Cutting costs, sticking to a budget, and exacting as much value as possible on all fronts has largely become the financial modus operandi for many folks these days. Many government programs, such as the stimulus, have helped families as well. And in fact, the President’s order to allow student loan holders the option of delaying payments, as well as interest accrual, until the start of 2021 has also given many households some financial breathing room.
Some financial experts argue that payments made now will reduce the principal of student loan balance. However, there is another way to reduce your total loan without having to hyperextend yourself financially. If you’re struggling to make those payments, a change might be needed.
We’re talking about student loan refinancing. In this article, we’ll talk about whether refinancing will help you, when you should refinance, what companies to look into, and what your next steps might look like. By the end of it all, you’ll have a more definitive answer on whether you can depend on student loan refinancing for more savings each month, or if you should devote your efforts elsewhere.
The Two Major Types of Student Loans
There are two major types of student loans — private and federal. It’s important to understand that federal student loans can be consolidated to a single payment with one interest rate. Private student loans, however, can be combined with federal student loans and refinanced to the same end.
Here’s something you need to understand about refinancing federal student loans: “they’ll be ineligible for government programs like income-driven repayment and student loan relief due to the coronavirus pandemic.” That means you may no longer be eligible for any government assistance programs that you used in the past. At least as far as your student loan is concerned. If your loan is refinanced by a private lender, you could lose some of the government protections.
That said, loan consolidation might not necessarily allow you a lower interest rate. By going with a private student loan company, however, you do have the opportunity to “change the amount you pay, the amount of interest you accrue, and the length of time over which you are expected to pay back the loan.” There are a variety of factors that affect these terms, some of which may help you to pay less overall in student loans.
When to Refinance Your Student Loans
Before you look into refinancing further, consider your goals and how you can achieve them. Here are a few reasons why you may or may not want to refinance your student debt.
Why You Should Consider Refinancing
- If you can lower your interest rate (and therefore the overall amount of student loans). In fact, experts recommend refinancing “at least once per year if you can find a lower rate.” Remember that you can refinance more than once during the lifetime of the loan, if it will save you money.
- If you can take advantage of discounts and benefits many companies offer when you refinance.
- You can lower your monthly payment and potentially pay off other debt faster.
- Simplify your loan payments. A single payment is easier to keep track of.
- Refinance PLUS loans specifically, since they have a higher interest rate than traditional loans.
Why You Shouldn’t Consider Refinancing:
- You’re benefitting from the President’s student loan order.
- Taking part in loan forgiveness by working as a federal employee or for a non-profit.
- You have high student loan debt but not as high of an annual salary.
- You’re worried about not being able to make payments and negatively affecting your credit score.
- Taking out a personal line of credit affords you a lower interest rate and the freedom to pay down many kinds of debt at once. This might be a better option than traditional refinancing.
The great news is that you don’t have to refinance if you don’t want to. However, refinancing can be a way to give yourself more financial freedom when you need it.
Factors to Consider When Researching Refinance Companies
Deciding if you should refinance your student loans is one decision. Knowing which company to sign up with is another completely different one.
In your search, you should consider companies based on the following factors.
- Maximum and minimum loan amounts.
- Fixed vs. variable rates.
- Eligibility requirements.
- Repayment terms and conditions, including timeline.
Every company might offer something slightly different. It will also be based on your own credit history. Below are the top refinancing companies we’ve come across. Use the considerations above to narrow down your search.
Top Student Loan Refinancing Companies
Below, in no particular order, are the top student loan refinancing companies you could consider.
One of the most popular refinancing companies, Earnest allows customers to customize their repayment schedule and offers flexible repayment terms. With a credit score as low as 650 accepted, Earnest welcomes students of many walks of life. Finally, Earnest handles all loans itself, meaning you can speak to employees directly about your loan terms.
If you want to refinance during your medical/dental residency, Laurel Road is for you. They also offer co-signer options and “financial protection in case of hardship.”
Education Loan Finance (ELFI)
Students looking for good customer service and a referral bonus should check out ELFI.
The folks at CommonBond bring a lot to their customers, from repayment flexibility and personalized mentoring, to a wide range of loan amounts and hybrid loan options with both fixed and variable rates.
Offering both fixed and variable rates, Splash Financial is able to refinance a “broad range of student loans,” from PLUS and undergraduate loans to law, medical, and dental loans, too. There is also no maximum loan amount from Splash Financial.
LendKey is unique in that it works as a middle-man service that connects you to a community bank or credit union that will fulfill your refinancing needs.
Social Finance (SoFi)
As one of the most popular student loan refinancing companies, SoFi provides customers plenty of benefits, from no fees and online student loan refinancing to various programs to help you with your career goals.
Among many benefits, Citizens Bank also approves low-income borrowers and offers 24/7 customer service.
With a quick application process, loan amount flexibility, and flexible repayment period terms, it’s easy to see why College Ave is one of the top student loan refinancing companies.
Pentagon Federal Credit Union (PenFed)
The unique thing about PenFed is that they allow married couples who want to refinance their student loans into a single loan to do just that. It could be a great way for young couples to get better control of their finances.
Rhode Island Student Loan Authority (RISLA)
With a fixed APR and up-front terms, RISLA is a popular option among student loan refinancers. They also offer an “income-based repayment plan” for those watching every penny.
Find any companies you like? Consider doing your own research to find out more.
Next Steps: Quote, Consider, and Act
We hope this article has helped you narrow down your search for a student loan refinancing company. Of the companies that made your short list, consider reaching out to a select few for a pre-qualification process. Typically the companies will perform only a soft credit check, which won’t hurt your score.
We urge you to carefully weigh not only the financial factors, but the emotional and mental aspects as well. Remember that at any time, you can stop the refinancing process. What moves will benefit you specifically? Ask questions along the way, research companies and interest rates, and above all, seek out help when in doubt. After all, your financial future could depend on it.