Choose the Right Loan and Lender
You’ve decided you’re moving forward with refinancing. Now it’s time to choose the loan features that best meet your needs.
Competitive student loan interest rates
Do your homework—compare interest rates and fees. If a lender is offering a loan without a loan or origination fee, is the interest rate higher?
Fixed or variable interest rates
Determine whether a fixed or variable rate is a better fit for you and find the lender(s) who offers a rate that suits you. This is a question every borrower must ask him or herself and there’s no easy answer. Just consider your situation and weigh your options—follow this link to help decide what’s best for you.
Annual percentage rate (APR)
The APR is the cost of interest and fees on a loan expressed over time. The APR is intended to assist you in comparing the cost of various loans that have different fees, rates and payback periods.
Quality of customer service
When you have questions, how do you want them answered? Personal assistance and online capabilities to get your questions answered in a timely manner are important. Find a lender that provides the service you expect when you need it.
Lender experience and reputation
How long has the lender been in business? Do they have a good reputation?
Will the lender hold on to your loan or sell it to another group? If it is sold, learn about what loan terms and benefits might change with your new lender. It can be helpful to work with the same lender from application through your loan being paid in full.
- What is the application process?
- Who is considered an eligible borrower?
- What are the approval criteria?
- What are the minimum and maximum borrowing amounts?
- What is the interest rate and is there an interest rate cap?
- Are the interest rates variable or fixed? If variable, how often do the rates change?
- Are there application or other fees?
- What are the loan repayment terms and borrower benefits?
- What are the tax benefits?
- What are the prepayment penalties, if any?
Beware of Dubious Lenders
- There are seemingly endless options to refinance your student loan debt but some of the options should be avoided. It is important to make informed choices. Here are a few things to remember:
- You should not have to pay an upfront application fee to refinance your loans.
- No one can promise total loan forgiveness.
- Only scammers will tell you to stop paying your student loans. Don’t fall for it.
- Take your time and research your options.
- Learn more about how to avoid being scammed or to report a student loan debt relief scam.
Examine your current benefits
If you prepared the information on your existing loans with the worksheet provided in “Determine” review the contents of that sheet. What benefits, if any, will you give up if you consolidate or refinance? Be sure you understand the terms of the loans you are refinancing or consolidating so you can weigh the pros and cons of taking out a new loan.
If you have private loans:
- Your private loans may have come with incentives or benefits such as a rebate for making a certain amount of on-time monthly payments or receiving an interest rate reduction for automatic payments. If you refinance, these benefits may no longer be part of the new loan.
If you have federal loans:
- Federal loans come with some benefits that may or may not apply to you. Some examples of those benefits are loan forgiveness programs for certain professions, the option to postpone payments based on financial hardship and a wide variety of payment plans. These benefits and protections do not transfer to private loans.
This video gives you a good overview of things to consider before you refinance or consolidate your student loan debt. Along with this worksheet resource, the information in this video will help you make a more informed decisions about refinancing. Here is a resource document that provides additional information on the benefits to be aware of when making your decision.
Examine your credit rating
The interest rate on your refinanced loan will be determined based on your creditworthiness.
- Positive credit ratings could help you receive a lower interest rate if you refinance.
- Negative credit ratings could mean a higher interest rate if you refinance or consolidate.
- It is important that you have a clear understanding of your current credit score and/or credit history.
- Many credit card companies and banks provide an estimated credit score online or on your monthly statement.
- You can obtain your free annual credit report at www.annualcreditreport.com. Credit scores are available for an additional fee.
By knowing where you stand on your creditworthiness, you can get a better idea of whether you may qualify for a refinance loan and what your new interest rate is likely to be.
Examine the Cost of Changing the Terms of Your Loan
- You must carefully balance the shorter-term benefits of a reduced monthly payment amount and cash relief with the longer-term implications of paying more in interest over the life of your loan. Typically, a shorter term yields a lower rate and a lower total amount paid to service the debt.
- Extending the term of the loan is not always a bad thing if the lower payment is needed for your current financial situation. If you are trying to qualify for your first mortgage, starting a business or saving for retirement; and your current education loan payment makes your monthly debt load too high, refinancing for a longer term with a lower monthly payment may make sense for you to achieve your other goals. Also, if there are no prepayment penalties, you may be able to pay these loans off quicker and avoid some of that interest when your financial situation improves. See Refinancing example.
Once you have made your informed decision to refinance…
Gather the information you need to apply…