Student Loan Refinance: Know Your Options
Student Loan Refinance Options
If your credit score has improved since you first took out your student loan(s), you may be able to lower your interest rate by refinancing your student loan. Here are some of your options.
Refinancing vs Consolidation
Consolidating your federal student loans means combining all of them into a single loan. It may be more convenient, as you’re only writing one check. If you extend your repayment term, then you are likely to reduce your monthly payment. However, this also means you could pay more interest over the life of the loan. If you choose not to extend your term, you may be able to save money through a student loan consolidation.
Refinancing a loan pays off the previous loan and replaces it with a new loan, optimally you want to do so at a lower interest rate. In this situation, you have the same option to extend your repayment term or not, which will either reduce your monthly payment and possibly save you money, respectively. To determine if you will save money use LendingTree’s student loan refinance calculator. Because refinancing cancels the previous loan, you also lose any benefits associated with the previous federal loan if you refinance into a private student loan.
Student Loan Refinance Companies
Many large companies and financial institutions offer private student loan consolidation and student loan refinance options.
Most companies offer refinancing of your private student loan, or private student loan consolidation, but will not generally refinance federal student loans. Nor will they roll other student related expenses, such as school books paid for on a credit card, into your refinanced loan.
Additional sources of student loan refinancing may be through your local credit union and they may be able to offer you even better interest rates than some of the larger companies and financial institutions (if you meet their credit requirements and are a member or become a member).
Options for Refinancing and Consolidating Federal and Private Student Loans
If you’re looking for options to refinance or consolidate your federal and private student loans into one monthly payment, take a look at these companies.
- SoFi – If you’ve graduated from Title IV accredited universities or graduate programs and are gainfully employed, SoFi offers refinance options for your federal and private student loans.
- Commonbond – CommonBond allows you to consolidate your grad and undergrad loans into one loan with one monthly payment. They offer no prepayment penalty, unemployment protection, and no origination fee.
- Darien Rowayton Bank – DRB Refinance/Consolidation Loan offers alumni of MBA, Law, Medical/Dental (post-residency), Physician Assistant, Advanced Degree Nursing, Pharmacist, and Engineering graduate programs the opportunity to refinance and/or consolidate student loan debt at low rates.
Keep in mind that when you refinance your federal loans, you may lose certain benefits when you do.
Using Home Equity Loans
Another option available to home owners is to pay off your private education loan with a fixed rate home equity loan. This can make sense if the interest rate for your home equity loan is comparable to or lower than your existing education loan. If your education loan is a variable rate loan, then you’d also have the added security of a fixed interest rate using a home equity loan. You should consult your tax and/or financial advisor prior to choosing a Home Equity Loan for paying off your student loans. In addition, now your loan is tied to your home and should be default on the payment you now risk losing your home to foreclosure.
Questions to Ask
Before you make the decision to refinance, make sure to find out:
- The minimum and maximum amount that is available to borrow for student loan refinance;
- The interest rate and APR;
- What the repayment term will be (i.e. 10, 15, 20 years);
- Whether your interest rate is fixed or variable;
- If there is an origination fee or any other fees; and
- If there are prepayment penalties?
Most of all, you want to make sure you’re saving money either by paying off your loan sooner or by getting a lower interest rate. If you decide to extend the repayment term, understand that you’ll possibly be paying more interest over the life of the loan, which means you may not be saving any money at all, you’ll just have a lower monthly payment by refinancing.