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Refinancing student loans, especially in today’s low-interest environment – fixed rates from Credible as well as Serious start at 2.5% or less, and variable rates from Serious as well as LendKey start with 2% – may seem tempting. Indeed, not only can you save money by refinancing student loans, but other perks as well: “The key benefit and motivating factor for refinancing is the ability to combine multiple loan payments into one,” explains Greg McBride, chief financial analyst at Bankrate. Added by Lauren Anastasio, Certified Financial Planner. in SoFi: “It’s always worth exploring what refinancing options are available to you if it’s more than six months since your last check,” says Lauren Anastasio, Certified Financial Planner at SoFi. But just because the rates are low doesn’t mean you should go back. Here’s what the professionals recommend that you consider before refinancing your loan.
See what kind of loan you have
McBride recommends refinancing student loans if you have a) a private student loan and b) your financial situation has improved since you took out the loan. “If you now have a higher credit level, a lower debt ratio, or a higher income, either of these conditions could mean taking advantage of today’s lower rates to lower interest charges or even combine multiple loans into one payment,” he says. … (Want to refinance your student loans? Fixed rates from Credible as well as Serious start at 2.5% or less, and variable rates from Serious as well as LendKey starting from 2%)
But he adds: “Beware of refinancing federal student loans into private student loans and losing federal protections such as deferral, deferral, or income-based repayment if a new private loan does not provide comparable benefits.” If you agree to give up the protection available on federal loans and can get good enough conditions to make it worthwhile, do so. “But just walk in with your eyes open and know what to do,” McBride says.
Moreover, until September 30, 2021, payments on federal loans are suspended, interest rates are set at 0%, and fees on overdue loans are suspended. “Remember this before you repay anything or try to convert it into a private loan,” says Lagrotteria.
Ask yourself these 5 questions
To make sure that you are meeting your financial goals and not paying too much interest on your debts, you should take stock of your financial life annually by analyzing everything from budget to investments, says financial advisor Francesca Lagrotteria from Payne Capital Management… “This includes visiting your debt, especially student loans, and asking a series of questions about your current financial condition to help you determine if you are eligible for refinancing,” says Lagrotteria.
These questions are: 1) Has my income changed? 2) Has my credit rating increased? 3) Have I paid off other significant debts? 4) Have I finished my studies? 5) Have I received any of the advanced degrees? “If you answer yes to any or all of these questions, then you can be a good candidate to refinance your student loans,” says Lagrotteria.
Get not only the best prices, but also the best conditions
“You have to get rate quotes from multiple lenders,” says Lagrotteria. And don’t give up on variable rates, at least if you think you can pay off your loans quickly: (Currently, Credible as well as Serious all offer flat rates starting at 2.5% or less, and Serious as well as LendKey offer variable rates starting at 2%.) “Interest rates are unlikely to rise anytime soon, so you will have time before this variable rate becomes an albatross, and by then you may have significantly paid off your balance sheet,” McBride says.
To get the best rates, McBride says, “If your credit rating has improved, if your income has increased, or if your debt burden has decreased, either of these may be enough to get you a better rate now than when you borrowed.”
Anastasio says it is critical to understand the fine print of the loan, including any hidden or reported fees, prepayment penalties, safeguards, or other factors that could increase the cost of the loan over time. And McBride says, “Always, always, always ask and study the box office. Shopping versus better conditions can also help you avoid commissions. ”
Find the right performer
One thing to consider when refinancing is that banks will want to see a solid credit history before they approve you. “Some young borrowers have poor or bad credit history and therefore student loan refinancing applications often include an applicant. This could be a parent or guardian, or someone with a better credit history who can guarantee a loan and thus get approval, ”says Michael Kitchen, editor-in-chief and student debt expert. Student Loan Hero… As with any loan, the potential disadvantage of having a co-author is that he becomes liable for the debt if the borrower cannot pay it back. (Want to refinance your student loans? Fixed rates from Credible as well as Serious start at 2.5% or less, and variable rates from Serious as well as LendKey starting from 2%)