Want To Refinance Your Student Loan? The Top 8 Things to consider
Congratulations on your recent graduation! Now it’s time to start thinking of how to pay off those loans that provided for tuition, books, and ramen. In other words, welcome to adulting.
Nearly 70 percent of college students graduate with an average debt of $37,000, so you have a lot of company. Refinancing your student loans makes a lot of sense. You can get a better interest rate, lower your monthly payment, and pay your loan off faster. Awesome, right? But like any financial decision, refinancing student loans should be carefully thought out so that you are making the best decision for you.
Because you’re so smart, you’re going to be doing a lot of looking before leaping into the refinancing pool. So these are the things you want to consider:
1. What’s your credit score?
This is the bottom line: if you have a sub standard credit score trying, to refinance your student loans is going to be a waste of time. You’ll either be turned down, or the rate you get will do you no good. Most lenders won’t consider anyone with a score under 600. But to get the best rates and options, aim for a score of 700 or higher. So, do yourself a favor – check your score. If there are any discrepancies, clear them up. Or any bad marks, take care of them. It’s super easy to get your credit score from sites like Mint or Credit Karma.
2. What’s your income?
Lenders are going to want to see that you have not only a stable income, but sufficient income. Do your homework. Look at your paystubs and subtract your regular monthly expenses. Is there enough left over for your proposed monthly student loan payment? If you don’t have enough income, this is the time to think about getting a qualified cosigner. If you have other outstanding debts, you’ll want to consider paying it down before looking into refinancing your student loans. Lenders will look heavily at your debt-to-income ratio, and you want yours to be as low as possible.
3. Why do you want to refinance?
As noted above, there are a lot of great reasons to refinance. But being clear on your main goal will dictate what refinancing decisions you make and help you choose the loan option that will best meet your goal. For example, if your goal is to be debt-free in five years, you probably don’t want to choose a loan with a 10-year payoff term.
4. What kind of loans do you have?
The choices are either federal, or private. A lot of students have both. It wasn’t always possible to consolidate federal student loans with private, but some lenders will now bundle them together. This can help you get a lower interest rate. However, if you refinance a federal loan through a private lender, you give up some protections and options like income-based repayment plants, loan forgiveness programs, deferment or forbearance. Think carefully about your ability to keep up on payments before you go down the road of loan consolidation.
5. What interest rates are you paying?
Seems simple, but you need to know the rates you are currently paying so that you know if the refinanced interest rate is a good deal or not.
6. Apply to multiple lenders
There’s no limit to the number of lenders you can apply with. Applying to multiple lenders increases your chances for approval and allows you to shop for the best terms. And if you apply to several lenders within a 30-day period, this is typically treated as a single inquiry on your credit report.
7. What about flexible repayment options?
Even though you might lose out on federal repayment plans, some private lenders still provide similarly flexible payment options. Check to see what their policies are for working with borrowers who might be having difficulties repaying. Do they, for instance, offer forbearance or deferment options.
8. Do you like your lender?
If you think of it in terms of a relationship, then this really makes sense. You’ll be working with this new lender for at least 5 years, if not much longer. What’s their customer service like? If they are terrible to work with, you can’t just dump them. You’re stuck. So do your research.