If you’re sinking into deeper debt with student loans, the decision to refinance could help you erase the debt more rapidly, while saving lots of money in the process.
With refinancing, you can consolidate the existing private and federal student loans into a new loan with a lower interest rate. That means lower monthly payments. The extra money could be used to repay more debt and maybe even use the surplus to save or invest.
But undoubtedly, you have questions.
What do you look for when refinancing a student loan? When is private student loan consolidation a good option? How do you get the best refinance rate?
And the big one: Which is the best lender to use for refinancing of a student loan?
We’ve done the research and have answers for you below.
How to Refinance Your Student Loans
It’s a relatively simple process, but it’s all about the details.
The first step in student loan refinancing is window shopping. Compare, compare, compare! It’s absolutely acceptable — and necessary — to browse through multiple refinance offers, whether it’s with a bank, online lender or credit union.
Most lenders ask for basic information, such as your name, address, university (and degree), total student loan debt, current income and monthly housing payment. The lender will use this information for a soft credit check, which won’t impact your credit score.
If you qualify, the lender likely will offer a range of loans, including repayment terms that could go from 5, 7, 10, 15 and 20 years. You could also have the option of variable or fixed interest rates. Variable rates usually start lower than fixed rates but fluctuate with the market and have greater risk with longer repayment terms.
Once you select a lender – and before locking in the interest rate – you must submit a full application while uploading documents such as loan statements, proof of income, proof of citizenship and valid ID number.
Don’t assume anything. It’s important to keep paying your loans as you await refinance loan approval.
Reviewing Lenders for Student Loan Refinancing
Here are some lenders to consider as you seek to refinance your student loans:
SoFi, which in 2012 became the first company to refinance federal and private student loans together, seems like it’s suited for high-income clients. The average income among borrowers is $100,000. But SoFi is also a fit for clients with a modest lifestyle because it has no minimum income requirement and it accepts borrowers whose highest education level is an associate’s degree.
SoFi offers interesting perks to its borrowers such as career coaching (advisors give one-on-one counseling for career transitions, job searches and personal branding), community events and no-fee investing.
The minimum credit score is 650, although the typical credit score of approved borrowers or co-signers is 700-plus. Loan amounts range from $5,000 up to your total outstanding loan balance. Fixed rates range from 3.899% to 7.979%, while variable rates range from 2.47% to 6.99%.
LendKey prides itself on top-flight customer service while offering low interest rates by partnering with community banks and credit unions. There isn’t the name recognition associated with larger banks, but you might get a fresh look at rates that aren’t offered on other platforms.
The minimum credit score is 660. Loan amounts range from $7,500 to $250,000. Fixed rates start at 5.48%, while variable rates start at 2.55%.
CommonBond, founded by three Wharton MBAs who sought a better option for the student-loan system, generally lends to clients with good to excellent credit. Co-signers are required for undergraduate and graduate loans, but the co-signer can be released from the loan after two full years of consecutive, on-time monthly payments. If parents are the co-signers, they can generally get lower rates than the federal plans.
There are multiple in-school deferment and repayment options, including fully deferred payments until six months after graduation (during which time interest will accrue), making interest-only payments while in school, fixed $25 payments now to save more over the life of the loan and full payments immediately.
There is no specified minimum credit score, but 660-700 is a good gauge. Loan amounts range from $5,000 to $500,000. Undergraduate fixed rates range from 5.30% to 9.82%, while variable rates range from 3.72% to 9.68%. There is a 2% origination fee, which is part of the APR, not added on top of it.
Flexibility is the key ingredient for Earnest. Borrowers can customize repayment options, making it easy to increase monthly minimum payments, make multiple extra payments at once or make same-day payments. The approach can be based on the borrower’s earning potential.
The minimum credit score is 650. Loan amounts range from $5,000 to $500,000. Fixed rates range from 3.89% to 7.89%, while variable rates range from 2.46% to 6.97%. Notably, borrowers can’t apply with a co-signer.
Earnest was acquired in 2017 by Navient, a major federal and private student-loan provider, but is still branded as “Earnest’’ with its company’s original management.
Talk about a one-size-fits-all approach. LaurelRoad has no limits on the amount that can be refinanced. It also can offer any term (fewer than 20 years) that makes sense for the borrower, as long as the underwriting criteria is satisfied.
