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4 Student Loan Refinance Misconceptions

Published March 29, 2017


Financial Insights
Student Loan Refinance
Student Loans

4 Student Loan Refinance Misconceptions

4 common student loan misconceptions now dispelled to help guide your path forward and save you time and money:

  1. “I’m not going to apply to refinance my student loans because I don’t have an 800 credit score.”

You do not need an 800 credit score to be approved for student loan refinancing. Many highly reputable private student loan companies will refinance student loans with credit scores starting in the mid-600’s. Each private student loan company has its own underwriting criteria, which may include credit score, employment status and monthly cash flow, among other criteria. If you do not qualify on your own for student loan refinance, most companies will still refinance your student loans with a qualified co-signer.

A co-signer can be another creditworthy person (e.g., a parent, spouse, relative or friend supportive of your educational goals) to help you qualify for a student loan. A co-signer is equally responsible with you for the student loan obligation. Keep in mind, once you have been approved for a refinanced student loan or new student loan, your co-signer may not want to be financially responsible for your student loan. In this case, some student loan companies will release the co-signer from his or her obligations to repay the student loan.

  1. “I have been working as a public school teacher for 5 years and made all my student loan payments on time. Why haven’t my Sallie Mae student loans been forgiven?”

There are several misconceptions regarding Public Service Loan Forgiveness and Teacher Student Loan Forgiveness.

The key point to remember is that you must have a federal direct student loan, Stafford Loan or consolidated loan that you borrowed from the federal government. There are many examples of student loan borrowers who have believed for years that they made qualifying student loan payments on federal direct student loans only to learn later that their student loans were private student loans. You should confirm in writing with your student loan servicer what types of student loans you borrowed.

A student loan that you borrowed from a private student loan lender such as Sallie Mae is not eligible for student loan forgiveness. Parent PLUS Loans also are not eligible. Importantly, you have to apply for Public Service Loan Forgiveness and Teacher Student Loan Forgiveness (you are not automatically enrolled) and have to meet certain qualifications.

  1. “It will hurt my credit score to check my new rate.”

Not true. With many lenders, you can find out your new interest rate within minutes – with no impact to your credit score through a soft credit pull. Also, if you apply to multiple lenders to find the best student loan interest rate and benefit, your credit score should only be impacted once. According to FICO, student loan “interest rate shopping” inquiries made during a focused time period (for example, 30 days) will have little to no impact on your credit score.

  1. “I don’t want to apply for student loan refinance because I don’t want to refinance all my student loans.”

You do not have to refinance all your student loans – you have the option to pick and choose which student loans that you would like to refinance. For example, if you have high interest rate student loans, you may want to refinance these student loans only and not include your lower interest rate student loans. The goal is to lower your overall student loan payments and save on student loan interest. The good news is that the choice is yours.

This is a guest post written by Zack Friedman, founder and CEO of Make Lemonade, a leading website on student loans and personal finance.


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