How To Refinance Student Loans In 5 Steps this Month
Student loan refinancing is excellent for reducing the burden of student debt. Read through to know what it is, its advantages, and how to submit a winning application.
Staying on top of your student loan payments every month is stressful and impossible for some. Refinancing your student loans makes the journey to a life free of debt easier, especially if you have multiple loans.
Student loan refinancing is when a lender pays off your existing federal and private student loans in exchange for a new loan with new repayment terms. Although refinancing student loans has many benefits, it is crucial to understand how the process works and what information and documents you need to have ready to submit a successful application. Student loan refinancing also involves risks, making it essential to have the correct information before signing the papers.
This blog discusses how to refinance student loans, the eligibility requirements, and steps to refinance to make the process of student loan financing easier for you. Moreover, we have listed the best companies for student loan refinancing for you to compare so you can get the best deal for yourself.
How to Refinance Student Loans
The first step you need to take before starting the process of refinancing your student debt is to look at your financial profile to check if you qualify. There are four key factors you need to consider: credit score, income, debt-to-income ratio, and current student loan terms.
Eligibility Factors Affecting Student Loan Refinancing
Factor 1: Credit score
To be eligible, most private lenders require you to have a minimum credit score of 650, but many students need help to meet this requirement. You must be sure of your credit score before starting the application process.
How to check your credit score
Most lenders perform a hard credit inquiry when evaluating your student loan refinance application. A hard credit pull is when your lender checks your credit report. A hard check might affect your credit score and stay on your credit report for an average of 2 years. You can check your credit from a credit bureau, including TransUnion and Equifax, for free, on credit-scoring websites such as LendingTree and Credit Karma, or from your credit card statement.
Factor 2: Income
Your income also plays a crucial role in the repayment terms you will receive when refinancing student loans. Lenders require you to make a minimum of $24,000 to be eligible.
Factor 3: Debt-to-income ratio
Debt-to-income ratio is the amount taken out of your monthly income to pay for your debts. You need to know this percentage because lenders require you to disclose in your application a debt-to-income ratio of above 50% is often attractive to lenders.
Factor 4: Current student loan terms
It would be best if you determined who your loan servicer is and whether you have private or federal student loans. Further, you must know the loan amount you have left and whether your interest rates are fixed or variable.
How to review your current student loan terms
You can check your student loan terms on studentaid.gov. After logging in, you will see information such as repayment terms, interest rates, and federal student loan balances. You can also contact the Federal Student Aid Information Center.
Steps to Refinance Student Loans
Following are the steps you can follow to get student loan refinancing.
Step 1: Evaluate Your Financial Situation
The first step you need to take before starting the process of refinancing your student debt is to look at your financial profile to check if you qualify. There are four key factors you need to consider: credit score, income, debt-to-income ratio, and current student loan terms
Factor 1: Credit score
To be eligible, most private lenders require you to have a minimum credit score of 650, but many students need help to meet this requirement. You must be sure of your credit score before starting the application process.
- How to check your credit score
Most lenders perform a hard credit inquiry when evaluating your student loan refinance application. A hard credit pull is when your lender checks your credit report. A hard check might affect your credit score and stay on your credit report for an average of 2 years. You can check your credit from a credit bureau, including TransUnion and Equifax, for free, on credit-scoring websites such as LendingTree and Credit Karma, or from your credit card statement.
Factor 2: Income
Your income also plays a crucial role in the repayment terms you will receive when refinancing student loans. Lenders require you to make a minimum of $24,000 to be eligible.
Factor 3: Debt-to-income ratio
Debt-to-income ratio is the amount taken out of your monthly income to pay for your debts. You need to know this percentage because lenders require you to disclose in your application a debt-to-income ratio of above 50% is often attractive to lenders.
Factor 4: Current student loan terms
It would be best if you determined who your loan servicer is and whether you have private or federal student loans. Further, you must know the loan amount you have left and whether your interest rates are fixed or variable.
- How to review your current student loan terms
You can check your student loan terms on studentaid.gov. After logging in, you will see information such as repayment terms, interest rates, and federal student loan balances. You can also contact the Federal Student Aid Information Center.
Step 2: Compare Refinancing Options
When you have determined that you qualify to refinance your student loans, it is essential to compare different lenders to find one that has terms that match your needs. The key features you need to pay close attention to are interest rates, fees, and repayment terms as they determine whether it’s a good idea for you to refinance. Most lenders readily have information about fees and repayment terms on their websites. For interest rates, however, you will need to request an estimate. Some lenders conduct a soft credit check to give you an estimated rate, while with others, you’ll have to submit your application and go through a hard credit check to get the interest rate. Below are the four best student loan refinance options that may match your needs:
SoFi Student Loan Refinance
SoFi Student Loan Refinancing is the best option for parents with Parent PLUS loans. Parents take these loans to help their undergraduate dependent children successfully graduate from college. SoFi student loan refinancing requires a minimum credit score of 650, and you can get an interest rate estimate with a soft credit check.
LendKey Student Loan Refinance
LendKey is a credit union that offers student loan refinance services. LendKey has flexible payment terms and no origination but requires a minimum credit score of 660. You can get an interest rate estimate with a soft credit check on the bank’s website.
Earnest Student Loan Refinance
Earnest Student Loan Refinance is the best option for students who have yet to graduate. Most lenders will need a degree to qualify for student loan refinancing, but you can do so with Earnest if you have a minimum credit score of 680. You can get a rate estimate on the lender’s website with a soft credit check.
Laurel Road Student Loan Refinance
Laurel Road is a national bank that allows student loan refinance if you have an associate degree or are a medical or dental resident. You must have a minimum credit score of 660 and get a 0.25% interest rate discount if you are an existing customer. A hard credit pull is not required to check your rate options.
