It’s no secret that college can cost a ton.

Reports state that the average US household holds $50,626 in student debt. Of course, this number can triple or even quadruple for certain degrees.

At the same time, most graduates are not earning astronomical amounts of money. Having to pay off student loans when your budget may already be stretched thinly only adds to your burden.

So if there was an option that could reduce the total amount of interest you pay on your student loans by potentially more than $18,000, you’d imagine that there’d be a stampede in that direction.

Well, start warming up, because here comes the answer: student loan refinancing.

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Before we get started: have you read these articles yet?

• The Definitive Guide to Getting Out of Debt
• FAQs on Getting Out of Debt ASAP

Consider taking a look at them first. Don’t worry, we’ll be waiting right here for you when you come back.

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What does refinancing student loans entail?

It essentially involves obtaining a new loan on better terms that is then used to pay off the existing loan.

If you hold multiple student loans, you could even use this as an opportunity to consolidate your debts into one single loan. This includes both federal and private student loans.

This means that your repayments from then on will be subject to the better terms. The most common benefit is a reduced interest rate, which means you’ll be saving thousands of dollars and will, in turn, allow you to pay off the loan more quickly.

How do I go about doing this?

Fortunately, there are several companies that make it incredibly easy.

They each act like a search engine. After entering your information, which takes about two minutes per site, you will have free access to loan offers from dozens of lenders.

You can then search through these to find the one that best suits your circumstances.

Credible

Read our review of Credible here.

Credible is a great, free option that is thoroughly recommended when considering refinancing your student loans.

It describes itself as “an online marketplace that provides borrowers with competitive, personalised loan offers from multiple, vetted lenders in real time”.

The site states that, on average, people approach them with $60,000 of student loans at an interest rate of 7% per annum.

However, once a person has refinanced using a loan they found through Credible, they say that they provide an average saving of $18,668 per person.

Simply spend two minutes filling in their form and, for no cost, you can see exactly what offers are available to you.

And as a limited time offer, sign up through this link and you’ll receive a $100 bonus if your loan is less than $30,000 and a $200 bonus if your loan is $30,000 or more.

LendKey

Read our review of LendKey here.

LendKey is also an excellent option to look into if you are considering refinancing or consolidating your student loans.

With over 300 credit unions and community banks in its system, in a few clicks (seriously, LendKey’s form is amazingly short) you can save yourself a lot of in-person visits.

LendKey is thus a great choice if you’d rather deal with a community lender – especially given that they often have better rates than the bigger banks.

Even better, it is available throughout all US states, which is not always the case with the other options.

It’s completely free and has served over 40,000 customers. Variable rates start at 2.74% while fixed rates are as low as 3.15%.

Check out LendKey here and, in two minutes, you could be on your way to saving yourself thousands of dollars.

 

What does the process involve?

It’s extremely straightforward and, with all of the above options, won’t cost you a cent.

You should also know that checking the available loan offers won’t affect your credit score.

1. Fill in the form

Each company requires you to fill in a short form that takes about two minutes to complete.

It includes information such as which school you attended (or are attending), the amount you need and your income. If you’re using a co-signer, he or she may also need to complete the same form.

2. Review the rates and lenders on offer

The student loan refinancing system will then show you a range of loan options that you may qualify for. Make sure you consider not only the interest rate (including whether variable or fixed is right for you), but also the length of the loan repayment period and the amount that you’ll be required to repay monthly.

You can use the various filters to help you find the best option for your circumstances, especially if certain lenders have a number of loan offers available.

3. Select the best offer for your situation and apply

This may require you to provide some additional information, including supporting documentation, and the lender will undertake a hard credit check.

Once all of that’s done, all reports indicate that approval is very quick, often within one day.

Note that you can also apply to multiple lenders to increase your chances of being approved. Just be aware of the slight hit to your credit score that this may entail.

What will the lenders consider?

Like any loan, the various lenders will need to consider certain factors when determining whether or not to approve your application.

This list isn’t intended to dissuade you from applying – instead, it should provide some pointers on how you can increase your chances of being approved.

