Should You Refinance Your Student Loans?

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Even the most highly educated people can benefit from learning more about money management. When it comes to student debt, refinancing your loans could end up being one of the smartest decisions you’ll ever make.

You don’t have to be a math major to know that lower interest rates are better than higher ones, but many people don’t realize just how much money they could be saving by dropping their student loan interest rate by one or two percentage points. This can translate to savings worth tens of thousands of dollars over the life of the loan.

How Refinancing Works

Higher education is undeniably expensive, which means many students apply for financial assistance ranging from a few thousand dollars to hundreds of thousands of dollars. In addition to scholarships, grants, and work study, there are Federal student loans available from the U.S. Department of Education. There are also private student loans, meaning the loans are made by private institutions such as banks, credit unions, and financial institutions. It’s common for students to have taken out loans from multiple sources in order to pay for their education.

When you’re finished with school and after a brief grace period, borrowers are required to begin paying full principal and interest payments on their loans. Monthly payment amounts are based on the terms agreed upon when the student accepted the loan, including the interest rate and repayment plan.

These payments can be hefty. This is where refinancing comes in. Private student loan refinancing allows borrowers to refinance and/or consolidate one or more student loans into one private loan at a potentially lower interest rate, monthly payment, and/or repayment term. Refinancing often allows the borrower to consolidate both their federal and private student loans, simplifying payments.

Who Is Eligible?

Not everyone qualifies for student loan refinancing, nor is refinancing the best option for everyone. Here are a few factors that U‑fi Student Loans takes into consideration when it comes to applying for refinancing:

  • Citizenship – You must be a U.S. citizen or permanent resident with a valid Social Security number to qualify.
  • Amount of Loans – You must have at least $5,000 in loans you wish to refinance, and your maximum student loan debt cannot exceed $225,000. The maximum debt is a based on your degree level, so be sure to read the fine print before making any decisions.
  • Age – You must be the legal age of majority in your permanent state/territory of residency.
  • Annual Income – You must have at least $24,000 in annual income.
  • Student Status – You may no longer be attending school on a half-time basis or more.

Even if you don’t qualify on your own, you may be able to with the help of a cosigner. This is someone, generally with more established finances, who agrees to make payments should you ever default. This is a good option even if you have good credit, because it can decrease your interest rate further. And the cosigner can be released after 24 consecutive, monthly principal and interest payments are made on time, and the borrower meets certain eligibility and credit criteria.

The requirements are slightly different for those applying with the help of a cosigner, and they’ll vary depending on who your lender is. With U‑fi, applicants must be at least 17 years old, but they don’t have to be U.S. citizens or permanent residents. The cosigner has a few requirements, too – they must be a U.S. citizen (or have permanent residency status and a valid SSN), they must be the legal age of majority in their state/territory of residency, and they must have at least $24,000 in annual income.

The Pros and Cons of Refinancing

Anything that can save you thousands of dollars may seem like a no-brainer, but there are some risks that come along with the benefits of refinancing – particularly if you’re refinancing federal loans. Terms will vary based on your lender, but let’s look at the biggest pros and cons of refinancing with U‑fi Student Loans.

Refinancing Pros

  • Simplify multiple payments by combining into one monthly payment.
  • Potentially reduce monthly loan payments and/or interest rates.
  • Receive a cash back reward of 1.5 percent after initial 12 monthly principal and interest payments are made consecutively and on time if you refinance through U‑fi Student Loans. Total reward is capped at $500 per borrower in any one calendar year.
  • .25 percent interest rate reduction for payments automatically deducted from a bank account.
  • Flexible repayment terms depending on the loan amount.

Refinancing Cons

  • Borrowers with federal loans may lose access to certain federal benefits by switching to a private provider, including grace periods, deferment, forbearance, interest subsidies on subsidized federal loans, and repayment plan options.
  • If lower interest rates can’t be secured during refinancing and/or the repayment term is extended, the borrower could end up paying more over the life of the loan.
  • Whereas federal regulations recognize some situations where a loan may be discharged, private loans may not offer the same discharge options.
  • If switching from a fixed interest rate to a variable interest rate, interest rates and monthly payments could rise in the future.
  • More information about benefits lost can be found here.

The Application Process

Once you’ve weighed your options, you may have decided that refinancing seems like the best option for you. Here are the steps you can expect to take in the coming months.

  1. Gather your documents to begin the application process, including education and employer information, gross annual income, pay stubs, references, and information about the loans to refinance, which can be found on your billing statements or the servicer’s website.
  2. Once you apply, your (and/or cosigner’s) information will be validated and credit will be checked.
  3. If approved, you’ll select your loan terms and receive an approval disclosure.
  4. The new lender will pay off your student loans and your new payment schedule will begin within 30-45 days.

Student loan refinancing isn’t right for everyone, but for some, it can mean the difference between struggling to survive your first few years of repayment and starting out with firm financial footing. Consider your decision carefully, and you’ll be prepared to manage your repayments with ease.

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