As a private student loan borrower, you have fewer repayment options and less flexibility. You might wonder if you can lower your interest rate or get better payment terms. This is where student loan refinancing comes in handy. But there are important considerations to make when refinancing private student loans.
Learn more about how to refinance private student loans and what you should know.
Refinance private student loans
You’ve likely heard of refinancing a house to score a better interest rate. Student loan refinancing is similar but a lot easier to do. After comparing private student loan lenders, you fill out an application with a student loan refinancing company and submit supporting documentation. You’ll know fairly quickly if you’re approved.
If you’re approved, your new lender pays off your current private student loans, and you’re left with a new refinancing loan. If all went as planned, you might’ve gotten a better interest rate with more favorable repayment terms.
Benefits of refinancing private student loans
Refinancing your student loans is something you should carefully consider. You’re taking out a new loan and leaving your old one behind. So there’s no going back if you learn it wasn’t a good fit after all.
But there’s one major perk about private student loan consolidation — it’s less risky. Private loans already have fewer repayment options and protections to consider compared to federal student loans.
Since federal student loans aren’t part of this conversation, student loan forgiveness and income-driven repayment aren’t at stake when refinancing. You’re simply going from one private lender to another private lender.
The possibility of getting a better interest rate, potentially even going from a variable rate to a fixed rate (or vice versa) and switching up the repayment term are all advantages when you refinance private student loans.
When refinancing private student loans isn’t a great idea
The idea of getting better terms and saving money on interest charges might sound appealing, but depending on the scenario, it’s not always such a great idea. Here are some reasons to reconsider refinancing private student loans.
The new interest rate isn’t actually lower
The main goal of refinancing is to save money. But depending on your credit, you may not get approved for a better rate than you have now. If that’s the case, the benefits of refinancing likely won’t be worth the process of pursuing refinancing.
Your credit leaves something to be desired
Is your credit not so hot? It’s okay, no judgement here. But when it comes to lenders, they want to see strong credit profiles. When working with private lenders, each has different underwriting requirements or factors they look at to approve your application. If your credit isn’t in good shape, don’t pursue private student loan consolidation.
The repayment term does more harm than good
It’s crucial to look at your repayment term since it affects how long you’ll be making payments on your new refinancing loan and what your monthly payment looks like.
If you get a shorter term, you’ll pay less in interest, but your monthly payment could be much higher than your original loans. At the end of the day, this extended term could cost you in interest. If the repayment term will cost you a lot in the short-term or long-term, consider holding off on private student loan refinancing.
Your current lender offers nice benefits
Though private loans come with less benefits and protections than federal loans, each lender may have its own perks. Maybe they have a generous forbearance policy or understanding customer service department. Compare the benefits and perks your current lender offers, and weigh it against what your prospective refinancing company has to offer.
Another thing to consider is if you have both federal and private student loans. To be on the safe side, you could choose just to refinance your private student loans and keep your federal loans as-is. This way, you keep federal benefits intact but also save money on your private student loans.
The benefit of refinancing both federal and private student loans, which consolidates them together, would be that you’d only have one payment, one interest rate and one company to deal with, which streamlines the repayment process. But that convenience is a choice that only you can put value on.
Should you refinance private student loans?
If you want to save money on your private student loans, refinancing might make sense. There’s less risk when refinancing private student loans, so it could be a win-win. Every situation is different and whether you want to refinance is a personal decision.
If you need guidance on what the best route is for you, get in touch with us for a student loan plan. We help borrowers make informed decisions about what’s best for their loans given their unique situation.