1. Is your credit score good?

It’s fairly straightforward: if you have a good credit score, you pose less of a risk to a lender and they’ll be more likely to offer you a better rate.

Major lenders will generally require a minimum credit score in the mid- to high-600s. However, if you’re not at that level, which is often the case with recent graduates, still consider checking the above sites for what’s on offer.

2. Do you have sufficient income to repay?

Proof of reliable, consistent monthly income will significantly increase your likelihood of approval. You may also have to provide evidence of the approximate amount of your monthly expenses. This will show that you have enough leftover to meet your repayment obligations.

If you don’t, you may need to have a co-signer in order to be approved.

3. Do you have any other debt (and have you been paying it off on time)?

Having other debts, such as a mortgage or a credit card, does not mean that you will be rejected. It is, however, something that lenders need to be aware of.

A more serious factor is if you have missed debt repayments in the past. This is obviously a matter of concern for lenders as it suggests that you may also default on this loan.

Accordingly, in such cases, you may also need to have a co-signer.

4. Do you have a job (or a job offer starting soon)?

Not only is this further proof that you’ll likely be able to continue paying off the loan, but some lenders will require you to have several years of work experience after graduation.

5. Do you have a good co-signer?

I’ve mentioned this a few times above, but it’s worth explaining what – or who – this is.

This is someone close to you who has an excellent credit profile and who is willing to be equally responsible for the loan.

It may be a parent, grandparent, other family member, spouse or even a friend. Whoever it is, if you default, they will be fully liable for meeting your repayment obligations.

Lenders look very favourably upon this as it significantly reduces the risk to them that the loan will not be repaid.

When is refinancing a student loan not a good idea?

1. If you think that you may default on the loan

Refinancing is a great way to reduce the amount of interest paid on your loan. This can make it very useful if you’re struggling to make your monthly repayments.

However, if you believe that there is any chance throughout the term of the loan that you may default, you may want to reconsider refinancing.

This is because you may lose access to more flexible Federal payment options that can assist if you’re in genuine financial difficulty.

2. If you hope to take advantage of loan forgiveness

If you refinance your Federal student loans, you may no longer be able to take advantage of any loan forgiveness programs. These programs generally have very strict requirements, so make sure you check closely before proceeding.

A list of some of the jobs that offer student loan forgiveness, including a broad description of the requirements of many of these programs, can be found here.

3. If you intend to use it as an opportunity to reduce the monthly payments and extend the term of the loan

There’s no doubt that reducing monthly loan repayments can make life easier.

But be aware that if you intend to do this through extending the loan term, you may end up paying more.

We are far more in favour of using any opportunity for reduced interest to pay off loans faster with the goal of getting rid of them ASAP. It will ultimately cost you less overall – often by thousands of dollars – and save you months of stress when you’re able to repay your debt far earlier than originally expected.

Who should consider refinancing and/or consolidating their student loans?

There are a number of people who should seriously consider this as an excellent option to lighten their financial burden:

• If you’re struggling to make repayments on your student loan each month – noting the above;
• If you believe that you meet most or all of the above criteria;
• If your credit score has improved since you took out the original loan. This may mean that you qualify for better loan terms now;
• If you want to take advantage of current interest rates, which are extremely low. In this case, seriously consider taking out a fixed-rate loan. Variable rates may be lower than fixed rates now, but they will eventually increase. You can then relish the glory of the fixed-rate that you wisely locked in;
• If you can sign up for repayments to be automatically deducted from your account. In such cases, many lenders offer a reduced interest rate of 0.25%; or
• If you’re focussed on paying off your debt as quickly as possible and want to save potentially tens of thousands of dollars from reduced interest rates

Do you tick any of the above boxes? Then look into refinancing your student loans to see just how much you’re able to save.

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Don’t forget to take a look at these:

• Credible Review: Refinance Your Student Loans Quickly and Easily
• LendKey Review: Simple Student Loan Refinancing and Consolidation

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What’s your plan for tackling your student loans? Or, if you’ve already managed to refinance your student loans, let us know in the comments – everyone loves a success story!