When Lee Huffman first refinanced his undergraduate and MBA loans, his goal was to simplify his monthly payment. He consolidated all his student loans when he refinanced, so he could "make it easier to track my efforts towards paying them off."
About a dozen years later, he refinanced those loans again when he was able decrease his interest rate from 6 percent to 3 percent. Huffman was able to pay off his loans nine years early through a combination of refinancing and making the same payments he was before.
His story is inspiring, incredible and completely doable. Anyone who's struggled with their MBA loans can look at refinancing as a possible solution. Want to see how you can refinance your MBA loans and save thousands? Read below.
If you refinance with a $40,000 balance and switch from 7.94 percent to 3.5 percent, you'll save almost $3,000 of interest and $304 a month. You could put the money you save toward any other debt you have, an emergency fund or a down payment for a house. You can use a refinancing calculator to see how much you could save by switching to a lower interest rate.
Refinancing is the only way to decrease how long it takes you to pay off your loan without putting more money toward your debt. Plus, nowadays many lenders are more willing to refinance student loans, especially for MBA graduates who are likely making a high salary.
Like Huffman, you can refinance your loans several times if the interest rates drop or your credit score increases. Some lenders will charge fees to refinance, so make sure that it's always worth it to refinance if you'll owe fees upfront.
People with federal student loans may be more hesitant to refinance, as the government offers a wide variety of repayment options including deferment and forbearance if you need to take some time between loan payments.
How to Refinance
The key to refinancing is finding the lender with the best terms. Make sure you examine several lenders to see which one will offer you the best interest rate and lowest fees. The best way to do this is by shopping around on LendingTree.
Next, you need to check your credit report and see if there any incorrect or negative marks. Dispute everything you can – your best chance of getting a low interest rate is having as high of a credit score as possible.
You can check your credit report for free for each of the three credit bureaus – Equifax, Experian and TransUnion – at annualcreditreport.com. For a small fee, you can also purchase your official credit score through the bureaus. It's best to have a credit score of more than 680 to qualify for a refinance and those with scores of 740 or higher will qualify for the lowest rates.
If you aren't in that range, take some time to increase your credit score. You can do so by lowering the balance on your accounts, not opening any new accounts and making all your payments on time. It may take several months to increase your score, so be patient.
Tips for Refinancing
Keep your credit score as high as possible. "If you're going to refinance, protect your credit," Ziv said. "For example, don't open a bunch of credit cards right before you refinance, because the hard credit inquiries will affect your score." If you're deciding between several lenders, you should also apply to refinance at the same time so those inquiries don't injure your credit score right before you hope to get a loan. Credit scores above 740 are considered excellent and will likely get you the lowest interest rates. It may be worth delaying the refinance until you get your credit score high enough.
Keep making the same monthly payments. If your monthly payment decreases after you refinance, continue making the same payment as you were before. This way, you'll increase how fast you pay off your loans without changing your lifestyle. Plus, if your loan term is extended, then you could end up paying the same amount of interest then if you hadn't refinanced.
You can refinance your loans multiple times. Ziv has refinanced his MBA loans three times, taking advantage of low interest rates. You can also refinance if your credit score increases significantly and you think you'll qualify for a better rate. Some people also refinance to get a shorter loan term (such as five years instead of 10) so they can have slightly higher monthly payments, but pay less interest in the long run.
Use the added liquidity to your advantage. If your monthly payments do go down after you refinance, you can also use the difference between monthly payments to save for retirement, an emergency or a down payment on a house. You may end up paying more interest over the long term this way, but it can help you pay down your loans while also focusing on other financial goals.
Take advantage of low variable rates. Huffman was able to get a 3 percent interest rate on his student loans by choosing a variable rate loan. Variable rate loans offer a range of interest rates. For example, you may get a variable rate with interest rates between 3-5.25 percent. The interest rate may fall in between that range over the course of the loan, depending on external factors. If you think you can pay off your loan quickly, it may be worthwhile to go for the variable rate loan.
- Choose a lender with payment options. One of the trademarks of federal student loans is that you can often defer your loans or switch to a smaller payment loan. Some private lenders now also offer these options, which can help graduates who lose their jobs or have an emergency. Make sure to understand these features, as some may come with fees or additional charges.
To see what rates are currently available to refinance your MBA loans, start shopping around today on LendingTree!