The Student Loan Refinancing Blueprint
Imagine life without a student loan payment
Did you know that over 100,000 people refinanced their student loans last year - saving an average of $16,183?
Now that you know, what's holding you back from putting all that money back in your pocket? Whether you're too busy to start the process, don't think you will qualify, or didn't realize you could save money, we have good news for you!
Refinancing student loans...
Is now easier than ever
Can be done online
Takes less than 15 seconds to see savings.
Sounds pretty awesome, right?
In this blueprint, we'll explain how refinancing can work to save you thousands of dollars over the life of your student loans. Then we'll give you specific strategies for determining which loans to refinance and finding the best lender for you.
Part 1:
Is Refinancing Right for Me?
In this section, we'll help you understand how refinancing really works and whether it could bring you big savings.
Consolidation vs. Refinancing: Understanding Your Options
While many borrowers have heard these terms before, most still have questions about the differences between them and the potential benefits each offer.
Consolidation refers to combining multiple loans into a single balance. Both the federal government and private lenders offer consolidation options, which can streamline payments into one bill each month. Because your consolidated interest rate is typically the average of the various rates of your existing loans, you're unlikely to save money through this option. But it can be a valuable way to simplify your repayment process. Most people prefer paying one bill to keeping up with several simultaneously.
By contrast, refinancing involves obtaining a new loan from a private lender, which you can use to pay your existing debts. Your new loan will likely entail more advantageous terms, such as a lower interest rate, creating potentially massive savings in both the short and long run. Just like consolidation, refinancing can also combine multiple loans into a single balance and monthly bill.
Let's take a deeper dive into the reasons millions of people are saving through refinancing today – and why you might like to be one of them.
Top Reasons to Refinance
You're Seeking Simplicity
Like consolidation, refinancing can replace multiple loans and lenders with a single line of credit. This means you can keep track of just one payment each month, sparing you painful paperwork. With fewer separate payments to make, there's also less risk you'll accidentally miss one, damaging your credit score in the process.
You Want a Better Rate
Unlike consolidation, refinancing can secure you a better interest rate on your student loans. If you have good credit and a steady income, you might be surprised by just how much better your refinanced rate could be, with rates below 3% APR available for many borrowers.
You'd Like Lower Payments
Because refinancing could significantly slash your interest rate, the amount you pay each month will likely be lower as well. According to our findings, refinancing puts an average of $259 back in borrowers' wallets each month.
You Want to Choose the Length of Your Loan
With refinancing, lenders offer a wide array of possible payment periods. That means you can select a repayment time frame that works for you, including one that will get you out of debt sooner.
These refinancing incentives would likely appeal to anyone with student loans. Who wouldn’t like lower monthly payments? But some specific types of borrowers are particularly likely to benefit from refinancing their student loan debt. Below, we’ve collected a list of criteria that defines those refinancing-friendly borrowers. Check them out below to see if they apply to you.
Signs That Refinancing Is Right for You
You Have Large Amounts of Debt
The higher your debt total, the more you stand to gain from a better interest rate. Refinancing delivers the most savings for those with sizeable loans, and most lenders won't refinance debts less than $5,000.
You Earn a High Salary
Sometimes, those earning lower incomes can benefit from federal income-driven repayment plans. Private lenders don't offer equivalent plans, but if you're earning a high salary, you may not qualify for these options anyway. If your salary is large enough that income-based plans won't lower your monthly payments, you're likely to save big by refinancing. Thankfully, you don't have to be earning six figures for that to be the case: Depending on the size of your debt, an income of $40,000 or $50,000 a year could make refinancing a smart move.
You're Done With School for Good
Refinancing works best for those who don't plan to resume their education anytime soon. If you're considering a return to school, you may want to use federal forbearance and deferment programs in the future. Refinancing lenders don't offer the same perks, but if you're already committed to your career, you won't need them.
You Want to Release a Cosigner
When you first applied for your student loans, a member of your family may have cosigned with you. Now that you have a credit history of your own, you can relieve them of that burden through refinancing. Your new loan can bear your name alone.
