How to choose the best student loan terms for refinancing

5 signs it might be time to refinance your student loans

How to choose the best student loan terms for refinancing

By Andrew Josweit, CEO, Student Loan Hero

Feel you’ve been barely keeping up with your student loans? You’re definitely not the only one. More than 40 million Americans are currently burdened by debt from college. That doesn’t mean you have to be stuck in this situation forever.

There are a lot of options to choose from as you decide how to tackle your debt problem once and for all. One of those options is student loan refinancing, which could save you thousands of dollars over the life of your loans.

Why Refinance? There are a few reasons why you might consider student loan refinancing:

Consolidate your debt: 

Refinancing can simplify the repayment process a ton if you have several loans from different lenders, all with different payment due dates and rates.

When you refinance student loans, you take out a new loan with a private lender and use it to pay off one or more existing student loans (you can decide which loans you want to refinance).

This new loan has one monthly payment and one interest rate. 

Lower your interest rate: 

With today’s low interest rates, student loan refinancing is a smart idea. It can help you get a lower interest rate and save money on interest charges. Depending on how much debt you have, you could end up saving tens of thousands of dollars. 

Change the terms of your loan: 

Need to lengthen your repayment period? Think your student loan servicer’s customer service is terrible? Refinancing gives you more control over your student debt repayment, allowing you to change your terms and even loan servicer for a better experience.

5 Signs You Need to Refinance Your Student Loans 

the benefits outlined above, here are some key indicators that refinancing your student loans could be a smart move. 

1. You have higher student loan rates 

The chance to save on student loan interest is one of the best reasons to refinance your student loans. The highest rates on federal student loans can be upwards of 7-8%. If you have student loans with rates in this range, a refinance can help you lock in a lower interest rate.

A lower interest rate goes a long way to help you pay down student debts faster. With interest accruing at a slower rate, more of the dollars you pay toward your debt will move you closer to zero instead of being eaten up by interest.

How much can you save by refinancing? A student loan refinance calculator lets you compare the interest savings of refinancing your loan.

2. You want to set your repayment terms 

You should explore how different loans terms, such as the length of your student loans, can affect monthly payments. Interested in lowering your monthly payments? If you refinance your loan, you can choose a longer repayment period to pay off your remaining student loan balance.

It’s an effective way to lower your monthly payments and free up cash flow (but not the best way to save money over time). Maybe you’re more interested in getting rid of your student debt quickly. A shorter repayment period usually comes with some of the best interest rates, too.

However you want to modify the terms of your student loan, refinancing gives you more control over how you’ll be repaying your student debts in 2017 and beyond. 

3. Your credit has improved

 A big part of the refinancing equation is your creditworthiness. Many graduates leave school with less-than-perfect or even no credit. But with a couple years of earning steady paychecks and consistently paying off debt, their credit will be much-improved.

The higher your credit score, the better the interest rates you can qualify for. If you originally took out loans at a higher rate, your improved credit could get you access to today’s lower rates through refinancing. Keep in mind that lenders will have different credit requirements and underwriting processes.

Shop around and compare rates to find the best deal.

4. Your income has grown 

In addition to looking at your credit score and history, lenders also consider your income. Student loan refinancing companies want to make sure you can comfortably afford your new monthly student loan payments. The higher and more steady your income, the more ly it is you’ll be approved for refinancing.

When lenders look at your income, they want to see your cashflow, how much money you have coming in and going out each month. They often compare your income to how much debt you already have – your debt-to-income ratio.

If you’ve had a pay increase or worked on paying down or avoiding debt, your debt-to-income ratio will be more favorable.

5. You hate your loan servicer 

If you took out federal student loans to pay for school, you didn’t get to choose your student loan servicer. It might be serviced by the federal government through FedLoan Servicing, or transferred to another servicer the Department of Education works with.

Even though you didn’t pick your servicer, you still you have to work with them any time you have a question or issue with your student loans.

