Refinancing is a flexible solution to save money on your student loans, but how do you know where to start and which loans you should refinance? Choosing which student loans to refinance starts with knowing your goals and knowing your loans.
Review your type of loan:
There are two types of student loans – federal and private. Federal loans are given by the government through the Department of Education and have a set interest rate for everyone. There is no way to lower the interest rate on a federal loan besides refinancing with a private lender. A private loan is taken out through a bank or financial institution and the rate is based on your financial situation at the time the loan was taken out. When you refinance, you can choose which loans you want to refinance – a few federal and a few private, all your private loans and none of your federal loans, etc. It’s up to you which current terms you want to keep or new benefits you want to get by refinancing. Many looking to refinance cannot qualify for the federal benefits. You should make sure to review your loans because once you refinance to a private loan you cannot switch back to a federal loan.
You can read more about the types of federal loan benefits and payment plans here.
The key benefits of refinancing are a lower interest and a more favorable term, which brings us to the next step.
Know your loans rates & terms:
Do you want to pay off debt faster and can afford a higher monthly payment or do you need to lower your monthly payment? Review the interest rates and terms on all your loans to know how a refinanced loan will compare. Through our lending partners, our fixed rates start at 3.50%* and we now offer variable rates starting at 3.10%* so if you are lucky enough to have a rate below that, you may be better off keeping your loan where it is for interest savings.
While variable rates will often be lower than fixed, think about your tolerance for risk and if it would make more sense for you to lock in a rate by refinancing to a fixed rate loan. A quick review: a fixed rate loan will have the same interest rate throughout the life of the loan and your monthly payment won’t change. A variable loan will change depending on the market so your monthly payment will often start off lower but can increase or decrease unexpectedly.
Your loan term is important to your financial goals because it is how long you will be paying off your loans. Most borrowers are on a standard 10 year term, but you can lower your interest rate and get out of debt faster by switching to a shorter term, like an 8 or 5 year. To free up more room in your budget and get on a lower rate, you can lengthen your term but it can cost you more in interest cost over the life of your loan.
Remember, we don’t have prepayment penalties so you can refinance to whatever term fits your budget best and pay extra when you can to get out of debt even faster. Check your new monthly payment and interest rate for all the terms we offer on our rate calculator.
Refinancing is a flexible and personalized option for student loans that lets you save money based on your goals. Each situation is different and our borrowers have ranged from having 11 different loans and refinancing all of them to just having one loan to refinance. Before getting started, go through each of your loans to see what payment plan you are on and check your budget to see if you can increase your monthly payment to save even more in lifetime interest costs. As always, give us a call if you need any help!
*Subject to credit approval