September 16, 2019 By College Ave Student Loans
How to Refinance Student Loans
You may have heard the term student loan refinancing, or consolidation before, but aren’t sure how they can help you pay off your loans (fast). If you’re wondering how to refinance your student loans, you’re not alone. It’s one of the best ways to regain control of your student loan debt. Here’s how to do it.
What is Refinancing?
When you refinance your student loans, you take out a new loan that pays off all your existing debt. You’re then responsible for paying just one monthly payment toward the new loan, rather than paying down multiple loans.
Taking out that new private loan means agreeing to a new set of terms, including a new interest rate, repayment term, and minimum monthly payment. Private lenders like College Ave Student Loans let you choose the right combination of terms that work for you. If you have a high interest rate on your current loans, refinancing may help you save.
Consolidation vs. Refinancing
It’s easy to confuse student loan refinancing with consolidation. The biggest difference is the types of loans you can pay off. You can only consolidate federal loans, but you can refinance federal and private loans.
Consolidation can be done with a Direct Consolidation Loan and are available through the federal government. They allow you to combine (or consolidate) all your federal student loans while maintaining their repayment terms. Your interest rate is a weighted average of the interest rates on your existing federal student loans rounded up to the nearest one-eighth percent. The following loans are eligible for consolidation:
- Federal Direct Subsidized Stafford / Direct Loans
- Federal Direct Unsubsidized Stafford / Direct Loans
- Federal Direct PLUS Loans
- Federal Direct Consolidation Loans
- Federal Family Education Loans (FFEL)
When you consolidate federal loans, you can still take advantage of loan forgiveness, flexible payment terms, and income-based repayments. In other words, you retain the perks of federal loans.
Refinancing student loans can be done through private lenders like banks and credit unions. When you refinance student loans, you’re just replacing multiple existing loans with one private loan with new terms. You can use that new loan to pay off any combination of private and federal student loans. With refinancing, you may qualify for a lower interest rate, make one monthly payment, and pay just one student loan lender. You can also choose between a fixed or variable interest rate.
Benefits of Refinancing
Refinancing your student loans opens new opportunities you may not have had when you took your loans out originally. Depending on your credit, you could qualify for a lower interest rate, choose from a wide range of repayment options, and avoid application and origination fees.
College Ave let’s qualified graduates choose a repayment term of 5 to 20 years (or any year in between), and refinance loan amounts as low as $5,000. Here are some other key benefits to refinancing.
With a lower interest rate, you can save a significant amount of money on your loans over the same repayment term.
If you have $35,000 in student loans with a 10-year repayment term and a 6% interest rate, you’d end up paying a total of $46,628.61.
If you qualified for a refinancing loan at 4% interest and kept a 10-year repayment term, you’d repay just $42,522.96. Refinancing would help you save over $4,000.
Your total loan amount depends on your principal balance, your interest rate, and the repayment term. Refinancing allows you to choose the terms that save you the most amount of money.
Reduce Your Minimum Monthly Payment
If you qualify for a lower interest rate, you could end up paying less each month. You can also choose to extend your repayment term (like from 10 years to 15 years) to lower the monthly amount you owe. You should consider this carefully, since extending the loan term will increase the total amount of interest you pay.
Pay Off Debt Earlier
With a lower rate or a shorter repayment term, you can pay off your debt sooner than you originally planned. Lower interest means you can put more money toward your principal loan amount each month, allowing you to pay off the full amount more quickly. That’s why many people choose to refinance in the first place!
Check out the Student Loan Refinancing Calculator
Risks of Refinancing
There are some drawbacks to refinancing that you should be aware of. If you refinance federal student loans, you’ll forfeit benefits like access to income-driven repayment plans or public service loan forgiveness. If you’re refinancing and choose a longer repayment term to lower your monthly payments, you will end up paying more in interest in the long run. Refinancing is a great way to organize and simplify your student loans, but make sure you understand the pros and cons.
How to Refinance Student Loans
When you’re ready to refinance your loans, it’s important to follow the steps that set you up for success. That means doing your homework and choosing the right lender and terms. Like all private student loans, you’ll need to apply directly with the lender, who will evaluate your credit and financial standing before approving you for a loan.
1. Choose a Lender. There are many private lenders that offer refinancing. You’ll need to evaluate what each one offers and how that fits with your current situation. Reputation can also tell you a lot about a lender’s practices. To get the best deal, compare offers from different companies before making your choice. Note: NerdWallet gave College Ave Student Loans 5 stars in student loans.
2. Apply for a New Loan. Once you’ve chosen a lender, you can apply directly online. Here’s what you’ll usually need to apply:
- Proof of citizenship (Social Security number or government ID number)
- Valid ID number (driver’s license or passport)
- Proof of income (pay stubs or a job offer letter)
- Official statements for all your federal and private loans
Apply Now with College Ave
3. Choose Your Terms. Once you’ve been approved, you’ll need to decide which terms to assign your new loan. Your monthly payments will be determined by the interest rate you’re offered and the repayment term you choose. Take advantage of our refinancing calculator to explore how one affects the other. Here are the terms you can choose:
- Interest Type – Most private lenders let you choose between a fixed or variable interest rate. If you intend on paying your loan off quickly, you may save more money with a variable rate. If you want a predictable rate and monthly payment, a fixed rate may be the best choice for you.
- Repayment Term – Your repayment term is the lifespan of your loan. This is how your monthly payment is calculated. A shorter term requires higher monthly payments, but it accrues less interest overall. A longer payment term lets you have smaller monthly payments, but it will increase the total amount you pay in the long run. College Ave offers terms between 5 and 20 years.
4. Continue Paying Your Loan. After choosing your terms and opening your new loan, your responsibility will be to make your minimum monthly payments on time. Remember that one huge perk of loan refinancing is that you only have one payment to one lender. It’s a smart idea to set up automatic billing so you never miss a payment. Many lenders even offer a small discount if you sign up for auto-pay!
To refinance your loan: Do your research, choose a lender, apply online, and pay responsibly. When done correctly, you can end up saving thousands of dollars in interest over the life of your loan.
If you have multiple loans, good credit, and a steady income, then refinancing your loans may be a great option for you. Refinancing can reduce your monthly payments and allow you to choose a new repayment term. College Ave Student Loans offers student loan refinancing with low fixed or variable interest rates, no application or origination fees, and flexible timelines. The online application takes just three minutes, so get started now.
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