It’s graduation season! If you’ve still got student loan debt as a souvenir from your own graduation, it might be time to look into refinancing.
Refinancing can be a great way to consolidate your outstanding student loans and potentially lower your interest rate, but there are some questions you’ll want to ask yourself before you decide to begin the process:
1. Should I refinance?
Right off the bat, you should know that refinancing isn’t right for everyone. For example, if you’ve got less than $10,000 to pay back in student loans, you won’t be eligible. You also need to have a degree from an accredited college or university, and you can’t be repaying loans on an income-driven repayment plan. So before you make any decisions, verify that you’re eligible to refinance your loans.
2. Why am I refinancing?
When it comes to refinancing, most people are looking for one of a few common options: One, to lower their interest rates on loan payments. Two, to consolidate their debts and keep their loan payments in one place. Or three, to take a cosigner off of a private loan in the refinancing process.
Those are all valid reasons, and while yours may be different, it’s important to understand exactly why you’re looking to refinance. That way, you can sort out whether your “why” is good enough to refinance today, and if you’ll still be happy with that decision down the line.
3. What benefits will I lose if I refinance?
There are some benefits you might be giving up if you decide to switch to a private group. Federal loans do have their perks, including deferment plans and loan forgiveness opportunities. Depending on your reasons for wanting to refinance, it might be worth it to stick with the federal option, which is fairly flexible and easy to work with.
4. Is my credit where it should be?
If your credit is in worse shape than it was when you originally took out the loan, refinancing would not be the best option for your situation. That’s because no matter how low a lender’s rates are, it will ultimately be affected by your own credit health. Poor credit will lead to higher rates, so if your score isn’t stellar right now, you might be better off sticking with your current rates.
5. Which lender should I refinance with?
Once you’ve made the decision to refinance, it’s important that you put plenty of research into choosing the best lender to work with.
You can work with big-name companies you’re familiar with, like Wells Fargo, or with one of the many investor-backed startups, which focus especially on customer service.
Be careful when you’re comparison shopping for rates; there’s a lot going on behind the numbers. For example, some lenders will show a lower interest rate than another, but that might be over the course of a shorter term. Also watch out for variable-rate loans; you might score a lower rate upfront, but that rate isn’t fixed and can rise in the future.
When it comes to loans, your best asset is knowledge. Know what you’re looking to get out of refinancing, the interest rates in government versus private options, your own credit history and whether or not you will want to defer payments in the future. Here are a couple places to help you start your comparison search.
Considering the options you’ll need over the life of your loan will prevent you from getting trapped years down the line. For more student loan information, check out our posts on paying for medical school and determining if graduate school makes sense for you.