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Student loan refinancing is a great way for people to save money on their student loans. It allows borrowers in good standing to lower their interest rates and pay off their debt faster. You'll need a high credit score and a decent income to qualify for refinancing. Refinancing allows you to consolidate multiple student loans into one new loan at a lower interest rate. This can simplify the repayment process and lower your monthly payments. There's no origination fees and no prepayment penalties with the leading refinance lenders. This means if you want to put extra money toward your loan payments, you'll be out of debt even faster.
Ways to Refinance Loans
You can refinance both federal and private loans. Federal student loans are different from other financial products (for example, credit cards
, auto loans
, and mortgage
) in that the government provides a majority of these loans, and it does not factor in your credit score
and income when giving you a loan. Someone with a 500 credit score can receive the same rate as someone with an 800. This provides an equal opportunity for anyone to attend college, even if you have a low credit score or low income.
On the other hand, student loan refinancing companies reward borrowers with high credit scores and income levels. If you're in good financial standing, these companies will consolidate your loans for you at a much lower interest rate Ð allowing you to save some real cash on your student loans. If you're looking to refinance your federal loans, be aware that doing so would result in the loss of benefits from federal government programs like income driven repayment and Public Service Loans Forgiveness (if you qualify).
The best way to refinance is to check with multiple lenders to see if you qualify, then choose the one with the lowest interest rate. SoFi was the first company to begin offering this as an option in 2012, and others, like College Ave, LendKey, CommonBond, and Earnest have followed. Since then, more than $20 billion in student loans have been refinanced. According to these lenders, the average borrower who refinances saves more than $17,000 on their student loans.