4 Student Loan Refinance Misconceptions
We dispel four common student loan misconceptions to help save you time and money:
- “I’m not going to apply to refinance my student loans because I don’t have an 800 credit score.”
You don’t need an 800 credit score to get approval for refinancing your student loans. Many highly reputable private student loan companies will refinance student loans for people 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 others. If you don’t qualify on your own to refinance your student loans, most companies will approve you with a qualified co-signer.
A good co-signer is a creditworthy person (e.g., a parent, spouse, relative or friend supportive of your educational goals) willing to help you qualify for a student loan. A co-signer shares equal responsibility with you for the loan obligation. Keep in mind, once you’ve been approved for a refinanced student loan or new student loan, your co-signer may not want to continue to be financially responsible for your loan. If this is the case, some student loan companies will release the co-signer from his or her obligations to repay the student loan.
- “I’ve 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 government loan forgiveness. You can find details for Public Service Loan Forgiveness (PSLF) here and for Teacher Student Loan Forgiveness (TSLF) here and we’ll summarize them below.
In order to qualify for PSLF, you must meet the following criteria:
- Work full-time for the U.S. federal, state, local or tribal government or a not-for-profit organization
- Have Direct Loans
- Repay your loans under an income-driven repayment plan
- Make 120 qualifying payments
In order to qualify for TSLF, you must meet these criteria:
- Have worked as a full-time, highly-qualified teacher for five complete and consecutive academic years. One of those years has to have been after the 1997-98 academic year
- Your job must have been at an elementary school, secondary school, or an educational service agency, that served low-income students
- Have not had an outstanding balance on a Direct Loan or Federal Family Education Loan (FEEL) on, or after, Oct. 1, 1998
- The loans you’re seeking forgiveness for must have been taken out before you finished your five years of qualifying teaching
The key point to remember is that in order to qualify for either of these programs, you must have a loan from the federal government. If you have Direct Loans from the federal government and fulfill the criteria above, you may qualify for PLSF. If you have a federal Direct student Loan, Stafford Loan or consolidated loan and meet the criteria above, you might qualify for TSLF. Unfortunately, there are many examples of borrowers who believed for years they were making loan payments on federal direct student loans that would enable them to qualify for loan forgiveness, only to learn later that their loans were private student loans which did not qualify. You should get written confirmation from your loan servicer about what types of student loans you have.
A student loan that you received from a private lender such as Sallie Mae is not eligible for student loan forgiveness. Parent PLUS Loans and graduate PLUS loans are eligible for PSLF but not TSLF, but there are a couple of factors to consider before applying. Importantly, you have to apply for Public Service Loan Forgiveness and Teacher Student Loan Forgiveness (you are not automatically enrolled) and have to meet the necessary qualifications.
- “It will hurt my credit score to check my new rate.”
Not true. With many lenders, you can check rates 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.
- “I don’t want to apply for student loan refinance because I don’t want to refinance all my student loans.”
You don’t have to refinance all your student loans – you can pick and choose which ones you’d like to refinance. For example, you might want to only refinance your high interest rate loans and exclude your lower interest rate loans. The goal is to lower your overall student loan payments and save on 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. Make Lemonade may receive compensation in connection with Laurel Road products and services.
In providing this information, neither Laurel Road nor KeyBank nor its affiliates are acting as your agent or is offering any tax, financial, accounting, or legal advice.
Any third-party linked content is provided for informational purposes and should not be viewed as an endorsement by Laurel Road or KeyBank of any third-party product or service mentioned. Laurel Road’s Online Privacy Statement does not apply to third-party linked websites and you should consult the privacy disclosures of each site you visit for further information.