, you can get an estimate on a loan without damaging your credit.
Purefy’s Find My Rate tool allows you to compare several different offers at once with just a soft credit inquiry, which has no impact on your credit.
2. Do you offer in-school deferments?
With many refinancing loans, payments are due right away. In some cases, you may be responsible for making payments even if you go back to school.
If you’re thinking of returning to college for a master’s degree or other professional qualification, ask the lender if they offer in-school deferments. Some refinancing companies, such as Citizens Bank, will allow you to postpone making payments until after you graduate, or offer alternative payment plans that are more affordable, such as interest-only payments.
3. Can I transfer a parent’s loans into the student’s name?
If you’re a parent who took out a loan on behalf of your child, you know that student loans can negatively impact you. They can damage your credit and limit your ability to qualify for other forms of debt, such as a car loan or mortgage. One way to fix that problem is to transfer the loans to the student. However, not all lenders allow that.
If you’re thinking of transferring your loans to your child, look for a lender that specifically allows for this. For instance, PenFed’s student loan refinance program allows the student to refinance loans in their parent’s name, and vice versa.
4. Do you offer co-signer releases?
A co-signer is someone with good credit and a stable income who puts their name on a loan application alongside the primary borrower. The co-signer agrees to take responsibility for the loan if the borrower falls behind on their payments.
Acting as a co-signer is a big responsibility, and has its risks. If that’s a concern, it’s important to know that some student loan refinancing companies, such as Citizens Bank and PenFed, offer co-signer releases.
After making a set number of payments, you can request that lender remove the co-signer from the loan, eliminating their obligation to repay it. Not all lenders allow it, so make sure you check with the lender ahead of time.
5. Who will be my loan servicer?
When applying for a loan, you should know that the company that approves your loan may be different than the company that manages it afterward. A completely different company — known as a loan servicer— could manage your payments and answer customer service questions.
Your loan servicer can have a big impact on your experience as a borrower, so it’s a good idea to research who the loan servicer will be.
6. Can I refinance my loans if I didn’t graduate?
Many people end up not graduating from school for a wide range of reasons. Whether you couldn’t afford to finish your degree or had a family emergency, you could be left with student loans and no degree.
Unfortunately, not many lenders work with borrowers who didn’t finish their degree. There’s only a select few who will do so, such as Citizens Bank.
7. Do I need to be a U.S. citizen to qualify for refinancing?
Many lenders — but not all — require borrowers to be U.S. citizens to qualify for a refinancing loan. However, there are some lenders, such as Earnest and Citizens Bank, that will allow non-citizens to apply if they are permanent residents, or if they have a co-signer who is a citizen. Review the lender’s eligibility requirements to see if you qualify.
8. What happens if I can’t afford my payments?
Refinance loans are private loans, meaning they don’t have the same benefits as federal student loans. In most cases, you’re responsible for keeping up with the payments, even if you’re injured or face a financial emergency.
However, most lenders offer some form of hardship options in case you become sick or lose your job. Under these programs, you may be able to postpone making payments or make reduced payments while you get back on your feet.
9. Is there a limit to how much I can refinance?
Most lenders have limits on how much debt you can refinance. If you have a large amount of student loans — such as if you went to medical or law school — you’ll need to shop around to find a lender who will be willing to refinance your entire balance; not all lenders will do so. When you enter your loan amount in Purefy’s rate comparison tool, you will only see lenders who are able to refinance the loan amount you entered.
Managing your loans
Student loan refinancing can be a great tool, helping you save money and get out of debt sooner. However, applying for a loan is a big decision, and it’s a good idea to do some research beforehand.
If you’re thinking of refinancing your debt, compare offers from the best student loan refinance companies through Purefy. And if you have any questions about Purefy’s lenders, feel free to contact us at 202-524-1115, [email protected], or by web chat.