Benefits Of A Student Loan
For many students, taking out a student loan is the only way higher education becomes attainable. Getting a good education is often a catalyst for a successful and stable career.
Paying back a student loan on time after college can also be a good way to build your credit.
If you use the money to pay for a degree in one of the highest-paying college majors, it might be easier to pay off your loans. Still, it can be hard to get a job after college, no matter what you studied.
Federal Student Loans Vs Private Student Loans
Federal student loans are the more common form of student loans. The U.S. Department of Education offers and funds them, and they are not credit-based loans. On the other hand, private student loans are credit-based options offered by banks or other private lenders.
Federal student loans often offer students a more affordable and accessible way to borrow. Still, private student loans are an important tool that can be used to fill in student aid gaps for students who hit borrowing limits on federal student loans. They can also be a more cost-effective alternative to the terms offered on federal direct PLUS loans.
Private student loans may include options for international students, funding above the federal loan limits, no origination fees, and potentially better rates. However, because they are private loans, they are not eligible for the Public Student Loan Forgiveness program, there are fewer repayment options, and because they are credit-driven, you will need good credit to take advantage of the best rates and terms.
Can I Refinance Just One Of My Loans
Yes. Partial student loan financing is an option for borrowers who have multiple loans with varying interest rates. If just one or two loans carry a high interest rate, it may not be cost effective to refinance all of them. It is also possible to consolidate federal loans and refinance private loans separately.
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Requirements To Refinance Student Loans
While eligibility criteria vary between lenders, there are common requirements for student loan refinancing that youll likely come across, including:
- Good credit: Youll typically need good to excellent credit to qualify for refinancing. Generally, borrowers with good to excellent credit can qualify for lower interest rates compared to borrowers with poor or fair credit.
- Low debt-to-income ratio: Your debt-to-income ratio is the percentage of your monthly income is required to pay expenses like your rent or mortgage, car loan, and other bills. In general, youll need a DTI ratio below 50% though some lenders might require a lower ratio.
- Verifiable income: Lenders want to see that youll be able to afford your future loan payments. Some lenders have a certain minimum income youll have to meet while others dont but in either case, youll typically have to show proof of income.
What Are The Requirements To Refinance Student Loans
Once you find a lender that best suits your financial situation, check the specific refinancing requirements. These can vary from lender to lender, but here are a few general criteria to be aware of:
- Debt-to-income ratio: Your debt-to-income ratio is a measurement of how much debt you’ve accumulated in comparison to your monthly earnings. You have a better chance of getting approved if your debt-to-income ratio is below 43 percent.
- When you apply for any loan, your credit score has a large impact. Check your lender’s credit score requirements before applying. If your credit score is in the mid-600s or lower, you may need to add a co-signer to your loan in order to qualify.
- Income: Lenders may impose a minimum income threshold, and they will likely want to see proof of employment this tells them that you have the cash to make your monthly payments.
- Refinancing amount: You will likely need to have a minimum of $5,000 in student loans outstanding if you’d like to refinance. If you have less than that, most lenders won’t work with you.
- Degree: You’ll typically need a degree to be eligible for student loan refinancing, though some lenders accept borrowers regardless of degree status.
If the lender you’re considering offers a prequalification tool, you can see your estimated rate based on your general financial history with a soft credit inquiry, which won’t hurt your credit score.
Learn more: Requirements for student loan refinancing
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Our Top Picks For The Best Student Loan Refinance Companies
- Credible – Best Student Loan Marketplace
- Splash Financial – Most Affordable Loan Payment Options for Medical Students
- PenFed – Best Credit Union
- Variable interest rate
- 1.89%-11.82% APR
Splash Financial is an online marketplace that partners with loan servicers to provide medical students with the lowest student loan refinance rates and affordable repayment options. It also partners with lenders to refinance other student loans. While a marketplace, Splash Financial wont show you multiple offers from the banks and credit unions in its network, and youll only know who it considers the best fit after filling out a full application.
Terms range from 5 to 20 years for fixed-rate loans and 25 years for variable interest loans. While there is no maximum loan amount, the minimum needed to refinance is $5,000.
For medical and dental residents:
- Refinancing medical school loans with Splash could help you lower payments to as little as $100 a month for the duration of your residency, plus an additional six months after the end of the residency or fellowship.
- Students with associate degrees in specific medical fields are allowed to refinance up to a maximum of $50,000 with Splash.
- Variable interest rate
Pentagon Federal Credit Union is the second-largest credit union in the nation that offers student loan refinancing. PenFeds student loan products are provided exclusively by online lender Purefy.