This often means you get the runaround on your student loans or are “helped” by customer support reps who seem to have no real solutions to offer. If you refinance your loans, you can choose a new servicer.

The best lenders to refinance student loans often have great customer service and reviews. They also provide repayment help options, such as the ability to skip payments or enter forbearance during a financial hardship.

Consider Student Loan Refinancing Carefully 

Refinancing your student loans gives you more control over your debt and helps you save money on interest. But it’s not the best move in every situation. When deciding whether to refinance your student loans, you want to consider some of the trade-offs.

For instance, if you refinance federal student loans with a private lender, you’ll lose some potentially important benefits. Federal student loans are eligible for income-driven repayment plans and forgiveness programs, such as Public Service Loan Forgiveness, or potential widespread forgiveness.

When you refinance, you lose these options. So be totally confident in your ability to repay your loans before refinancing. Additionally, refinancing can sometimes cost more than sticking it out with an existing loan.

If you refinance student loans into a longer repayment period, this can increase your costs over the life of the loan. Some lenders also charge origination fees or have other costs associated with refinancing.

Overall, if you have good credit, stable income, but are dealing with high-interest loans, you have a good chance of saving money by refinancing. Explore your options and make the decision to take control of your student debt, regardless of what path you ultimately choose.

Our Loan Refinancing Calculator shows you how much you can lower your monthly loan payments or total payments by refinancing your student loans into a new loan with a new interest rate and new repayment term.


Student Loan Refinance Calculator: Should I Refinance?

How to choose the best student loan terms for refinancing

Refinancing your loans privately means you give up current and potentially future COVID-19 relief.

Student loan refinancing means swapping your current student loans for a new loan with a lower interest rate. That could save you big money over time.

Whether you should refinance student loans depends on your situation. You should refinance your student loans if:

  • Your finances are rock solid. If you refinance federal loans, they won’t be eligible for benefits  loan forgiveness and student loan relief related to the coronavirus pandemic. Think twice if it's possible you won't be able to make payments consistently.
  • You would save money. There is no reason to refinance your loans unless you end up paying less in interest. Use the student loan refinancing calculator below to find out how much you could save.
  • You can qualify. You generally need a credit score at least in the high 600s and enough income to consistently pay your debts and other expenses. If you don't mind those criteria, you could refinance with a co-signer who does.

Student loan refinance calculator

See if you pre-qualify for refinancing and compare real rates — not just ranges or estimates.

Note: This calculator assumes that after you refinance, you’ll make minimum monthly payments.

When should I refinance student loans?

Can I refinance my student loans more than once?

You can refinance student loans as often as you’d . If you’ve already refinanced and your credit has recently improved, consider refinancing again to lock in a lower rate. There are no application or origination fees, so refinancing won’t cost you anything.

» MORE: How often can I refinance student loans?

Does refinancing student loans save money?

Yes, if you qualify for a lower interest rate. With a lower rate, you’ll have a lower monthly payment, freeing up cash for other expenses. You could also choose a shorter repayment schedule, which will help you become debt-free faster and save money in interest long-term.

» MORE: Does refinancing student loans save money?

Should you refinance your student loans?

Answer the questions in this infographic to find out when refinancing your student loans can make sense.

How much will refinancing save me?

  • You can get a lower monthly payment, freeing up cash for other expenses.
  • You can pay off your loan faster, saving you money in interest.
  • A lower monthly payment decreases your debt-to-income ratio, which can make it easier to qualify for a mortgage.

Un refinancing a mortgage, refinancing student loans doesn’t cost money. There are generally no origination, application or prepayment fees. But read your loan agreement carefully to make sure you understand costs you could incur in the future, late fees.

If you decide to refinance student loans, compare multiple lenders to see which offers you the best rate. If you have similar offers, give greater weight to lenders that offer the most flexibility with payments and the longest possible forbearance options. Consider which offers the best student loan refinance bonus as well.

» MORE: Best student loan refinance companies

Will I qualify for student loan refinancing?

