A.M. Money Guide to Student loan Refinancing
Refinancing Student Loans: A guide.
Graduating is an exhilarating milestone, but for many, it’s also the beginning of facing the reality of student loan debt. While federal loans often come with various repayment plans and forgiveness options, private loans don't always offer the same flexibility. If you’re juggling private student loans, refinancing might be a smart move.
Introduction
Hopefully you've read our guides on federal student loans and you've got a handle on those, but what about your private loans?
Private student loans while sometimes a necessary lifeline to get through college, can quickly become a huge burden especially if you aren't on top of them.
Refinancing can help you manage your finances more effectively by offering better interest rates, lower monthly payments, and increased convenience.
In this guide, we'll walk you through everything you need to know about refinancing private student loans. Whether you’re a recent college graduate, a working professional, or a parent of a college student, this article will provide valuable insights to help you make informed decisions.
Do You Have Private Loans? Why Should You Consider Refinancing?
1. Your Circumstances Have Changed
You graduated college. You've got a new job. You've built up your credit, and got your other finances in order. In short, you've done everything you're supposed to do. These changes can make you eligible for better loan terms than you initially received. Refinancing can help you capitalize on your improved financial situation.
2. You Have High-Cost Student Debt
At A.M. Money, we know and understand that the circumstances from which you came aren't necessarily the circumstances you would end up. However, unfortunately that's far from common. So you had to get a co-signer to get a private loan, and even then you had to pay a crazy rate. Things have changed, so should your rate.
If you initially took out loans at a high interest rate, refinancing can potentially lower your costs both in the short term and long run. A lower interest rate can save you thousands of dollars over the life of your loan.
3. You Want Lower Monthly Payments
Refinancing can reduce your monthly payments by either lowering your interest rate or extending your loan term. This can free up cash flow, making your monthly budget more manageable.
4. You Have a Co-Signer You Want to Release
Maybe your parents co-signed your loan to help you out initially. Refinancing can allow you to release them from this obligation, giving them financial relief while taking full responsibility for your loan.
5. You Want More Convenience
If you have multiple loans with different servicers, managing all those payments can be cumbersome. Refinancing allows you to consolidate your loans into a single monthly payment, simplifying your financial life.
Exploring Repayment Rates and Comparisons
A student loan refinance is not necessarily an easy process and it may take some work to go through it. So, let's first consider if it's even worth your time. In this case, we're going to explore a few high level numbers to give you a sense of the difference a student loan refinance might have on both your monthly student loan payment, and the total amount of interest payments you'll make over the life of the loan.
Let’s consider the following scenario for our Engineer, Alex. As you recall, he graduated with approximately $60,000 in student debt and has spent the past 2 years making payments on those loans to bring his balance down to approximately $50,000. For the sake of conversation, let's say his current payment is around $926 a month which puts him on track to pay off his own in 8 years.
Let's also assume that his current interest rate is around ~16%, a very high rate owing to the fact that he didn't have a quality co-signer and had to get the highest rate available on the market.
Let's discuss the ways he can lower his payments. There are two main ways: Lowering his interest rate, and increasing the term of his loan. The first way is preferable as it would result in a reduction in both the amount he pays per month, AND the amount he pays over the life of the loan. The second way, increasing your loan repayment term, would have the impact of lowering his monthly payment but would also result in him paying more over the life of the loan.
So here's what a couple of estimated payments look like on these dimensions.
Refinancing for 10 Years
At 9% Interest Rate: You’d save approximately $293 per month, totaling $12,900 in interest savings over the life of the loan.
At 6.5% Interest Rate: Monthly savings would increase to $358.7, and you’d save $20,800 in interest overall.
Refinancing for 15 Years
At 9% Interest Rate: Monthly payments would drop by $419 but you’d end up paying $2,300 more in total interest.
At 6.5% Interest Rate: Monthly savings would be $490.89, with a total interest saving of $10,538.51.
As we can see, even at the higher rates of re-finance there is still significant value in doing the refinancing. Changing the term is a little bit more risky as at some rates you may end up paying more in the long run versus a shorter term but a higher rate.
Note: The best rates are typically available to those with good credit, high income, or a co-signer who meets these criteria.
Where Can You Refinance Private Student Loans?
At A.M. Money, we've partnered with CUSelect, which works with local not-for-profits to offer competitive refinancing options for student loans. Learn more here. Credit Unions and not-for-profits typically have a community focus and are usually focused on creating long term value for their customers. As non-profit, and member owned they have great incentives to their customers.
If you use the above links we will get a referral fee, which supports our program and efforts in this case.
You should also look around for other options that may or may not be a fit for you.
Credible
You can also explore other options through our website like Credible, which aggregates offers from various lenders to help you find the best deal. Keep in mind that each lender will have their own eligibility requirements and rates, so be sure to shop around and compare offers before making a decision.
College Avenue
ELFI Student Loan
Direct Lenders
Alternatively, you can go directly to other lenders who may offer suitable refinancing options.
Nelnet Bank
Nelnet Bank offers refinancing solutions with potentially competitive rates and flexible terms to help you manage your student loan debt effectively.
Earnest provides personalized refinancing solutions tailored to your financial profile, aiming to offer lower interest rates and flexible repayment options to fit your needs.
Note: We haven't reviewed the offers, or the products listed at this websites and A.M. is not responsible for any loss or damage of any kind incurred as a result of the use of a partner site or reliance on any information provided on the partner site. The use of a partner site and where available a partner’s mobile application, and your reliance on any information contained therein, is solely at your own risk.
Will You Qualify for Private Student Loan Refinancing?
To qualify, you generally need:
Good Credit: A solid credit history increases your chances of securing a lower interest rate.
Sufficient Income: Lenders want to ensure you have the means to repay the loan.
Graduated from College: Most lenders require you to have a degree.
Favorable Debt-to-Income Ratio: Understanding this ratio helps gauge your ability to take on new debt.
Section 5: Checklist for Refinancing Loans
Before you start the refinancing process, make sure you have:
Income Statements: Proof of your current income.
Payoff Statements: From your current loan servicers.
Good Credit: Ensure your credit score is strong.
A Plan: Know what you want to achieve with refinancing and how it fits into your broader financial goals.
Section 6: Should I Include Federal Loans in a Student Loan Refinance?
Considerations:
Lack of Forgiveness: Refinancing federal loans means losing access to federal forgiveness programs.
Loss of Subsidies and Benefits: Federal loans often come with benefits that you might lose if you refinance privately.
Future Education Plans: If you plan to go back to school, federal loans offer deferment options that private loans may not.
Conclusion
Refinancing your private student loans can be a smart financial decision, but it requires careful consideration. Do your research, compare your options, and find a partner that aligns with your long-term financial goals.
Ready to explore refinancing options? Start by checking out our partners at CU Student Select or use tools like Credible to find the best offers tailored to your needs. Your path to financial freedom starts today. a range of flexible refinancing options designed to help borrowers lower their interest rates and simplify their student loan repayments.