Which Loans to Refinance
You may feel eager to apply the benefits described to all your student loans – and that's certainly possible. But refinancing isn't an all-or-nothing process: You may decide to refinance some loans while leaving others alone. If you have multiple loans, they likely vary regarding size, specific terms, and lender. Accordingly, some may be exceptionally ripe for refinancing. Here's a handy guide to the loans that are particularly good candidates for refinancing.
Private Loans
One reason some borrowers hesitate to refinance government loans is the prospect of missing out on federal programs, such as eventual student loan forgiveness options. But with private loans, those programs aren't in play in the first place, meaning there's no reason not to convert these loans to a better deal through refinancing.
Many private loans also offer variable interest rates as well, which could cause trouble if their rates aren't capped at a specified maximum. If minimizing potential interest rates is important to you, you can secure a fixed or capped interest rate via refinancing.
Federal Graduate School Loans
For those who pursued an advanced degree, federal loans can be particularly unkind. Government graduate school loans often have interest rates between 7% and 9%, well above undergraduate loan averages.
Additionally, some income-based repayment plans require longer payment periods for graduate school loans before the balance is eventually forgiven. Your advanced degree loans could linger for 25 years.
Federal PLUS Loans for Parents
While many PLUS loans go to graduate students as discussed above, parents or guardians can take on PLUS loans on behalf of a student whose expenses exceed the loans the student has already been offered. Unfortunately, these loans typically offer higher interest rates than other federal loan varieties.
If you've taken out loans on your child's behalf, refinancing could be an excellent way to secure a lower interest rate.
Loans With a Cosigner
As we mentioned above, some refinancing options will allow you to remove the cosigner from your new loan. This means you can release someone you love from an uncomfortable position: having their own credit potentially affected by your loans.
Other Federal Loans With High Interest Rates
We've already discussed why some might choose not to refinance specific federal loans because of government protections and benefits they receive. But if your current interest rate is painfully high, you may want to shop around for refinancing options anyway. Unsubsidized federal loans, for instance, have entailed interest rates above 5% in recent years.
So far, we've covered what student loan refinancing offers, why it might be right for you, and which loans make great refinancing targets. But you probably still have an important question in mind: How much could refinancing really save me? Thankfully, that's what our next section is all about – and we think you'll like our answers.
Part 2:
How Much Can I Save by Refinancing?
While we've discussed the average savings that refinancing brings to borrowers, we know those numbers don't go far enough. If you're considering refinancing, you'll need specific information tailored to you and your loans.
That's why we've created our ReFi Ready tool, designed to deliver personalized savings projections in seconds. Just tell us two things to get started: your approximate monthly payment and the total of your loans. Plug those numbers in, and we'll show you customized results that reveal your potential savings.
Most users discover they could lower their payments by more than $200 a month, and save $20,000 to $30,000 in total. That's because refinancing can secure you rates as low as 3% APR.
Once you see your initial ReFi Ready results, you can take some simple steps toward making those potential savings a reality. To help you do so, we'll show you how to locate a few details you'll need about your existing loans and explain how they factor into the refinancing process. Most people are surprised to learn just how simple it is to access this information and unlock their refinancing options.
Get Your ReFi Ready Results in Three Simple Steps
Step 1: Identify Your Loan Servicer
Your loan servicer is the company currently managing your loans: They keep track of all details related to your repayment. But because your servicer usually isn't the institution that issued your loan in the first place, you might not know exactly who they are. Thankfully, there are some easy ways to identify the company servicing each of your debt balances.
If you currently have federal loans, the National Student Loan Data System (NSLDS) website can help you identify your servicer.
Select the "Financial Aid Review" option on the homepage.
Log in using your FSA ID – the username and password you set up when you first applied for financial aid. If you don't recall your FSA ID because it's been awhile, don't worry. There are a couple of easy username and password retrieval options, like answering a personal question or getting a reset code via text or email.
Once you log in, you'll see all of your federal loans listed. Click on each loan to open more information about it.
Under the section with the header "Servicer/Lender/Guaranty Agency/ED Servicer Information," you'll see the name and contact information for the loan's current servicer.
Step 2: Identify Your Outstanding Balance
The NSLDS website will list the outstanding balance on each of your loans, for both the principal and interest owed.
The "outstanding principal balance" refers to what you still need to pay back from the total you originally borrowed. The "outstanding interest balance" reflects interest charges you haven't paid yet. You can combine these two figures to get your total outstanding balance for each loan.
