Student Loan Refinance and Consolidation: The Ultimate Guide to Refinancing Your Student Loans

As a college graduate, one of the least-awesome things you have to deal with is your student loan debt.

Throughout school, you probably knew you were racking up some amount of debt, but you may not have been really quite sure how it would add up and what it would mean for you after graduation.

One of the simplest and smartest ways for students to deal with their student loan debt (and probably save some money) is to refinance.

But, the entire process can seem mysterious and a bit scary. How do you know if you should refinance your student loans? Where do you start? What company should you use? Should you refinance for a shorter term or longer term?

All of these questions are common for students considering refinancing their student loan debt.

In this ultimate guide, we’ll answer many of these questions and more to help you start the process of refinancing your student loans–and, hopefully, to help you feel confident and knowledgeable about the whole thing.

Why You Should Consider Student Loan Refinance

Refinancing your student loans can generally help you do one of two things:

1. Save money on monthly payments
2. Save money on the life of your loan

In some scenarios, you may be able to accomplish both–by refinancing your student loans over the same term (e.g., 10 years) but at a lower interest rate, you could save money both immediately (month to month) as well as over time on the loan.

But, in most cases, lowering your monthly student loan bill is likely to come with an extension of the term of your loan, which means you may be paying longer–and paying more in total, over time.

Whichever one of these things is most important to you will determine which strategy you should take when looking to refinance your student loans.

How to Know if Refinancing Your Student Loans is a Good Idea

There are a number of ways to know when to refinance your student loans. But generally, there are a few scenarios that stand out for most students:

1. You’re having trouble making your monthly student loan payment
2. You hope to pay off your loan faster than your original loan term
3. You’re looking for ways to cut down your monthly expenses

You may be saying, “of course I am trying to cut down on my monthly expenses! Isn’t everyone?” And it may be true that pretty much everyone would like to save some money.

But keep in mind that many times saving money on your monthly student loan bill can come with a longer repayment plan, and will end up costing you more in the long run.

It’s also important to consider other things about your current financial situation, like your credit score and general financial health. Many times, refinancing your student loans will depend on a credit check or some similar process, which means that you may want to wait until you have a strong credit history to qualify for better interest rates and financing terms.

Student Loan Refinancing Options (Choosing a Strategy)

As noted before, refinancing your student loans generally requires that you identify your goal and then choose an approach that will best help you accomplish that.

There are many options for refinancing your student loans, and it’s up to you to determine which is the best approach for you.

If you want to decrease your monthly student loan payments:

1. Choose an income-based repayment plan for your federal loans (note that federal loans come with a fixed rate, meaning you likely can’t refinance them at a lower rate unless you use a private lender)
2. Refinance private student loans at a lower interest rate (will also save money over time)
3. Refinance all student loans (federal and private) into one loan, which will likely qualify for longer financing terms (lower payments)

If you want to repay your loans faster (saving money over time):

1. Refinance private loans over a shorter period of time or at a lower interest rate
2. Refinance all loans (federal and private) over a shorter period of time or at a lower interest rate

Where to Start Refinancing Your Student Loans

The first step to take in refinancing your student loans is to determine a strategy for moving forward. As outlined above, there are a number of approaches that you can take, depending on your goals.

Secondly, you’ll want to identify what your options are based on the approach you’ve chosen.

Some tools/info that will help you determine what steps you should take:

• U.S. Department of Education student loan repayment estimator
• 5 Steps to Start Refinancing Your Student Loans

Steps to Take to Refinance Your Student Loans

Most of the hard work for student loan refinance is doing the up front research to assess your current loan situation and decide what approach is going to work for you.

Once you’ve identified the approach that works best or you, the steps are pretty simple:

1. Choose a strategy based on what is most important for you
2. Identify your options based on this strategy
3. If needed, identify a private lender to refinance your student loans
4. Compare rates and terms of various lenders to determine the best one
5. Submit your application for refinance
6. Sign any necessary paperwork and/or submit necessary documentation
7. Complete your student loan refinance

What To Look for in a Student Loan Refinancing Company

One of the hardest parts about refinancing your student loans can be figuring out which company or lender to use. How do you know if you’re getting a good deal? How do you know if the lender is reputable? Will shopping around hurt your credit?

There are a few quick things you can look for when comparing student loan refinance companies to give you a sense of how trustworthy they may (or may not) be:

1. Make sure they only do a “soft” credit check–or no traditional credit check at all
   One of the toughest things when looking to refinance your student loans is avoiding having your credit run by a bunch of different lenders. Having multiple “hard” credit checks can damage your score (temporarily). But many companies are able to do a “soft” credit inquiry, which won’t appear on your credit history. Be careful to ask about how your credit history will be examined prior to requesting information or even rates from lenders.
2. Compare the interest rate to market rates
   Know if you’re getting a good deal. Check other lenders and refinance companies to see how the rates compare. Also, be sure to see what your rate might be, not just the advertised lowest rates.
3. Read the terms and fine print
   How long will you be paying? Is your interest rate variable or fixed? It’s important to understand the details of your loan. If you have questions, ask them up front. If you can’t get answers, then reconsider whether you should be working with that lender.
4. Watch out for early payment penalties and other red flags
   Want to pay off your loan early? Be careful–some lenders have a penalty for that. When you’re reviewing the terms of your loan, look for any funny business that doesn’t seem right or unfairly punishes you for making payments. These are red flags that you may want to look for a different lender.
5. If it sounds too good to be true, it probably is
   Unfortunately, there are many predatory organizations out there that promise to work magic on student loan debt–getting it forgiven, erased, or otherwise dispelled, or offering incredibly good student loan terms that just don’t seem possible. As they always say, if it seem like it’s too good to be true, it probably is, and you should be very careful when dealing with companies that promise unbelievable results.

What to Do After You’ve Refinanced Your Student Loans

So, you did the whole refinancing thing. Now, what? You’re just done?

Well–not quite.

If you’re happy with the outcome, you could maintain your refinance arrangement until your loan is paid off. But, also consider that interest rates will change over time, and your credit score may also improve, qualifying you for lower interest in the future.

That being said, it’s probably worth investigating your refinance options again every few years to see if you might be able to continue to save money or improve the terms of your loan–it can’t hurt to ask, right?