5 Questions to Ask Before You Refinance Your Student Loan

Essential Questions to Ask Before Refinancing Your Student Loans

Refinancing student loans can feel complex and overwhelming. To help you navigate this journey, we’ve compiled a list of five essential questions you should ask before refinancing your student loans.

1. Are You Planning on Refinancing Federal Loans, Private Loans, or Both?

Federal loans are offered by the government, while private loans come from banks, credit unions, and online lenders. Federal loans provide various benefits, including public service loan forgiveness and income-based repayment options.

Forgiveness means you are no longer required to repay some or all of your loan, depending on eligibility. For instance, you may qualify for Public Service Loan Forgiveness if you work for the government or a non-profit organization. Income-Based Repayment (IBR) adjusts your monthly payments based on your income and family size. For more information on the new programs available to borrowers with federal loans, check out our Federal Student Loan Optimizer tool.

When you refinance federal student loans through a private lender, you forfeit eligibility for federal repayment and forgiveness programs. You don’t have to refinance all your loans. For example, you might choose to refinance only your private loans, keeping your federal loans to retain their benefits.

2. What Are the Current Interest Rates on Your Loans?

Lower interest rates can lead to significant long-term savings. Reducing the loan term can also enhance your savings. If you’re uncertain about your current rates, reach out to your loan servicer. Understanding your interest rates is crucial when considering refinancing options.

3. What Is Your Current Monthly Payment and Loan Term?

Refinancing to a shorter term may increase your monthly payments but reduce the total interest paid over the loan’s life. Conversely, extending the loan term can lower your monthly payment but increase the total interest paid. This option might be beneficial for those looking to free up short-term cash flow. Evaluate your financial situation before deciding which option aligns best with your goals.

4. What Is Your Credit Score?

Your credit score is crucial to the refinancing process, as it heavily influences the rates and terms you will receive. Many private lenders offer a preapproval process, allowing you to see potential rates and terms before formally applying. If you’re unhappy with your credit score, consider improving it before applying.

5. What Is Your Employment Situation?

Lenders typically look for strong and consistent monthly income when assessing loan applications. A stable income can increase your chance of approval and potentially secure a lower interest rate.

Refinancing your student loans may feel daunting, but by addressing these five questions, you can make the process more manageable and less stressful.

Conclusion

Refinancing your student loans can initially seem daunting, but by addressing these five essential questions, you can simplify the process and make informed decisions. Understanding whether to refinance federal, private, or both types of loans allows you to balance the benefits and drawbacks effectively. Knowing your current interest rates helps identify potential savings opportunities, while evaluating your monthly payments and loan terms ensures that your refinancing plan aligns with your financial goals. Your credit score plays a significant role in securing favorable terms, so consider improving it if necessary. Lastly, a stable employment situation can enhance your chances of approval and better rates.

By taking these steps, you can navigate the refinancing journey with confidence, ultimately making the process less overwhelming and more rewarding. Visit LendKey to start your journey to refinance.