- Variable interest rate
- 1.64% – 5.95%
- Variable interest rate
- 1.74%-7.99% APR
Does Refinancing Hurt Your Credit
In the short term, yes. When you apply for a new loan, lenders will conduct a hard inquiry to check your credit history, which will ding your credit score a bit.
Additionally, when you refinance, your original loan is closed and a new one is opened. As part of your credit score is based on your payment history, your credit score may take a hit as your work to establish a new track record of reliable payments.
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Student Loan Forgiveness: $32 Billion Of Student Loans Canceled
Since becoming president, Biden has canceled nearly $32 billion in student loans, including:
- Public Service Loan Forgiveness:$9.6 billion of student loans for 175,000 student loans borrowers and
- Total and permanent disability: $9 billion of student loans for more than 425,000 student loan borrowers due to a total and permanent disability.
Best Student Loan Refinancing For Borrower Protections: Risla
The Rhode Island Student Loan Authority is a nonprofit organization that offers student loan refinancing for borrowers in all 50 states. The lender offers competitive, fixed-rate loans, cosigner releases, and interest rate discounts.
But what makes RISLA stand out from other refinancing lenders is its unique borrower protections:
- Income-based repayment: If you cant afford your monthly payments, RISLA offers income-based repayment. Similar to the federal repayment plan of the same name, RISLAs income-based repayment plan is based on your income and family size. Depending on your situation, your monthly payment amount could be significantly reduced.
- Grad school deferment: If you go to graduate school, RISLA allows you to defer your student loan payments for up to 36 months.
- Total and permanent disability discharge: If you become totally and permanently disabled and cannot work, RISLA will discharge your remaining loan balance.
|Interest rates||Fixed: starting at 2.69% APR|
|5, 10, and 15 years|
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Runner Up For Best Lender: Citizens Bank
- Min credit score: Not disclosed
- Terms: 5-15 years
Rate discounts up to 0.50% with autopay and Citizens account holders
Multi-year approval simplifies borrowing over time
Options for parents and graduate students
No specific options for loans without a cosigner
Co-signer and discounts required for lowest rates
Citizens Bank offers some of the lowest interest rates among the best student loans. After enrolling in autopay and signing up for an additional account at Citizens Bank such as a checking or savings account, borrowers can apply for various loans with potentially low rates. Interest rates depend on if you’re a student or parent and whether you’re an undergrad or graduate student, and there are no application fees.
After taking out your first Citizens Bank student loan, multi-year approval also makes it easier to access additional student loans if your expenses change. Citizens Bank student loans come with terms of five, 10, or 15 years, and you can borrow between $1,000 and $350,000 over time, depending on your degree, level of education, and if your parents are borrowing on your behalf.
Borrowers can choose one of three repayment options: full immediate repayment, interest-only payments while in school, or a full in-school deferment. Undergraduates may need a co-signer to qualify, though a co-signer release is offered after you make 36 on-time payments. Citizens Bank also offers student loan refinancing.
College Ave Student Loan Refinancing
Why College Ave stands out: College Ave offers 11 repayment term lengths. You’re able to take out a loan for five to 15 years. Many other lenders limit your selection to four or five options though some others do offer 20-year term lengths .
Watch out for: Lower maximum refinancing amount. If you have a truly significant amount of student loan debt , you may not be able to refinance all your debt with College Ave. This won’t be the case for the vast majority of borrowers, but it bears noting.
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Whats The Difference Between Student Loan Refinancing And Student Loan Consolidation
Refinancing and consolidation are both ways to combine student loans. However, they mean something different for federal and private student loans. Heres how it breaks down:
Federal student loan consolidation: If you have federal student loans, you can consolidate them into a federal Direct Consolidation Loan. The interest rate on a Direct Consolidation Loan is the weighted average of the loans you consolidated. You also have the choice to extend your repayment term up to 30 years.
Private student loan refinancing: Private student loan consolidationand refinancing refer to the same process paying off your old loans with a new private loan. Through refinancing, you might be able to get a lower interest rate or extend your term to reduce your monthly payment. Remember that you can consolidate both federal and private student loans, but doing so will cost you access to federal benefits and protections.
The Best Student Loan Refinance Companies
Credible identified 10 of the best student loan refinance companies using 12 different categories of data. Here are our picks based on student loan refinancing rates and more.
Choosing the best student loan refinance companies can be complicated. However, based on an analysis of 12 different data categories including student loan refinancing rates Credible’s resident experts have come up with picks for some of the best student loan refinance companies available currently.
