Earning a college degree is a goal for many high-school graduates. Tuition costs, however, can quickly become a source of concern. And rightly so. According to CollegeBoard.org, the average yearly cost of tuition for a 4-year, out-of-state school was $24,930 in 2017. This leaves many students wondering how they will pay for it all, and the answer is commonly student loans.
Taking out student loans is one of the most popular methods of covering tuition. For many students, it is the only option. And while student loans are a valuable, necessary resource, repayment can become a major cause of stress upon graduation and entry to the workforce.
Why refinance student loans
How do you know you are making the best possible choice when it comes to your student loans?
The answer is: you really can’t. While you are advised to shop around for the best rates, things change and life circumstances can easily get in the way of whether or not you can afford your loan payments upon graduation.
Luckily, student loan refinancing is available through private lenders like banks and credit unions. Refinancing your student loans is a great way to alleviate some of your financial stress by getting a lower rate to save money, shorten your repayment term to ditch debt fast, or extending your repayment plan to lower your monthly bills.
Refinancing is also an effective way to rectify any unwise student loan decisions you’ve made in the past — such as taking out high interest loans when you needed the financial support — now that you’re in a better place financially and can qualify for a better rate.
If you are interested in refinancing, it is best to do some research beforehand. When to refinance student loans is another important question you must ask yourself. If you feel you are in a financial situation that could benefit from student loan refinancing, it’s time to get to work.
How to refinance student loans
There is a process for how to refinance student loans the right way. Typically, steps will include:
- Determining the pros
- Determining the cons
- Solidifying your student loan goals
- Determining if refinancing is the right solution for you
- Finding the best deal by comparing rates
- Picking the best lender, rate, and term
- Applying with a lender
Familiarize yourself with these to help you make the best possible choices about your student loan refinance.
Know the pros
There are plenty of benefits to refinancing loans, such as saving with a lower interest rate, consolidating your debt into one easy payment, or lowering your monthly payment. All of these are reasons why refinance student loans makes sense for a lot of borrowers.
Know the cons
While there are benefits to refinancing your student loans, there are a few drawbacks borrowers need to be aware of. For instance, refinancing doesn’t automatically mean you’ll get a better deal. You may end up with terms that don’t suit your financial goals in the long run. This is why it is so important that you dive in and do your due diligence before you commit to a refinancing plan. Also, refinancing is done through a private company. That means if you’re refinancing federal loans, you’ll lose any benefits provided by the U.S. Department of Education.
Know your student loan payoff goals
What is your motivation for refinancing? Refinancing your student loans may not be worth it unless you have clear goals in mind.
If you’re drowning in debt and hoping to lower your monthly payments, you’ll want to find a refinancing option that allows for a longer payoff period. On the other hand, if you are looking to save money on interest, you’ll need to find a plan that offers a lower rate. Evaluating your current financial situation and planning accordingly can make all the difference between a wise financial move and a bad one.
Determine if it’s the right solution for you
Refinancing your loans is not a decision to take lightly. There are many consequences if you don’t choose carefully. If you, for example, agree to loan terms you can’t keep up with over the long run, you risk putting yourself in even further financial hardship. And not every offer is a good offer, either. If you are dealing with bad credit, getting a low interest rate isn’t easy. You may even need the help of a cosigner to get the type of rate you are comfortable with.
Find the best deal
It’s important to take your time when exploring all of the different options available to you. By using rate comparison tools, like Purefy’s Compare Rates tool, you’ll get a clear picture of what each lender can offer you and how that compares to the others. With information like this, you will have a great shot at making a sound financial decision that takes all factors into account.
Pick the best solution for you
Once you’ve compared different refinancing options, you’ve got to make a choice that works best for you. You’ll want to focus on the overall picture, not just one factor of your loan. Select the best option based on a combination of interest rate, repayment terms, and other features. Making a decision based on these criteria will ensure you don’t agree to refinancing terms that won’t ultimately help you reach your goals.
Apply with the lender of your choosing
Applying with a lender is easy and only takes about 15 minutes. Once you’ve found a refinancing option that fits your financial plan, apply with the lender and submit your documentation. You may be asked for documents like pay stubs and current loan balances. Be sure to have up-to-date, accurate information to ensure a smooth loan application process.
Improving your chances
If you find that qualifying for student loan refinancing is a struggle, you’re not alone. You may not have been offered your preferred rate right up front, but there are steps you can take to improve your financial standing, as well as your chances of receiving a great loan refinancing offer in the future.
First, take steps to improve your credit. This may mean paying off balances faster or consolidating your existing debt. You can also increase your income by picking up a second job or side gig to help pay down your balances faster. Another option is to employ the assistance of a co-signer, which is a trusted loved one who signs on to the loan documents with you and is equally responsible for the debt. You should not feel trapped by your financial situation. You may have options!
Refinancing student loans is actually quite a simple and straightforward process once you know which offer you’d like to pursue. Although it takes time and effort to research your options, refinancing your student loans is one of the easy steps you can take to improve your financial health and get closer to living your best life.