Private student loans can be refinanced with less problems. According to the Education Data Initiative, federal student loans are the most common type of student loan debt. Private student loans, however, account for 8.4%. A private student loan can be refinanced to lower your interest rate and save you money over the long-term. This will help you pay down your debt quicker. Before refinancing, it is important to do your homework and assess your financial situation.
Here are the top five student loan refinance lenders available. How to determine if a refinance is right to you.
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Refinancing student loans is similar to refinancing mortgages. This involves replacing the current loan or loans you have with a newer one.
Refinance multiple loans to one loan with the same lender and you will only have one monthly payment instead of many. Minsky also points out that you could get a lower interest rate which can help you save hundreds, or even thousands, over the life of your loan.
Student Loan Refinancing vs. Consolidation
Minsky clarifies that federal student loans cannot be refinanced. Refinancing federal student loans is essentially taking out a private student loan, and then using the money to pay your federal loans. You will effectively be making your federal loans private loans and losing any benefits such as forgiveness and forbearance that comes with them.
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Zina Kumok is a ConsciousCoins.com personal finance expert and money coach who says that if you want to keep your federal loans and all the benefits they offer, you must apply for a federal consolidation loan. A federal consolidation loan is free of charge. The interest rate will be equal to the average interest rates for the loans you consolidate, plus 0.125%. Online applications can be made through the Federal Student Aid website.
What are the best times to refinance?
If you have a private student loans, refinance is an option. The interest rate will be significantly lower than the current rate. You should consider other factors, such as the possibility to modify the loan term or consolidating multiple loans into one. These are all important considerations.
Federal Student Loan Refinance
Refinance of federal student loans is the biggest question. Minsky warns that refinancing federal student loans may offer a lower interest rate but you could lose out on some other benefits. Refinance federal student loans can result in you losing access to many benefits such as:
- Federal protection from forbearance and deferment
- Income-driven repayment plans
- Public Service Loan Forgiveness
Minsky suggests that you avoid refinancing federal student loans if you are concerned about the future use of these programs. Minsky says that once you refinance, you can’t go back and you lose your federal loan benefits.
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The Best Student Loan Refinancing Companies
- Laurel Road
- Earnest
- SoFi
- PenFed
- Education Loan Finance
- Laurel Road
KeyBank acquired Laurel Road in 2019. KeyBank offers access to a range of banking products including student loan refinancing. A Laurel Road loan can be obtained with a cosigner. Cosigner release is available after 36 consecutive payments. Laurel Road offers a checking account that you can connect to your refinance application. You may be eligible to receive a rate discount for your student loan if you open a checking bank account and make monthly direct deposits. A credit card that gives you up to 2% back and allows you to apply these rewards towards your student loan debt is another unique offer.
Earnest
Earnest offers many lending products including personal loans, student loans, and student loan refinancing. Earnest will also launch a credit card that can give as much as 3% back to student debt repayments.
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SoFi
SoFi was founded in student loans and has been a household name ever since. However, the company now offers a wide range of investment and banking products as well as student loan refinancing. SoFi is well-known for offering additional benefits to members, such as a rate match, sign-up bonuses, and access to career coaching and financial planning services.
