A Simple Method to Make Student Loans More Manageable

by Adam Sisson

Student loan debt can impact your finances — and cause unnecessary stress — in a variety of ways. You could have a monthly bill that’s too high for your budget. Or you could have an interest rate that’s costing you too much money. Or maybe your repayment term no longer fits your financial plans.

No matter your situation, all these student loan issues can be addressed and fixed through student loan refinancing.

Let’s talk about why student loan refinancing is a simple and effective strategy for making your student debt easier to manage.

What Student Loan Refinancing Is: A Brief Overview

Refinancing is the process of working with a lender to pay off your existing loans in full and replace them with a single brand-new loan. 

Currently, student loan borrowers owe an average of $37,693 in student debt, according to EducationData.org. With student loan refinancing, you select the number of student loans, including both federal and private loans, that you’d like to include.

This strategy is completely customizable to your needs. You pick your repayment term, interest rate, and other features to get a new loan that fits your current student loan goals. Plus, having a single refinanced loan means you’ll only have one monthly bill with one loan servicer to worry about.

The Key Benefits of a Student Loan Refinance

There are four main reasons to refinance your student loans and make your debt easier to manage.

• Get a lower interest rate. Scoring a lower rate than you currently have means one thing: Savings. You’ll save money month-to-month, but even more importantly, you’ll save big over the life of your loan. Even a 1% lower rate can save you significant cash on total interest accrued.
  
• Choose a longer repayment term. By increasing your term length, you can see a drop in your monthly bill. If finances are tight, refinancing to a longer term could be the perfect way to make your student loan payments easier to handle.
  
• Choose a shorter repayment term. Decreasing your term length allows you to pay off your student loans much faster while saving even more on interest in the process. Although a shorter term typically means higher monthly bills, it also usually means lower rates with fewer total payments.
  
• Consolidate your loans into one. If you have a variety of student loan bills — including both federal and private loans — it can be overwhelming. Refinancing combines all your debt into one loan, making it easy to stay on top of payments. Plus, you’ll have just one loan servicer to talk to if you have any questions or concerns.

Other Valuable Student Loan Refinance Features

Depending on your unique situation, there may be other student loan features you didn’t know.

• Variable and Fixed Interest Rates: When you refinance, you’ll often have the choice between a variable or fixed rate. Fixed rates are what most borrowers typically have, and they never change over the life of the loan. Variable rates, on the other hand, can fluctuate over time. However, variable rates typically are lower than fixed options and can be a great opportunity to save money up front.
• Cosigner Release Programs: If you decide to refinance with a cosigner, some lenders offer the ability to release them from any loan obligations after a certain time period.
  
• Loan Transfers to or from a Parent: Some lenders also provide the chance to transfer student loans from a parent’s name to a child’s, or vice versa. This can be a smart solution if someone in a family is struggling with student debt, and a parent or child has the financial means to take over the payments.
  
• Forbearance and Deferment: These two options can allow you to postpone student loan payments for a specified period with no penalty.
  

When You Might Not Want to Refinance

You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance or consolidation loan may not offer. If you work in the private sector, are in the military, or are taking advantage of a federal department relief program — such as income-based repayment or public service forgiveness — you may not want to refinance. These benefits do not transfer to private refinance or consolidation loans.

How to Qualify for a Student Loan Refinance

Student loan lenders all have basic eligibility requirements to be approved for a refinance.

Outside of these basic requirements, lenders have different methods of determining if you qualify for a refinance and which interest rates you’ll be offered. Different features that can affect eligibility include:

• Credit Score
• Income
• Debt-to-income ratio
• Employment history
• Degree and school
• Repayment history and negative public records

Options if You Don’t Qualify for a Refinance on Your Own

If you don’t qualify on your own based on the above factors, you still have options. For example, if you need to improve your credit score, you can always choose to apply for a student loan refinance with a cosigner — such as a spouse or parent — who has a strong credit history. Adding a creditworthy cosigner to your refinance can have a big impact on your ability to qualify for the lowest rates.

Some lenders even offer a unique refinance opportunity called a spouse loan. This type of refinancing allows you to apply with your spouse and combine your student loans together if applicable. A spouse loan can improve eligibility because, with this type of loan, you can take advantage of one spouse’s higher credit score or income.

How to Find Your Refinance Rates and Options

Nowadays, lenders make it quick and easy to find your rate. Plus, seeing what rate you may qualify for has no impact on your credit score.