If you’re looking to refinance your student loan debt, its wise to crunch the numbers into a student loan refinancing calculator, which uses your loan balance and new loan interest rate, to show your potential savings.
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How Are Interest Rates Determined For Private Student Loans
Private student loans usually offer variable and fixed interest rates that are based on the borrowers creditworthiness. If you have good or excellent credit, then youll be eligible for a lower interest rate. But if you have poor or fair credit, prepare for an interest rate on the higher end of the range.
Variable rates rise and fall according to the index they follow. For example, the lender may use the prime rate as its benchmark.
What Exactly Is Refinancing
Refinancing a student loan means paying off that loan immediately with another loan from a separate lender. Borrowers may choose to refinance a single loan, or they may opt to pay off multiple loans at once. Refinancing student loans can be cost effective when borrowers are careful to choose the right terms and conditions for their economic needs. For reasons to refinance your student loans, read How to Choose the Right Loan Terms.
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Understand The Pros And Cons Of Term Lengths
The term of a loan is the length of time that you will be making payments before the loan is paid in full. A shorter-term loan will have higher monthly payments than a longer term loan and vice versa.
If youre looking for a lower monthly payment, a longer-term loan would be a good choice. If youre looking to pay off your loan quickly, then youll want to look at loans with shorter terms. You also may be able to get a better interest rate related to the length of the term. Shorter loans may offer you a lower interest rate.
What If I Declare Bankruptcy
Most lenders wont refinance loans for someone who has declared bankruptcy. Declaring bankruptcy after refinancing will not necessarily eliminate the debt. In early 2020, a New York federal judge discharged over $200,000 in student loans for one borrower who declared bankruptcy. This is not standard, however.
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Best For Student Who Didn’t Graduate: Citizens Bank
- Interest Rate: 2.24%+
Citizens Bank lets borrowers refinance their student loans even if they didnt obtain a degree.
May qualify to remove co signer
Cant be in school to qualify
Loans must be in repayment
If you didn’t graduate from school, you’d struggle to find a lender willing to work with you on refinancing your loan. Citizens Bank is one of the few national lenders that allows borrowers to refinance without a degree.
Citizens Bank offers borrowers some other useful perks:
- Loyalty Discount: If you have another account with Citizens Bank, such as a checking or savings account, you can qualify for a 0.25% reduction on your interest rate.
- Automatic Payment Discount: Sign up for automatic payments and get another 0.25% off your interest rate.
- Cosigner Release: After making 36 consecutive, on-time payments, you may qualify to have your cosigner removed from your loan.
You must refinance a minimum of $10,000, and repayment terms include 5, 7, 10, 15, and 20 years. There are no application or origination fees. Citizens Bank offers the following interest rates :
- Variable: 2.24% to 9.24%
- Fixed: 4.29% to 9.74%
To qualify for refinancing a student loan with Citizens Bank, you must not be currently in school, and your loans must be in repayment. If you didn’t graduate, you need to have made 12 on-time, consecutive payments on your loans before you apply for refinancing.
Read the full review: Citizens Bank Student Loans
Once Ive Agreed To Refinance My Student Loans Can I Change My Mind
You have a legal right to rescind or cancel your acceptance of the new loan within three days of your initial acceptance. The Right to Rescind is part of the Truth in Lending Act , which protects all consumer borrowers from predatory lenders. For more about how to use your right to rescind, read Right to Rescind a Refinance Loan.
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Lendkey Student Loan Refinancing
Why Lendkey stands out: LendKey, like Splash Financial above, is a student loan marketplace, not a direct lender. A student loan marketplace allows you to compare loan offers from multiple lenders at once. The marketplace allows you to check your rates with no impact on your credit score.
LendKey partners with credit unions and community banks, so you may get a more personalized level of service than you would with a Splash Financial partner.
Watch out for: Low maximum loan amount. LendKey has the lowest maximum refinance amount of any of the lenders on the list. This probably won’t be an issue unless you have a significant amount of student loan debt.
What If You Arent Approved
Lenders take a number of factors into consideration when deciding who to approve for a loan. Your credit history, debt-to-income ratio, income levels, and whether or not you applied for the loan with a cosigner are all important factors.
If you were denied for refinancing, consider asking the lender the reason for which you were denied. This can help you determine if there are steps that you can take to boost your credit score or otherwise strengthen your case and try again. Some lenders will specifically let you know in your rejection if you would qualify by adding a cosigner, and allow you to do this without restarting the entire application process.
Tim Stobierski is the founder of StudentDebtWarriors.com, a free resource for college students, graduates, and parents who are struggling to make sense of the complicated world of student loans.
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