Refinancing Student Loans | Guide | Best Student Loan Refinancing Options (Federal & Private Loans)

Guide: Refinancing Student Loans | How to Get the Best Student Loan Refinancing Loans

Student loan debt is becoming more and more of a problem for graduates. In fact, around 43 million Americans have a combined student loan debt total of approximately $1.3 trillion.

What are these 43 million Americans to do about trimming this debt? One option is student loan refinancing.

If you have borrowed money from the federal government or from private lenders in order to pay for your college education, you could be eligible to start refinancing student loans in order to pay off your debt sooner and more easily.

Consider this your ultimate guide to finding the best student loan refinancing options this year. We will also answer some of your important refinance questions such as:

How does student loan refinancing work?
Who benefits from refinancing student loans? Anybody?
Is there a difference between refinancing federal student loans and refinancing private student loans?
Are there benefits to refinancing a student loan instead of consolidating it?
What are the best student loan refinancing companies?

Let’s dive right on into your questions and your options!

How Does Student Loan Refinancing Work?

You went to college. To pay for the education you received, you took out a student loan. That loan has an annual percentage rate that you pay (your interest rate) in order to still be borrowing the money.

That loan also has a particular term length, meaning all your payments have to be in by a certain date.

When it comes to refinancing student loans, you are reaching out to one of the many student loan refinancing companies to essentially pay off that first student loan and give you another – this time at a lower annual percentage rate.

Image source: Pixabay

Here is an example with simple numbers to better understand the situation. Say you are refinancing student loans Chase gave you.

You took out a $100,000 loan for college at 7%. You are slowly making the payments, but it seems you will never pay off the balance because you are paying so much interest.

Choosing one of the student loan refinancing options could begin refinancing those student loans Chase gave you by paying off the remainder (and its 7% interest rate) and giving you a brand new loan at 3%. Then, your interest would be cut down by more than half – meaning more of the money you pay goes straight to the loan’s principle instead of interest.

Student Loan Refinancing Benefits 101

Here are a few ways refinancing student loans could potentially help you and your financial situation. Refinancing can:

Lower your interest rate. If your credit is bad, the interest rate they give you could be higher than your current rate. Pay close attention.

Switch you from a risky variable interest rate to a safer fixed interest rate. Variable rates can change throughout the years; with fixed rates, you know what to expect.

Adjust your term length for smaller or larger payments. Larger payments mean fewer interest payments in the long run.

Remove a co-signer: If your parents co-signed for your first loan, you could remove them from the loan during your refinance.

Who Benefits from Refinancing Student Loans?

Now that we see what refinancing a student loan can do for you, it is important to see who actually can benefit from student loan refinancing. The truth is that refinancing student loans is not a great option for everybody. That is why it is important to pay attention to the following.

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Good Credit Scores: Keep this in mind when it comes to getting the best student loan refinancing. Refinancing student loans is credit based. If you have poor credit, you may not end up with a better deal in the long run. If you have good to great credit, your student loan refinancing options will be much better and could save you considerable money.

Accredited University: Some student loan refinancing companies require that you have graduated from an accredited four-year university. Some do not. Remember this when researching potential companies for refinancing a student loan.

Parents: The only people taking advantage of refinancing student loans is not the actual students. If parents have taken out a loan, it is possible for them to not only go about refinancing a student loan, but also switching it to their child’s name.

Federal Student Loans vs. Private Student Loans

Refinancing federal student loans and refinancing private student loans are both possible, but the process is not exactly the same. Here is a basic overview of the differences.

Refinancing Federal Student Loans: You cannot refinance a federal student loan into another federal student loan. The government does not refinance. You can, however, refinance federal loans into private loans. Always remember that you could potentially lose federal benefits like loan forgiveness if you refinance a federal loan.

Refinancing Private Student Loans: The process of refinancing your private loans is pretty straightforward. You are simply exchanging one or more private student loans for a brand new private student loan.

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The Best Student Loan Refinancing Options

Now that you know all the basic concepts of refinancing student loans, it is important to understand how to get the best student loan refinancing options available to you for this year. You will do this in three steps.

Understand: Know the difference between refinancing a student loan and consolidating a student loan

Research: Get a grasp on all the student loan refinancing options available to you

Plan: Take a hard look at your finances, income, and credit score to determine what is right for you. Talk to a financial advisor if necessary.

