Refinancing your student loans can be a great way to manage your student loan repayment situation and improve your overall financial health.
Keep in mind, student loan refinancing can be confusing and lead to problems down the road if you don’t make the right decisions when applying for refinancing or consolidation.We have prepared 10 questions that you should ask before refinancing your student loans.
1.) What is the term of the refinanced student loan?
When you refinance your student loans, banks might offer varying term options. The “term” is the expected amount of years in which you are expected to repay your loan. Banks typically offer 5, 10, 15, 20, and 25 year repayment terms. The biggest consideration to keep in mind is how much you can afford to pay now and how much interest you will accrue over the lifetime of repayment. For example, on a 5 year term you will accrue the least amount of interest, but your monthly payments will be the highest vs. longer term student loans.
2.) Is the new student loan variable or fixed interest rate?
Your student loans have either variable or fixed interest rates. By
refinancing, you can convert a variable interest rate to a fixed
interest rate loan or vice versa. Fixed interest rates tend to be less
risky, whereas variable interest rate loans fluctuate due to economic
conditions.
Due to the 2008 recession, interest rates over the past 4 years have
been historically low. If the economy improves, interest rates will most
likely rise over time, making variable interest rate student loans less
favorable when compared to fixed rate student loans. In the current
economy, fixed rate student loans tend to have a higher interest rate,
which means you might end up paying more interest over the long term.
3.) What are the repayment terms?
When does the repayment start? What will my monthly payments be? How
do I pay? What fees can occur if I miss a payment or default on my
student loans?
4.) Is there an origination fee?
Some banks charge a student loan origination fee up to 2% of the
total amount you are requesting to be refinanced. For example, if you
refinance $60,000 in student loans, you will pay a $600 for a 1%
origination fee. The origination fee is usually added to the loan amount
due and you will not need to pay this amount upfront.
5.) Will they combine federal and private student loans?
Some financial institutions, such as Commonbond and SoFi are now
refinancing federal and private loans bundled together. This can
ultimately help you get a lower interest rate to save money, but be
careful as you lose most alternative and flexible repayment plans
associated with the federal government loan program.
6.) Do I need a cosigner? Do you offer cosigner release?
If your income or credit score is too low, the bank might require a
cosigner to insure your student loans in the case of default.
Alternatively, banks like cuStudentLoans, offer cosigner release, which
releases any existing cosigners from your student loans. This can help
free up revolving credit for your cosigners and allow them to make other
purchases such as a mortgage or auto loan.
7.) What are the typical credit score, salary, and debt-to-income requirements?
From our research, most banks require a 650 credit score or higher
and minimum monthly salary of $2,000, depending on your total debt load.
Be sure to ask the credit score requirements before submitting your
application.
8.) What are the maximum amounts of debt they will refinance?
Banks typically have a maximum amount of debt they will refinance.
This amount is varies by bank and education level, such as
undergraduate, graduate, and other certificate programs.
9.) Do they refinance student loans from my school and/or my degree program?
Ask which schools are eligible for the refinancing product. Some
banks don’t lend to student loan borrowers who have attended for-profit
private institutions, community colleges, and/or certificate programs.
10.) What type of support and service do you provide?
At the Student Loan Hero office, this is the most important question
we ask our banking partners. As student loan borrowers ourselves, we
have worked with banks that provide terrible customer service, not to
mention banks that are hostile and threatening. Refinancing your student
loans means that you will be working with this bank for the next 5-25
years. Be sure to do your research before refinancing your student
loans!
