Refinance student loans step by step

Sometimes keeping up with a loan’s payment is hard, but there’s always the choice to refinance student loans. Have you ever heard about this choice for those who are struggling and would like to avoid missing payments and getting poor credit scores? Then you should certainly keep reading this article. 

The good news here is that refinancing is available for both types of loans: federal and private. Even if you used a private provider to complete your tuition fee, you can also combine them. Certainly there are drawbacks when you consider the possibility of consolidation with federal plans, but it should be enough to get you on the right financial track. 

When you choose to refinance student loans there’s a possibility of getting out of that quicker. That might happen when you make a deal for a shorter repayment time and there’s even a chance of making your monthly payment lower. However, everything depends on finding a good deal. 

Is that interesting for you? Then keep reading! We’ll explain how to refinance student loans in a few easy steps and give you some tips on how to get the best deals in the market. 

Can you refinance student loans?

Let’s start this article with a warning: not everyone is eligible for a good refinancing. Even if your peers are doing it, maybe it won’t be such a good choice for you. Everything depends on your credit score and on whether you meet banks and financial institutions eligibility criteria. 

Before starting you should consider the following factors: 

  • Student loan types: if you have federal loans you must be very careful with your choice. Once you go through with the act, you’ll lose all federal protections and benefits according to your financial needs;
  • Remaining time left: the process of refinancing has as main objective to allow you to spread the payment over a longer time. So you’ll have to pay more interest for these extra months. Depending on how long you have left on your original loans it might not be worth it; 
  • Monthly payment: are you having trouble paying your loan monthly? Then it’s definitely looking into refinancing. Otherwise, we strongly recommend you reconsider and try to keep up with payments to avoid further increases in interest rates;
  • Current interest rate: some refinancing options might help you manage interest rates. But that’s only possible for those who choose to change their financial service provider and keep the repayment period the same. Stretching it will without a doubt make interest rates higher. 

After checking out these details are you sure you need to refinance student loans? Great, you’ll soon find out how to do that. 

Consolidation vs. refinance of student loans

Do you remember how we mentioned that when you refinance federal loans you lose every federal protection? That doesn’t mean you can’t find a solution to your federal programs that is mostly advantageous for you. There is also the choice to get a loan consolidation. 

This is what we call a program that merges all of your federal loans together into a single monthly payment. In theory it’s the same as refinancing your loans, but it works a little bit differently since it can’t be applied to all your types of loans. 

Sometimes, consolidating makes you eligible for a few repayment programs or even forgiveness plans that could ease your payments a lot. Depending on the federal consolidation program you choose, payment could be spread across up to 30 years. 

Depending on your financial situation, you might even be eligible for the Public Service Loan Forgiveness, a program aimed at those in need. 

How to consolidate student loans? 

To consolidate student loans you must first check out if every student loan plan you have to find out if all you have are federal programs. Otherwise, the only choice is to refinance student loans. 

There are a few types of loans that can be consolidated, which include: 

  • Subsidized, Unsubsidized and Nonsubsidized Federal Stafford Loans;
  • PLUS loans from Federal Family Education Loan Program; 
  • Federal Perkins Loans; 
  • Nurse Faculty Loans; 
  • Supplemental Loans for Students;
  • Nursing Student Loans; 
  • Health Professions Student Loans; 
  • Health Education Assistance Loans; 
  • Direct Subsidized Loans; 
  • Loans for Disadvantaged Students;
  • Federal Insured Student Loans; 
  • Auxiliary Loans to Assist Students;
  • National Direct Student Loans; 
  • National Defense Student Loans; 
  • Parent Loans for Undergraduate Students; 
  • Similar program. 

Students are eligible for loan consolidation after graduation or dropping below half-time enrollment. You can apply through your bank or using the official Federal Student Loan Portals to find out more. 

Step by step guide to refinance student loans

Getting back on topic, let’s talk about the options that you’ll have in case of using private loans. To refinance student loans you must take several factors into consideration and also go through a few steps. Luckily, we described each one of them below to help you get through the process!

1. Research to decide if you should refinance student loans

The first step is finding out if you really should refinance student loans. After all, depending on the type of extension, everything could turn out a lot more expensive because of interest rates. To qualify for better refinancing options, a student must have great credit scores and history. That way, you might get more advantageous rates which will make things better.

Before you start, we recommend you check your scores either at Equifax, TransUnion or Experian. Maybe you’ll be able to refinance in a way that benefits you, but not right now. If your credit is below average there’s still time to work on getting better numbers, before actually applying for refinancing. 

On the other hand, if you have good or excellent scores, you can move on to the next step. 

2. Check out various lenders before making a decision

With a quick Google search about where to refinance student loans you’ll see that interest rates vary a lot, as well as repayment options. This means that if you choose a lender with too much hurry, this could turn out quite bad. The ideal is to shop around, read through the fine print in as many financial providers as you can and see the cons and pros for each one of them. 

You can find out if the interest rates and repayment options are good for you online. Some lenders even offer prequalification tools that allow users to find out if they really should use their services to refinance. Just be careful not to use those that might harm your credit score and cause you trouble later. 

After you go through a prequalification that uses a soft check on your score you’ll be able to get a better idea of whether this would be beneficial for your finances. 

3. Get a few rate estimates

After choosing a few lenders that seem ideal for you it’s time to understand how their interest rates and fees work. If the numbers aren’t available on their website, we recommend you get in touch using e-mail or phone. 

4. Complete the official loan application

We hope that by this point you’ve already made your choice of the ideal lender. Remembering that they should have the best interest rates possible to make sure you don’t end up paying a lot more for your loan than originally planned. 

So far, we recommended that you do your research with many lenders, but here we have a different situation. Even those who are unsure about the success of their application should choose a single financial services provider and stick with them. Once you make an official application the financial company will make a hard check on your credit score, which will harm it in turn. 

This means that making a lot of applications within the same period could be a great problem. Remember that with a worse score you’ll have to accept higher interest rates and worse repayment conditions. Or not get an approval at all. 

So, now that you have your choice, it’s time to go on their website and apply. Usually, you’ll fill out a form with some personal info to begin with. After the prequalification, the lender will also ask for: 

  1. Payoff verification statements for the current loans; 
  2. Proof of residency; 
  3. Proof of graduation; 
  4. Proof of employment; 
  5. ID or social security number. 

At last you’ll get the approval you waited so long for. Now all that you have to do is sign some more paperwork, usually a contract that establishes the rules and obligations for both parties involved. 

After signing the contract you’ll have a determined period for your current loans to pay off. In the meantime it’s important to keep paying each loan normally. Otherwise, you could have problems with your credit score. Only start paying the new and refinanced loans after confirming that everything is paid with your previous lender.

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