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The Pros and Cons of Refinancing Student Loans

Published October 15, 2021

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Borrower Advice
Student Debt
Student Loan Refinance
Student Loans
Article

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

Pros of refinancing student loans include:

  1. 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.
  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 include unique benefits, such as financial resources to help inform your financial choices, or access to special banking products with interest rate discounts, e.g. the Laurel Road CheckingSM account, an FDIC-insured* 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 Checking account are eligible for an interest rate discount on their student loan.
  6. 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

Some of the cons of refinancing student loans include:

  1. Losing access to federal repayment programs and plans: If you refinance your federal loans, you’ll lose access to federal repayment programs, including income-driven repayment plans, such as Pay As You Earn (PAYE) and Income-Based Repayment (IBR), Revised Pay As You Earn (REPAYE), 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/lower your monthly payments.
  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. You’ll end your grace period: 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?

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.

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.

 

*Deposits are insured up to the maximum allowable limit. Laurel Road is a part of KeyBank N.A. All single accounts owned by the same person at KeyBank N.A. are added together and insured up to the maximum allowable limit. To learn more, contact the FDIC toll-free at 1.877.ASK.FDIC (1.877.275.3342) or visit www.fdic.gov.

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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