The student loan refinancing market has been increasing throughout the years and that’s because the student loan debt in America just keeps rising. Student loans are now the largest source of unsecured debt in the United States.
If you are planning to take private student loans to pursue a career it’s important to understand what options you have to lower the debt and prepare yourself with a financial plan that would help you pay that student loan faster.
Now if you already graduated and still on your grace period waiting to start paying on your private student loans, you might be looking into some options to lower your monthly payments.
This guide will cover some of the most common questions you may have when looking into refinancing your student loans.
1. What does student loan refinancing mean?
Refinancing your student loans mean that you would replace your existing debt with a new loan at a lower interest rate with a different private lender.
2. What credit score do I need to refinance student loans?
Most lenders would refinance your loans with a credit score of 700 and up. There are very few lenders that would accept you with a credit score of 600–680. If your credit score is to low you will need someone with a higher score willing to co-sign the loans for you.
3. Is it worth it to refinance student loans?
Refinancing your student loan can definitely save you money by lowering your interest rate that’s why the market is in such high demand.
For example if:
The balance on loan 1: $9,526.86 with an interest rate of 9.75%
The balance on loan 2: $7,358.19 with an interest rate of 10.75%
The balance on loan 3: $4,205.64 with an interest rate of 10.75%
And you are someone with good credit or have someone willing to co-sign your loans, it would be a great idea to look into refinancing your loans to get a lower interest rate, it would save you a significant amount of money on your monthly payments. And you can refinance every 12–18 months to chase lowest interest rates.
4. How does refinancing student loans affect my credit?
Getting quotes on the interest rates when you are trying to refinance your student loans doesn’t necessarily affect your credit. Several companies offer soft checks to give you an idea of what rates you will be looking at with them. And as you know soft credit checks don’t have an impact on your credit report.
Also, multiple hard pulls for the same type of inquiry within 30 days count as a single inquiry in the common credit score formulas. That said, the hit from a hard pull is just a few points, degrades over time, and falls off the record completely after two years. And your credit score is only relevant if you’re doing something that requires it until you need a loan, credit, etc.
It doesn’t matter if your score is great or terrible. In summary, don’t worry about hard pulls unless you’re buying a house in the next 60 days, and even then, don’t worry unless you’re right on the bubble of getting a better interest rate.
5. Can I refinance parent PLUS loans To My Name?
Some private lenders will allow you to refinance Parent PLUS loans into another person’s name.
But it’s not recommended: Parent PLUS loans have a number of benefits to go with that interest rate. They include access to deferment and forbearance, and certain forgiveness plans (mostly for death or disability in this case, not for things like public service, but still better than most private student loans).