Step 3: Gather Required Documents
Before filling out the application form, it is essential to have all the required documents ready on your computer and in the correct format. If you don’t submit all the documents, your application will not be successful. Make sure you have digital copies of all your documents because most applications are online, then put them in one folder on your computer to ensure that you only submit what is required.
Below is a list of some of the required documents for the application:
- Proof of residency
- Proof of employment
- W-2 Form
- Account Information
- Government-issued ID
- Social Security number
- Proof of degree
- Updated student loan statement
Step 4: Apply for Refinancing
Once you have found a lender that fits your needs and gathered your documents, the next step is to fill out an online application and submit the documents we previously discussed. A hard credit check pull is required because the lender needs to look at your full credit report to evaluate your financial profile. Most lenders allow you to track the status of your application on their website with only the application reference and your phone number.
Step 5: Review and Sign the Refinancing Agreement
Before signing the refinancing agreement, read all the fine print. Ensure that the interest rates match the estimates you were given and that the repayment terms are what you selected on the application form. Furthermore, check if the company charges late payment fees and how flexible they are with payment terms in case you lose your job and can’t handle monthly payments on the new loan.
Best Companies for Student Loan Refinancing
Following are some of the best options to opt for if you want to refinance your loans.
| Lender | Scholaroo rating | Fixed rates starting (APR) | Variable rates starting (APR) |
|---|---|---|---|
Laurel Road Best for Low Interest Rates with Discounts Visit website | 4.99% | 4.74% | |
College Ave Best for Flexible Repayment Options Visit website | 5.99% | 5.99% | |
SoFi Best for Refinancing Parent Plus Loans Visit website | 4.99% | 5.99% | |
Earnest Best for Refinancing without Cosigner Visit website | 4.96% | 5.32% | |
LendKey Best for Mid-Income Earners Visit website | 4.49% | 5.02% | |
ISL Education Lending Best for In-School Refinancing Visit website | 6.50% | N/A |
Laurel Road
Best for Low Interest Rates with Discounts
College Ave
Best for Flexible Repayment Options
SoFi
Best for Refinancing Parent Plus Loans
Earnest
Best for Refinancing without Cosigner
LendKey
Best for Mid-Income Earners
ISL Education Lending
Best for In-School Refinancing
Pros & Cons of Refinancing
Refinancing student loans is a decision most students and parents take to make their debt more manageable. However, depending on your financial situation, it may not always the best idea, especially for those who don’t have good credit or a stable income. Taking the time to weigh the pros and cons will help you better understand how student loan refinancing works and make an objective and informed decision.
Here are the benefits and disadvantages of Student Loan Refinancing:
Pros | Cons |
Reduces your interest rate: | You will lose the benefits that come with federal student loans: |
You only have one loan to repay: – Most students graduate from college with multiple loans; student loan refinancing combines them into one, making repayment easier to manage. It also helps you track payments better and avoid late fees and penalties. | Not everyone is eligible: |
Longer repayment options: | Credit score determines repayment terms: |
Loan Refinancing Alternatives
In the event that student loan refinancing does not suit your financial situation, consider any one of the following alternatives.
Apply For Student Loan Forgiveness
The purpose of student loan programs is to give full or partial relief to students and parents who cannot pay their loans. Programs include Income-Driven Repayment Forgiveness, Public Service Loan Forgiveness, Perkins Loan Cancellation, and Teacher Loan Forgiveness.
Consolidate Student Loans
Student loan consolidation combines all your federal student loans into one new loan amount. Consolidation can be wise because you are still eligible for the benefits and security that comes with federal student loans, and it does not reflect negatively on your credit history.
Request For Deferment
If your student loan deferment request is approved, you will be allowed to stop paying on your loan for some time while improving your financial situation. Deferment options include Parent PLUS borrower deferment, economic hardship deferment, unemployment deferment, and in-school deferment.
FAQs
Following are the FAQs regarding how to refinance student loans.
Can you refinance private student loans?
Yes, you can refinance private student loans. The steps to do so are the same steps mentioned above.
Can you refinance federal student loans?
Yes, you can get your federal student loan refinanced. However, when you choose to refinance federal loans, you can no longer avail the benefits that come with a federal loan like various types of repayment plans, deferment options, loan forgiveness options, etc.
If these benefits are important to you and you want to maintain them, then consolidation maybe the best alternative for you.
How long does it take to refinance a student loan?
It can take several weeks to complete the refinancing of student loans. Once the new lender approaches your application, the institution takes care of all the paperwork regarding the new loan and repaying your existing student loan.
How often can you refinance student loans?
There are no restrictions on how many times you can refinance student loans. Student loan refinancing has no additional charges, fees, or costs, so you can do it as often as you deem necessary.
Does refinancing student loans hurt credit score?
Your credit is slightly affected by refinancing. Although your credit score may drop by a few points after refinancing, it won’t last long and is likely to bounce back after a few months. Ultimately refinancing can result in potentially benefiting your credit score in the long run.
What are the best options for refinancing student loans?
There are many options for companies that refinance student loans. We have provided a list of the seven best above which you can compare to choose the best for you. The top three refinancing options include Laurel Road, College Avenue, and Sofi.
Final Thoughts
Student loan refinancing could be the key to a debt-free life. Following the proper process will ensure that you get a new loan at a lower interest rate, consequently reducing your loan amount. There are various student loan refinancing options that cater to all needs, from Parent PLUS Loans to students who have yet to graduate. If you don’t qualify for refinancing, do not despair – there are other options to look into such as student loan forgiveness, consolidation, or deferment. It all depends on what best suits your financial situation.
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