There’s a lot to consider when trying to decide if student loan refinancing is right for you. Here’s the answers to all your tough questions.
1. What are the potential advantages of refinancing student loans?
Any benefits, rates, and terms that you had on your existing student loans are replaced by the benefits, rates, and terms of the new loan. Refinancing can reduce your interest rate, monthly payments, and total debt. In exchange for a shorter repayment term and slightly higher monthly payments, you might qualify for a lower interest rate that further decreases the total amount you pay back.
2. Can I refinance both my federal and private student loans?
Yes. For the time being, there is no refinancing program offered through the federal government. However, federal loan refinancing programs are offered by nonprofits, some states, credit unions, private banks and for-profit companies. Federal loans may be combined with private loans under most refinancing programs, but be careful. You will lose any benefits on your federal loans once they are refinanced.
3. How do I know if refinancing is right for me?
This will depend on your individual goals and circumstances. Typically, refinancing is a good option for those with good credit who have high-rate federal student loans, Graduate or Parent PLUS loans, or high-rate private loans. Interest rates can vary widely from loan to loan. Depending on your individual situation, refinancing higher-rate loans into a lower-rate loans could save you thousands of dollars in costly rate hikes.
4. How do I qualify for a refinancing loan?
If you are looking to refinance your loans, either you or a cosigner will need to have adequate credit. You are likely a strong candidate for refinancing if you’re current on all of your existing debt, have little to no delinquency of your outstanding debts over the past few years, have a credit score at least in the mid-600s, have no public records such as judgments, liens, or bankruptcies on your credit report and are able to document your monthly earnings and meet the lender’s minimum earnings threshold.
5. Do I need a cosigner?
Depending on your credit score and your income, you may need a cosigner. Even if a cosigner isn’t required, it’s possible that having a cosigner will qualify you for a lower rate. Make sure that your cosigner understands that they are equally obligated as you are to pay back the loan.