Managing student loan debt can be a financial juggling act, especially if you have private student loans with high-interest rates. Refinancing your student debt could save you money on interest charges, help to lower your monthly payments, and potentially help you repay your loans faster. If you're considering private student loan refinancing, here are some important things to know.
How to refinance your student loans
Student loan refinancing means taking out a new loan to pay off existing loans. You'd then repay the new loan going forward.
Refinancing private student loans isn't a complicated process. It starts with finding a lender, then applying for a loan. Credible can help you compare multiple lenders at once to ensure you find the best rates and offers currently available.
You can expect a check of your credit history and credit score at some point.
If you're approved for student loan refinancing, you may be given a choice between fixed interest rates and variable interest rates. Your lender will work with you to finalize your loan terms. The final step is paying off your old loans and begin repaying the new one.
How to get approved for student loan refinancing
Getting approved for student loan refinancing means knowing what lenders are looking for. These tips and strategies can help improve your odds of getting approved at the best rates.
1. Start by checking your credit
Private student loan lenders may offer initial rate quotes without a credit check. But once you complete a full application for student loan refinancing, your credit score may come into play.
Checking your credit report and credit scores before applying can help you gauge how likely you are to be approved for refinancing. It can also give you an idea of what kind of interest rates you may be eligible for based on your credit history.
2. Consider a co-signer
If your credit score is on the low side, you may want to think about having a co-signer who can apply with you. Lenders may be more flexible in offering lower rates if your co-signer has a solid credit history.
When deciding who to ask to co-sign, remember to be upfront about what that involves. Co-signers are treated as being equally responsible for student loan debt. If you default on the loans later, their credit could suffer and they could be subject to collection actions.
3. Check your debt-to-income ratio
In addition to your credit score, private student loan lenders can also take a look at your income and debt. Specifically, they can zero in on your debt-to-income ratio, or how much of your monthly income goes toward debt repayment.
That includes all your debts, not just student loan debt. So if you have credit card balances or a car loan, those can also be factored in.
A simple way to raise your odds of being approved for student loan refinancing is to improve your debt-to-income ratio. You can do this by paying down some of your debt and/or increasing your income with a side hustle or part-time job. The less debt you have and the more income you have to pay down what you owe, the less risky you may appear in the eyes of lenders.
4. Make sure you meet other lender requirements
While credit scores, income, and debt levels are all important when attempting to refinance private student loans, there are other requirements you may need to meet.
Some lenders, for example, require you to have a minimum amount of loans to refinance. Or they may cap the maximum amount you can borrow to refinance private student loans. You can get an overview of different lender requirements (and find out what rates you qualify for today) by using Credible's free online tools.
More importantly, you may not be able to get approved for student loan refinancing if you're currently in default on any of your private loans. In that scenario, you'd need to bring your loans current first before attempting to refinance.
5. Compare student loan refinancing options
If you've reviewed your credit and finances and your current loans are in good standing, the next step is finding a lender to refinance your loans with. This is where you'll want to take your time and research the options carefully.
For instance, are you looking for refinancing with fixed interest rates or variable interest rates? Would you like to be able to take advantage of discounts, such as an interest rate reduction for automatic payments? Do you need a lender that doesn't charge fees or offers flexible repayment options?
Perhaps most importantly, you should be looking closely at the interest rates different lenders offer. If that part of researching student loan refinancing seems overwhelming, Credible can help. You can get rate quotes from multiple lenders in one place, without affecting your credit.
Credible also offers a free student loan refinancing calculator to help you estimate your refinance savings.
Stay on top of your loans after refinancing
Once you've refinanced your private student loans, it's important to make sure you have a solid plan for repaying them. Staying in touch with your lenders or loan servicers matters, especially if you run into a financial hardship at some point. Your lender may be able to offer temporary student loan relief in the form of deferment or forbearance options if you can't pay. And you may also want to keep an eye on rates as you repay your loans in case another rate drop makes refinancing for a second time an attractive option.