Student loan refinance lenders’ requirements vary, but you’ll have a good shot at qualifying if you:

  • Have good credit. At a minimum, you’ll need a score in the mid-600s. Many borrowers who are approved for refinancing have FICO scores in the 700s.
  • Attended an eligible school. Most refinance lenders require that borrowers attended a school authorized to receive federal aid dollars. Only a few lenders will refinance your loans if you don't have a degree.

If you don’t meet the credit and income requirements for refinancing, you may still qualify if you apply with a co-signer who does. Contact the lender to find out why your application was rejected, then take steps to meet that requirement, if possible. That may mean building your credit score or paying off one of your student loans to lower your debt-to-income ratio.

» MORE: How to refinance student loans with bad credit

Are my finances stable enough to refinance?

If you have federal loans and are struggling to make consistent payments, refinancing is also not for you. Instead, consider federal student loan consolidation or an income-driven repayment plan, if you’re not on one already. These options won’t save you money in the long term, but they can lower your monthly student loan payment and free up cash for other expenses.

If you have private student loans, you have nothing to lose by refinancing because private loans aren’t eligible for federal loan programs. You also can't transfer private loans to the federal loan program.

To find out whether your current student loans are federal or private, log into the government’s online Federal Student Aid portal or the National Student Loan Data System. Any student loans that don’t appear in these two places are private. They will most ly be listed on your credit report.

» MORE: Can you refinance student loans?

Other student loan calculators

Student loan calculator: Determine your monthly student loan payment your interest rate, term length and the amount you borrowed.

Weighted average interest rate calculator: Determine the combined interest rate on all your student loans. You’ll need that average to estimate your loan payments under federal loan consolidation programs or to compare student loan refinancing offers.


College Ave

How to choose the best student loan terms for refinancing

Refinancing your student loans is a great way to manage your student loans and take control of your finances. But when is the best time to refinance? If you’re looking to gain control of your student loans, then it might be the best time to refinance them.

How to Qualify for Student Loan Refinancing

Lenders look for a combination of indicators that show you are a reliable borrower. Since refinancing allows you to combine some or all your existing federal and/or private student loans into one new loan, you’ll need to qualify for the new loan. So, what do lenders look for when evaluating your application?

Here are a few of the requirements you’ll need to meet in order to qualify.

  1. Good Credit Score. Lenders will review your creditworthiness using your credit score. Your credit score is a calculation that indicates the lihood that you’ll repay a loan in full and on time. If you have a lower credit score, you may have the option to add a cosigner in order to refinance your student loans.
  2. Strong Credit History. A meaningful part of your credit score is the length of your credit history. Lenders will want to make sure you have an established credit history over many years without late payments.
  3. Reasonable Debt-to-Income Ratio. You’ll need to demonstrate that you have a steady income that will enable you to pay off your debt. Lenders will evaluate this by calculating your debt-to-income ratio, which represents how much of your income is going directly to pay off any debt obligations. Calculate your debt-to-income ratio by dividing your monthly debt payments (including student loans, credit card payments, mortgages, car payments, etc.) by your gross monthly income.

Check out the College Ave Refinancing Prequalification Tool

The Best Time to Refinance Your Student Loans

Refinancing student loans can be done through banks, credit unions, and online private lenders.

When refinancing your existing loans, the goal is often to secure a lower interest rate, pay less each month, or to simplify your life by reducing the number of monthly payments you need to keep track of. But refinancing isn’t right for everyone.

Be sure to research your options. If you do decide to refinance your student loans, you’ll want to make sure that you’re in a good position to repay your new loan responsibly.

Here are a few tell-tale signs that it might be time to refinance your student loans.

