Refinancing your student loans can help you reach your goals with paying off your student debt. But it’s important to understand the different offers and features between lenders like banks and credit unions. It’s also crucial to acknowledge the potential drawbacks based on your unique situation and need.
As you try to decide when to refinance student loans, or if refinancing is right for you at all, here are eight essential things to think about.
1. Eligibility requirements
Unlike the federal government, private student loan refinance companies consider your credit history and income to determine whether you qualify for a loan. What’s more, different lenders have varying eligibility requirements.
To give you an idea of what to expect, the average FICO score for borrowers who get approved for student loan refinancing is 774, and their average annual income is $98,156. That doesn’t mean you won’t get approved if your credit score and income are lower. But the higher the both are, the better your approval odds will be.
If you can’t get approved on your own, though, it’s usually possible to add a creditworthy cosigner to your loan application.
2. Minimum and maximum loan amounts
Each lender has a minimum and maximum amount they’re willing to refinance. If you have just a few thousand dollars left on your student loans, it’s unlikely you’ll find many lenders willing to work with you.
On the other hand, if you have several hundred thousand dollars in student debt, you may only be able to refinance a portion of that. Again, the spectrum can vary by lender, so it’s important to take time to compare student loan refinance companies before you apply.
3. Variable vs. fixed interest rates
Many student loan refinance companies offer a choice between variable and fixed interest rates. It’s crucial to know which rate type you’re looking at when you compare student loan refinance rates.
While variable rates typically start lower than fixed rates, they’ll fluctuate over time to match current market rates. As a result, you may end up paying more over time if interest rates go up. While fixed rates start off higher, they provide more certainty by remaining the same for the life of the loan with the same monthly payments.
4. Repayment term options
If you need some flexibility with your monthly payments, it’s important to look at more than just interest rates when you compare student loan refinance companies. Take some time to consider your budget and how long you want to take to pay off your student debt.
Lenders offer shorter repayment terms that can help you become debt-free faster and save big on total interest accrued, while they also offer longer terms that can help you reduce your monthly payments. Research different lenders to find the right repayment terms for your financial needs and student loan pay off goals.
5. Private vs. federal loan features
If you’re thinking of refinancing federal student loans, understand that you’ll be losing access to certain federal loan benefits that most private student loan refinancing companies don’t offer.
That includes loan forgiveness programs and income-driven repayment plans. Also, the U.S. Department of Education offers more generous deferment and forbearance options than most private lenders.
If you anticipate needing any of these benefits, it may not be the right time to refinance just yet.
6. Lender-specific features
You’ll also find that each lender has its own set of features and benefits that it offers to its borrowers.
For example, if you add a cosigner to your loan, some lenders provide a cosigner release program that allows you to drop that person from the account later on if you meet certain criteria. Others may offer unemployment protection, reduced interest rates on other loans they provide, the chance to refinance your loans with your spouse, and many more.
So as you compare student loan refinance rates, take the time to also consider other features that could give you more peace of mind and provide extra value for your situation.
7. Lender reputation and reviews
Not all student loan refinancing companies are created equal. One of the key features to consider when you’re comparing your options is customer satisfaction. Read reviews online to get an idea of how current and previous customers generally feel about a lender, and also get a sense of what they like and dislike about them.
Depending on your preferences and needs, reading these reviews can help you determine how a lender might respond to questions and concerns you may have. Also, keep in mind that some good and bad customer reviews may not involve aspects of the loan experience that are important to you.
Also, make sure you know who’s actually servicing your loan. While you may apply with a specific lender, it may not be the one who actually handles payments and customer service.
8. Shopping around
One of the best ways to save money on student loan refinancing and find the best fit overall is to shop around and compare student loan refinance rates and other features.
This process can be time-consuming if you go through the prequalification and rate quote process on each individual lender’s website.
Fortunately, Purefy’s Compare Rates tool allows you to compare multiple companies and rates in one place, all at once.
Simply share some information about yourself and your existing student loans, and Purefy will run a soft credit check to provide some rate quotes. These quotes aren’t final — you’ll get a final offer when you apply with an individual lender, and it runs a hard credit check — but they can give you a good idea of which lender would be the best fit for you.
The bottom line
Refinancing your student loans can come with a lot of benefits, including lower interest rates, reduced monthly payments, and flexibility with those payments. But it’s important to take your time as you consider which lender is best for you.
Understand your current financial situation and chances of getting approved and take your time to compare several lenders to determine how each one can provide you with the best possible rates, repayment terms, and features for your needs.
As you approach student loan refinancing with this mindset, you’ll have a much better chance to achieve your goal of becoming debt-free.