LaurelRoad also offers a forbearance feature to postpone your monthly payments for up to three months at a time if you are unable to pay, although this feature can’t exceed 12 months in the aggregate during the term of the loan. If you die or become permanently disabled, LaurelRoad will forgive the total amount of your refinanced student loan.
There is a minimum credit score of 660. Loan amounts are $5,000 and up, upon meeting underwriting criteria. Fixed rates range from 3.50% to 7.02%, while variable rates range from 3.05% to 6.47%.
What Is Private Student Loan Consolidation?
You should know that private student loans generally cannot be consolidated with federal student loans. Federal consolidation loans have low interest rates that are not available for private student loans. Consolidation of federal loans won’t lower the interest rate, but it might reduce your monthly payment by extending them for a longer period.
In most cases, a private consolidation loan is replacing one or more private education loans with another, providing a single monthly payment. Consolidation automatically resets the term of the loan, so it should reduce the monthly payment, but increase the total interest paid over the life of the loan.
But with your credit score serving as a major barometer, you should be able to get a lower interest rate through a private consolidation loan if that score has improved significantly since you first obtained the loan.
How to Get The Best Refinance Rate
Ah, yes. How to save the most money while refinancing a student loan. Who wouldn’t have interest in that?
There are some basics to know and absorb.
Generally, borrowers can get a better deal by adjusting the rate and term of the student loan. Lower interest rates can reduce the payments or overall amount of interest that is paid on the loan. A longer term can reduce the monthly payment, but it’s almost a guarantee that the total interest you pay will increase over the life of the loan.
If the borrower’s credit score has improved, refinancing should lead to a significantly more favorable interest rate.
Signing up for automated payments usually means a 0.25% discount on your interest rate from many private and federal loan lenders. It’s money back in your pocket, of course, but also a good deal for the lender, which wants to reduce the risk of you falling behind on your payments.
Here are some more tips that can help you get a better refinance rate:
- Improved Credit Score — Your credit score is a reflection of your financial responsibility. For lenders, it’s an indicator that you will meet your financial obligations and have a history of on-time payments.
- Income — Lenders want to see stable and recurring monthly income and cash flow.
- Other Debt — Your mortgage, credit card and auto debt will be part of the underwriting process, so keep all of them under control.
- Debt-To-Income Ratio — It’s the ratio of your total monthly income compared with your monthly debt obligations. The lower the ratio, the better. For example: if you have $10,000 of monthly income and $3,000 of monthly debt expenses, your debt-to-income ratio is 30%. Lenders appreciate a DTI under 35%. If your ratio is out of whack, it’s time to pay down some debt.
- Employment — Some private student loan lenders will refinance while you’re in school or residency, but most require some work experience. So, you should be employed — or have a written job offer — when you apply for refinancing.
About The Author
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it seven years ago, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering college and professional sports, which are the fantasy worlds of finance. His work has been published by the Associated Press, New York Times, Washington Post, Chicago Tribune, Sports Illustrated and Sporting News, among others. His interest in sports has waned some, but his interest in never reaching for his wallet is as passionate as ever. Bill can be reached at email@example.com.
- Safier, R., (2017, June 3). How To Refinance Your Student Loans In 4 Easy Steps. Retrieved from: https://studentloanhero.com/featured/how-to-refinance-student-loans/
- Friedman, Z., (2017, February 17). 11 Secrets To Refinancing Your Student Loans. Retrieved from: https://www.forbes.com/sites/zackfriedman/2017/02/17/refinance-student-loans/#26b26a335493
- Nykiel, T., (2018, August 24), SoFi Student Loan Refinancing Review. Retrieved from: https://www.nerdwallet.com/blog/loans/student-loans/sofi-review-student-loans/
- Safier, R., (2018, August 23). LendKey Student Loan Refinancing Review: Better Interest Rates With Community Lenders. Retrieved from: https://studentloanhero.com/featured/lendkey-student-loan-refinancing-review/
- Kirkham, E., (2018, October 18). CommonBond Student Loans Review: Discover Flexible Repayment Options. Retrieved from: https://studentloanhero.com/featured/commonbond-student-loans-review/
- Nykiel, T., (2018, August 29). Earnest Student Loan Refinancing Review. Retrieved from: https://www.nerdwallet.com/blog/loans/student-loans/earnest-student-loan-refinance-flexibility/
- Kirkham, E., (2018, September 3). Laurel Road Student Loan Refinancing Review: How Much Could You Save? Retrieved from: https://studentloanhero.com/featured/drb-student-loan-refinancing-review/