Understand Student Loan Refinancing vs. Consolidation

Before you can find the best student loan refinancing lenders for your student debt, it is important to understand the differences between student loan refinancing and consolidation. You will see consolidation pop up frequently in your research, and it is important to understand as one of your student loan refinancing options for this year.

Student loan consolidation takes all your student loans and consolidates them into one loan, unlike student loan refinancing that pays off your first loan with a new loan.

Consolidating federal loans: The government averages the interest rates on all your student loans. That average will be the interest rate for your new combined loan. This may not save you money, but it can save you hassle and get you out of variable loan rates. Be aware that consolidating or refinancing federal student loans could mean you lose benefits like loan forgiveness.

Consolidating private loans: The lender will offer you a new (ideally lower) interest rate on your combined loan. Essentially, this is a variation of refinancing private student loans; you are just also putting multiple loans into one.

Research Student Loan Refinancing Companies

In order to get the best student loan refinancing, it is important to research the various financial institutions refinancing student loan plans. Not all offer the same benefits.

It is not only important to check these lenders’ current interest rates, but also their loan terms, loan types, and eligible degrees. It is also important to make sure they are refinancing federal student loans and refinancing private student loans.

We have gathered four reputable resources that show you the top student loan refinancing options available to you currently. Take time to look through each one to ensure you understand all of your options before you pursue the best student loan refinancing for you.

Credible

Credible’s “The Best Student Loan Consolidation and Refinancing Companies” showcases 19 student loan refinancing companies you could potentially borrow from. Since this shows the widest range of student loan refinancing options, it is a great place to start your search.

For each lender, Credible shares the following information:

What the lender is offering
Minimum loan amount
Maximum loan amount
Annual percentage rate ranges
Term length options
Eligibility requirements
Benefits

Begin with this list to familiarize yourself with many options. This way you can better choose the best student loan refinancing option for you.

NerdWallet

NerdWallet’s“9 Best Student Loan Refinancing Companies in 2016 “is a great place to learn more about student loan refinancing through potential lenders. For each of these nine student loan refinancing lenders, you will see the following information on NerdWallet’s chart:

Annual percentage rate ranges for fixed loans
Annual percentage rate ranges for variable loans
Average credit score
Eligible loan balances
Lender reviews
Next steps

Right underneath their guide, NerdWallet also offers a helpful calculator for refinancing student loans. Punch in your numbers to get a better idea of what you could potentially save.

Image source: Pixabay

Student Loan Hero

Student Loan Hero’s “6 Best Banks to Refinance and Consolidate Your Student Loans” shows you their opinions on the best student loan refinancing companies for you at this time. They also offer great information for each highlighted lender, including:

Annual percentage rate ranges
Loan types (Variable/Fixed)
Loan term options
Eligible degrees
Eligible loans
Links to the lenders’ websites

You can scroll down further to get in-depth descriptions of each of these six lenders and how they deal with refinancing a student loan.

LendEDU

LendEDU’s “Student Loan Consolidation & Refinancing Lenders” shows their ranking system for their six favorite student loan refinancing companies. Just like Student Loan Hero, you will find the following information on LendEDU:

Annual percentage rate ranges
Loan types (Variable/Fixed)
Loan term options
Eligible degrees
Eligible loans
Links to the lender’s websites

Not only does LendEDU offer in-depth reviews as you scroll down, but they also offer videos explaining why each of these lenders may or may not be the best student loan refinancing lenders for you.

Plan Your Best Student Loan Refinancing

In order to truly benefit from the best student loan refinancing options, you are going to need to do some financial planning first. Remember, refinancing student loan payments (or consolidating them) is not the right choice for everyone.

First, know your numbers. The best student loan refinancing happens for people with good credit. Know your score and improve upon it if needed. Also know your current term length(s) and APR rate(s).

Then, know where you are going. The best student loan refinancing comes to those who know how much they can afford to pay and when. Take a look at your expected income for the next few years and see what is feasible for you.

Finally, reach out to a financial advisor or planner if you have any questions or concerns about refinancing a student loan. Ask specific questions: “What about refinancing student loans from Chase or Citizen Bank?” or “Will I lose federal loan forgiveness benefits?”

Refinancing Student Loan Next Steps

Now that you know all the basics about student loan refinancing and how to get the top student loan refinancing options for this year, you can begin the process of seeking refinance. Research all the student loan refinancing companies to find the right one for you.

Refinancing student loans could potentially save you a considerable amount of money as long as you focus on the best student loan refinancing for your particular situation.

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