Step 3: Identify Your Monthly Payment
If you're unsure about your monthly payment amount, don't worry. If you've just started paying your loans, your payment plan has recently changed, or you've set up autopay, you may not know exactly how much you're shelling out each month.
The NSLDS site will show you the contact information for each lender so that you can obtain your monthly payment details from them directly, either through their website or by phone.
If you have private student loans, they won't be listed in the NSLDS records. That being said, it shouldn't be too hard to obtain these details. Your lender has likely sent you mail or an email that will include the facts you need about your loans or contact information to get in touch. If you don't feel like tracking them down this way, you can always check your free credit report, which will list all your lenders.
Once you've gathered the information you need, ReFi Ready will show you just how much refinancing could save you, both immediately and in the long run.
Part 3:
Do I Qualify for Student Loan Refinancing?
Now that you've seen your ReFi Ready results, you might be eager to put these refinancing possibilities to work for you. But to take advantage of all that refinancing has to offer, you have to first qualify with would-be lenders.
Each institution assesses potential refinancing clients differently, so there's no single set of criteria you can use to predict how your application will be processed. That said, we can give you a clear idea of what most lenders are looking for and whether you're likely to qualify. Here are some characteristics of strong refinancing candidates.
Signs You're Likely to Qualify for Refinancing
You're an Adult American Resident
Like any legal contract, refinancing requires that you're at least 18. Additionally, you'll need to be a permanent resident of the U.S. because the process requires a Social Security number or alien ID for foreign-born residents.
You've Graduated From College
Most lenders will only take on graduates of accredited colleges as refinancing clients. While some lenders will consider those without degrees, they'll need a substantial history of on-time payments to be approved.
You Owe at Least $5,000
For both you and your lender to enjoy the mutual benefits of refinancing, your debt will need to meet or exceed this minimum. Some lenders have even higher standards, however.
Your Current Debt Is in Good Shape
If you're behind on your existing debt obligations, you're unlikely to attract offers from new lenders. Whether you've fallen behind on your student loans or your credit card payments, any debt currently in default hurts your approval prospects. That said, lenders don't expect perfection. If you missed a payment in the past and have since caught up, you can still qualify for great terms. The more time that has passed since your last misstep, the better.
You Have a Steady Job
Even if refinancing will dramatically lower your monthly payments, lenders need to be sure you're making enough to cover the new loan. Tax returns and pay stubs will attest to your income, but you may also be able to prove you'll be making more soon by presenting a job offer.
You Have Strong Credit
If your credit score falls below 650, you may have trouble obtaining refinancing. While lenders may be eager to work with you, they often have corporate standards that prevent them from offering refinancing to those with below-average credit.
Your Debt-to-Income Ratio Is Low
This metric measures the percentage of your income that goes toward paying debts each month. Divide your total debt payments by the amount you pull in each month, and you'll arrive at your ratio. Most lenders require a ratio lower than 36%, so they know you're not struggling already.
While these criteria should help you understand if you might qualify, no two lenders are the same when it comes to assessing candidates. For that reason, you won't know whether refinancing will work for you until you've actually applied. Using our ReFi Ready tool, you can begin the application process with the lenders offering the most attractive terms.
Part 4:
How Do I Pick the Right Lender?
By using ReFi Ready, you've probably now seen several lenders eager to work with you – and offering great terms to gain your business. In this section, we'll show you how to navigate the application process and select from the lenders competing to refinance with you. The first step in this process is gathering the information lenders need to assess you as a refinancing candidate.
The Info You'll Need to Apply
As you complete your refinancing application, you'll need some specific financial details on hand. Here's what you'll be required to share with your would-be lenders.
Full Name
Address
Degree and University Attended
Proof of Legal Residency (Social Security or Alien Registration Number)
Proof of Income (Pay Stubs, Tax Returns, or Formal Job Offer Letter)
Monthly Housing Payments (Information About Your Rent or Mortgage)
Official Statements for All of Your Federal and Private Loans (Including Those You Don't Wish to Refinance)
Here's one tip to keep in mind: As you make your applications to various lenders, submit them all during a short period, such as 15 days. Doing so won't hurt your credit score because reporting agencies will accurately assess that you're shopping around. Otherwise, they might interpret your application activity as an attempt to take out multiple loans at once, a bad sign for your credit.
