You’ve got student loans. Most likely you’re gradually paying them off while dreaming of a day when they aren’t a line item in your monthly budget the size of a rent payment. Perhaps you think you’re stuck with your current lender, your current interest rate, and your current payment terms. Guess what? You’re not.
Refinance Student Loans With Another Student Loan
When you refinance your student loan what happens is that a new lender pays your old loan and issues you a new loan at a lower interest rate with attendant lower monthly payments. If you have good credit, you should look into this possibility. It could help you save thousands of dollars on your federal and private loans.
Here’s a great example of how much you can save:
“As an example, if you have a $100,000 balance on your grad student loan at a current rate of 6.8 percent, and you get approved into a new loan at 5.5 percent, you will save approximately $8,000 in interest over the life of the loan if you refinanced right at the beginning of a 10-year student loan repayment process. Instead of paying $1,151 each month, you will pay only $1,085. So, you also lower each monthly payment.”
The sooner you refinance, the more you save since you generally pay more interest during the first few years of your student loan repayment.
Banks Offering Student Loan Refinancing
If you’re happy with your student loan lender, consider first asking them if they offer you the option of refinancing. Not many companies refinance both federal and private loans so if your lender does not, then look into the following companies:
To be eligible to have your loan refinanced by CommonBond, you have to have to be an alum of an MBA, Law, Medical, or Engineering program in the CommonBond network. They look for graduates with medium credit scores, salary and debt-to-income requirement. They also have unemployment protection with loan payments that pause while you’re looking for work and help finding a new job. They also offer community events, networking opportunities and perks to their clients. They are one of the best refinance options around.
cuStudentLoans is actually a network of non-profit credit unions that help students pay for college. They also refinance student loans, including both private and federal student loans from eligible undergraduate and graduate degree programs. While they sometimes require a cosigner for refinancing, they have a nifty system that releases the cosigner after 12 consecutive payments.
SoFi – Social Finance
SoFi is one of the few companies that offers refinancing and consolidation for both federal and private student loans. They offer refinancing for both undergraduate and graduate student loans but only if your degree meets their eligibility requirements. They require a medium credit score, salary and debt-to-income requirements. What’s great is that they also offer added perks like unemployment protection which will pause your payments. In addition, they have career support with complimentary coaching and help finding a new job if you lose your job. For the entrepreneurial they provide loan deferrals and mentorship. If you’re interested in refinancing with them, this link will get you $100 off!
Citizens Bank also refinances private and federal graduate and undergraduate loans. They will refinance loans anywhere from $10,000-$170,000. They claim that the average monthly payment savings for people who refinance with them is $127/month.
Education Success Loans
Education Success Loans refinances private and federal student loans and offers up to 25 year terms. What’s great is that they offer no prepayment penalty so you can someday pay off your loan in a lump sum or pay more towards your loan on a monthly basis.
Also check out:
Refinance a Student Loan with a HELOC
What’s a HELOC, you ask? It’s a Home Equity Line of Credit. If you own your home and you have available equity, you can often get a very low interest loan on that equity. One of the major benefits for shifting your debt from a student loan to a HELOC, aside from the often lower interest rates, is that HELOCs are discharged in bankruptcy whereas student loans are not. No one ever anticipates having to declare bankruptcy, but sometimes terrible things happen. Perhaps you lose your job and have a hard time finding work. Perhaps you incur medical debt. If you have the debt from your student loans in student loan form, those franken loans will survive. But if you hold that debt in the form of a HELOC, they will be forgiven in bankruptcy. Also, the interest deduction that you pay on a home equity loan might be a greater tax benefit for some, especially those who have high incomes.
The drawbacks are that this puts your home at risk, and that you lose any of the benefits that your federal or private loans offered in regards to income base repayment or unemployment protection.
Things to Look Out For When Refinancing Student Loans:
Saving money is a good thing but be sure to do your homework when you refinance to make sure you actually are saving money. Sometimes, the difference in the interest you’ll pay over the life of your loan won’t be worth the trouble you go through to refinance. Since refinancing could extend the life of the loan, you also might end up paying more in interest in the long run.
Be careful when refinancing federal student loans into private loans as you might have to give up some of the benefits that you get through the federal loan program. Many private loan companies don’t offer you income-based repayment or loan forgiveness, for example. They also might not allow you to defer your loan if you lose your job or go back to school. This will mean that if you’re unable to pay then penalties and unpaid interest can quickly add up. Finally, make sure that you’ll be able to still deduct the interest on this new student loan.
That said, refinancing a student loan is often a good idea and the banks listed above offer great programs and terms.