A Guide to Student Loan Refinancing

What are the benefits of refinancing?

Refinancing your student loans to a lower rate could save you thousands over the life of the loan.¹ Ideally, you’ll be able to take advantage of lower interest rates and reduce the total amount owed over the life of the loan.

In addition to potentially saving money, refinancing also allows borrowers to change the terms of their loan, shortening or extending it and creating a plan that fits their circumstances. Refinancing can consolidate several loans into a single loan, simplifying payments. Borrowers may also choose to switch from a variable rate to a fixed rate.

Here’s an in-depth look at the reasons to refinance:

• Pay off loans faster
  Reducing your interest by refinancing to a shorter loan term and paying more towards your principal could result in paying off your loans faster, but your monthly payments may be higher overall. If it works with your budget, you may be able to pay off your loans even faster by making higher payments or extra payments when you refinance.
• Lower monthly payments
  If interest rates have fallen since you took out your loans, refinancing could lower your monthly payments. To qualify for a lower rate through refinancing, factors such as a low debt-to-income ratio (DTI), a relatively stable income, and a strong credit score are important. For most lenders, with a strong credit history you could be eligible for the best possible rates through student loan refinancing.
• Shorten the loan term
  By refinancing to reduce your term length, you could pay more per month in exchange for paying off your student loans sooner, potentially saving on interest throughout the lifetime of the loan. If you have more income coming in and anticipate further income increases as your career progresses, a shorter loan term could be a good option if it works with your budget.
• Reduce the number of loans in repayment
  If you have multiple student loans in repayment, keeping track of different monthly payment amounts to different lenders can be a challenge. Through refinancing, you pay off your existing loans and combine the debt into one new loan with a preferable interest rate and term. This gives you just one student loan payment to manage each month, which can help you avoid late payment fees.
• Change between a fixed and variable rate
  If interest rates are expected to rise, refinancing your variable rate student loans could help you lock in a lower rate before that happens. If your credit score or income has recently increased, you may be eligible for a lower interest rate. If you believe you could benefit from lower interest rates or improvements in your credit score or DTI, refinancing to a fixed rate could help you save more towards your goals.

Do you qualify for student loan refinancing?

Each lender has its own criteria for determining eligibility and rates. All consider credit history, total monthly debt payments, and income. Applicants who are in good financial standing, demonstrate a strong career trajectory, have good credit scores, and have shown they are responsible with debts and monthly budgeting are more likely to be approved. In general, the better your financial history, the better terms you will likely receive. This is because you present a lower risk to lenders.