How to Compare Lenders
Once you submit applications to the lenders you found using ReFi Ready, you should receive specific loan offers soon. Having these options empowers you to choose the best deal, but choosing by comparing terms can seem complicated. Here’s a list of key elements to consider when determining which refinancing offer will work best for you.
Interest Rates
A lower interest rate is likely the main motive for your refinancing research. But you’ll need to go further than selecting the lender with the lowest number. When reading the fine print, be sure to determine whether a lender is offering you a fixed or variable rate. If it’s the latter, see if their terms reasonably cap potential rates. Without this precaution in place, the initial rate could significantly increase in time.
Loan Term Length
Refinancing gives you a much broader array of choices when it comes to the length of your repayment term. A shorter term will translate to a better rate and less interest paid over time. That said, a longer loan could mean lower monthly payments – a priority for those on tighter budgets.
Look for a lender with a loan term option that aligns with your sweet spot: long enough that you can comfortably make payments, but short enough that you’re not racking up a huge interest in prolonged debt.
Protections
Many lenders offer flexible terms if you encounter financial hardship, which could come in handy if the unexpected strikes.
For instance, some institutions will offer the ability to postpone payments if you lose your job, and will even help you in the hunt for a new one. You might find these borrower-friendly protections attractive if you value your peace of mind in difficult times.
Payment Options
Many lenders let you set your own payment date. If your bill is due at an ideal time (such as immediately after you get paid), making payments could become a lot simpler each month.
Another payment option offered by some lenders is an autopay discount. If you schedule monthly payments to be automatically removed from your account, you’ll get a break on your interest rate, typically a 0.25% APR reduction.
Other Perks
Some lenders offer perks that might surprise you, like networking events or financial counseling for their customers. Others will even help you find a job if you lose yours so that you can get your finances back on track as soon as possible.
Additionally, many institutions have eliminated all fees associated with applications and other elements of the refinancing process. If your lender is in this generous group, you could save hundreds of dollars over time.
Customer Service
From user-friendly websites to phone support that won’t leave you waiting on hold, lenders are investing in improving their customers’ experiences. The application process should give you a sense of how each lender relates to borrowers but look for other indications they care about keeping you comfortable and informed. You’ll want a lender that offers you opportunities to take charge of your loans with tools like mobile apps and events where you can meet representatives.
Lender Reputation
As with all investments, you’ll need to trust in the institutions you’re dealing with. There are many reputable lenders you can rely on to treat you fairly, but searching out expert reviews of each would-be lender is a prudent step before making a selection. We offer comprehensive information on a range of top lenders to help you do that research.
Ready to take the jump?
To see how much you can save, click to visit one of our lenders below.
What to Do Once You Apply
If you’re waiting for approval from the lenders you’re considering, you shouldn’t be in limbo for long. Most lenders strive to get you answers within a few business days, but there are some things to keep in mind during this time. These steps will keep you on the right track until you can review the precise terms you’ve been offered.
Keep Making Payments on Your Current Loans
Don’t skip out on payments to your existing lenders because you’re anticipating a change. The last thing you need is a missed payment disrupting the refinancing process you’ve set in motion.
Remain Reachable
Check your email and listen to voicemails from numbers you don’t recognize. If a lender is trying to get in touch to discuss some element of your application, you don’t want to leave them hanging.
Don’t Take Calls From Mystery Companies
In your search for facts about refinancing, it’s possible you gave your information out online. If a company you’ve never heard of reaches out, turn them down. They may not be reputable or offer terms equal to that of the legitimate lenders to whom you’ve actually applied.
Refinancing and Your Future
With this information in mind, you’ve reached the end of our student loan refinancing blueprint. We hope the actionable steps in this guide put you on the path to lower payments and big savings over time. But if you’re looking for even more information about how student loan refinancing could work for you, our resources don’t end here.
We offer dozens of articles on the subject, as well as answers to your other student loan concerns and questions. Whether you ultimately decide to refinance, you deserve all the information you need to make an informed decision.
If you decide to delay refinancing for now, be sure to revisit our ReFi Ready tool soon. We’ll keep you in the loop on the latest rates, so you’ll have a chance to save thousands of dollars in the future.