  • Multiple Student Loans. Many students graduate from college with a combination of federal and private student loans. You can refinance some or all your private and/or federal student loans into a new private student loan. This means you will have fewer student loan payments to remember each month – you could even end up with only one.
  • High-Interest Rates. If you’ve established and maintained good credit, there are many reasons why you might qualify for a lower interest rate on a refi loan than you’re paying on your student loans today. If you are interested in getting a lower interest rate, it might be time to refinance and lock it in.
  • Cosigner Release. Once you’ve had a chance to start paying back student loans, using credit cards responsibly, and successfully managing a car loan or mortgage, you’ll typically have a stronger credit history and a higher credit score. If you have a cosigner on one or more of your existing private loans, you may now qualify to take those loans on by yourself. Refinancing student loans in your name only will remove your cosigner’s obligation on your existing loans.

Refinancing While Still in School

You ly won’t be eligible to refinance your student loans while you’re still in school. Most students wait until after graduation to consider refinancing. It gives you a chance to establish and build income and credit.

However, you can get a head start by building credit while you’re still in school. You can do this by responsibly making payments on your student loans.

The best thing you can do with your loans while you’re still in school is to only take out as much as you need and start paying them down as soon as possible.

Market Factors

Private lenders College Ave offer the choice of fixed or variable interest rates. Fixed interest rates will stay the same for the duration of your loan.

Variable interest rates fluctuate with the market index, meaning they go up and down to adjust to banks’ lending practices. Lenders use a benchmark index rate to set their interest percentages.

Many lenders use the London Interbank Offered Rate (LIBOR) as their benchmark, which is the standard interest rate banks pay when lending money to each other.

Lenders use LIBOR because it helps cover the costs of lending. It is a widely accepted, transparent rate that’s used across the industry.

That way, if the cost of lending money increases for lenders, then the cost will also increase for students to borrow money. This rate moves up and down according to the market, so the best time to refinance is when it’s lower.

You can choose a fixed rate to lock in a consistent rate or choose a variable rate to take advantage of the fluctuations.

When to Consolidate Student Loans

Consolidation is a type of refinancing. Consolidation combines two or more loans into one loan, and in the process, the rate or terms usually change.

You don’t have to consolidate in order to refinance with a private lender though; you could refinance a single loan to lower the interest rate or change the terms of that single loan.

With College Ave Refi, you can choose to refinance only one loan or have the option to consolidate and refinance multiple loans.

Federal loans only can also be consolidated with a Direct Consolidation Loan through the federal government. Consolidation allows you to combine (or consolidate) all your federal student loans while maintaining their repayment terms.

With a Direct Consolidation Loan, the interest rate is a weighted average of the interest rates on your existing federal student loans rounded up to the nearest one-eighth percent.

Be sure to review your existing federal loans to make sure that they are eligible for consolidation.

How long does it take to refinance student loans?

Depending on the lender you choose, timeframes will vary. With College Ave, you can pre-qualify to confirm eligibility and get your personal rates, and use the Refinancing Calculator to see how much money you can save before your apply.

When you apply for a refi loan, you may be asked to provide proof of identity and/or proof of income depending on your application information. In that case, you’ll want to have your Social Security card or other ID handy as well as pay stubs or tax returns.

If you meet the qualifications for refinancing, getting started doesn’t take much time at all. At College Ave, our online application takes just three minutes.

Reasons Not to Refinance Your Student Loans

There are some drawbacks to refinancing. It’s important to evaluate the benefits of both private and federal student loans.

  • Forfeit Federal Benefits. If you have federal student loans, taking out a private student loan to pay off your federal loans will cause you to lose benefits such as income-driven repayment plans, public service loan forgiveness, and possibly deferment and forbearance options.
  • Pay More Interest Over Time. If you’re refinancing your loans and choose a longer repayment term to lower your monthly payment, you could end up paying more in interest over the life of the loan. It’s important to understand the terms of your existing student loans so that you choose the best option for you.

Weigh the Pros and Cons

Refinancing can make managing your student loans easier, but it’s important to make sure that you meet the requirements, understand how refinancing will affect your loans and choose the option that works best for your budget. When you’re ready, College Ave Student Loans offers student loan refinancing with low fixed and variable interest rates, so do your research to ensure that you’re making the best choice for you.


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