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When many students graduate school, they leave with not only a degree, but also a large amount of debt. One way to make it easier to repay this debt is by refinancing student loans. In this article, we’ll discuss the benefits and the risks of refinancing, whether refinancing can help you pay off your loans faster, and what you can do to boost your chances of getting approved for refinancing.

Here are some of the advantages and disadvantages to consider when refinancing your student loans.

The pros of refinancing student loans

Whether you’re trying to save money or pay off your loans faster, some of the pros of refinancing student loans include:

  1. Consolidating to a single monthly payment – Refinancing consolidates your multiple existing loans into a single, new loan that has just one monthly payment. This can help make managing your debt simpler and help you avoid missing a payment or late fees.
  2. Securing a lower interest rate – You may qualify for a lower interest rate, which could help lower the total amount you’ll spend repaying your loan.
  3. Paying off your loan faster – When you refinance, you’ll have the option to adjust your repayment terms. By shortening your loan term, you’ll be able to pay off your loan faster.
  4. Decreasing your monthly payment – Alternatively, you could decide to lengthen your loan term. This would decrease the amount you need to pay monthly but could also increase the total amount of interest you’ll pay over the life of the loan.
  5. Unique perks from private lenders – Some private lenders offer unique benefits, such as financial education to help inform your financial choices, or access to special banking products with interest rate discounts. The Laurel Road Linked CheckingSM account, is an online checking account with no minimum balance to open and $0 monthly maintenance fee. Laurel Road members that close on a new student loan refinance and open a new Laurel Road Linked Checking account are eligible for an interest rate discount on their student loan, learn more here.
  6. Ability to add or release a co-signer – If you haven’t had the opportunity to build up your credit yet, you might be able to apply with a co-signer. Applying with a co-signer who has a good credit score could help you qualify for a lower interest rate than what you’re currently paying.

The cons of refinancing student loans

Since each borrower’s financial circumstances vary, you should also consider some of the cons of refinancing student loans before you make your decision. Some of these may include:

  1. Losing access to federal repayment programs – If you refinance your federal loans, you’ll lose access to federal repayment programs, including Income-Driven Repayment (IDR) plans, such Saving on A Valuable Education (SAVE), Pay As You Earn (PAYE), Income-Based Repayment (IBR), and Public Service Loan Forgiveness (PSLF). For more information visit, https://studentloans.gov.
  2. Losing access to federal repayment protections – You’ll also lose access to federal repayment protections, such as forbearance and deferment, which can give you the opportunity to pause or lower your monthly payments under certain circumstances.
  3. It may be difficult to qualify without a co-signer – If you don’t have an established credit history, you might find it difficult to gain approval for refinancing without a co-signer.
  4. Interest rates might increase – When you refinance, you’ll be able to select either a fixed or variable interest rate. Variable interest rates, which fluctuate according to the market, have the potential to rise, which could result in you paying more over the lifetime of your loans.
  5. Ending your grace period early – Not all federal student loans have grace periods but for those that do, if you decide to refinance during your grace period, you may have to start repaying immediately.

Can refinancing help you pay down debt faster?

The short answer is—it could. By refinancing and shortening the term of their loan, borrowers can decrease the amount of time it will take them to pay it back. Note that this could result in your monthly payment going up. However, depending on the interest rate you qualify for, you may find this increase is negligible.

To estimate how much you could save by refinancing, check out our student loan refinancing calculator below.

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Student Loan Refinance Calculator

Student Loan Refinance Calculator

This calculator is for illustrative purposes only. If you are using it to compare a federal loan it does not take into account benefits currently offered by the federal government and should not be used for loans being repaid under a federal program other than the Standard Repayment Plan. For additional details click here.

What do I need to qualify for refinancing?

Refinance lenders typically look for:

  • A degree from a qualifying institution
  • Eligible student loans
  • A minimum credit score in the mid to high 600s
  • Proof of sufficient income

If you’re interested in refinancing, check out Laurel Road’s student loan refinancing options for students and professionals and see if refinancing makes sense for you. It’s never too soon to figure out a long-term plan to manage your student loan debt. Or, if you have questions about how to compare your repayment, refinancing, or forgiveness options, schedule a free consultation with a student loan specialist today.

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