For a long time, borrowers were stuck. They had no way to improve their student loan interest rates or repayment terms. But as more students have had to rely on federal and private loans to help finance their undergraduate and graduate education, more options for repaying those dollars have also become available. For working professionals with good credit and income, student loan refinancing may be the ideal way to save money, create a monthly payment plan that better suits your situation and reduce interest rates.
Student loan refinancing enables borrowers to pay off their original student loans and obtain a new loan with different repayment terms and a potentially lower interest rate. You can choose to refinance all or just some of your federal and private loans.
Federal student loans come with some provisions that can offer relief should your financial situation change for the worse any time during repayment. These include income-based repayment options, deferment and forbearance. While deferment and forbearance can help you avoid default, they do not save you money over the life of the loan. In some cases – as with forbearance – you would increase the total amount you owe. The best way to save money on a federal loan is to have your student loans forgiven, an option which is only available under certain circumstances.
Consolidation simply combines two or more loans into one loan with one interest rate. When federal student loans are consolidated into a Direct Consolidation Loan, the new interest rate is based on the weighted average of the original loans’ rates. Consolidation does not offer any interest savings, and private student loans cannot be consolidated with federal student loans, but any options and benefits associated with your federal loans are retained.
With refinancing you pay off one or more of your existing loans and a new one is created. The key benefit of refinancing is the potential to save thousands of dollars in interest over the life of the loan by lowering your interest rate or shortening your loan term.1 This savings can be used towards paying down the principal balance, investing or starting an emergency savings fund.
Once you’ve decided that refinancing is right for you, look at more than just interest rates. Of course, interest rates are important, but as you shop around, make sure the rate isn’t just a “teaser,” but a real offer based on your information. You also want to evaluate the lenders, including their overall reputation and customer service reviews. And you want to look at other benefits they offer, such as what options they offer for economic hardship should the need arise.
Applying for Student Loan Refinancing can be a lot easier than you might think. The most critical step is making sure you are eligible, and whether private loan terms will be more beneficial to you than your current Federal loan terms.
While each lender has its own specific qualification criteria, the key factors in determining eligibility and rates typically include your credit profile, total monthly debt payments and income. Those who are in good financial standing, have good credit scores and have shown they are responsible with other debts and monthly budgeting are more likely to be approved.
Borrowers who choose student loan refinancing have worked hard to complete their degrees and establish their careers. It is time to reap the rewards of those efforts. Seize the opportunity to potentially reduce your interest rates, pay down your debt faster, and save more. At Laurel Road, we believe your hard-earned money should fund your future — not your past.
In providing this information, neither Laurel Road or KeyBank nor its affiliates are acting as your agent or is offering any tax, financial, accounting, or legal advice.
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