Before you even think about a lender to refinance your student loan with, you need to think about why you’re refinancing in the first place.
Everyone’s reasons for refinancing are different—maybe you want to refinance for a lower monthly payment, or perhaps you’re looking for a lower interest rate. Maybe it’s to pay off your loans sooner. Your motivations may mean you choose one lender over another, which is why it’s so crucial to have a debt payoff plan in place before applying for refinancing.
Before you begin scouting out refinancing options you might be eligible for, make sure you have a solid idea of what you’re looking to get out of a lender.
Option 1: Student Loan Consolidation
If you have federal student loans, you might think about a Direct Consolidation Loan with the Department of Education. This might be a good option if you only have federal loans and don’t want to deal with managing multiple loan payments. It can be easy to lose track of monthly loan payments, and missing a payment might be a hindrance to your finances.
Missing a loan payment could cause your credit score to plummet, which hurts your chances of borrowing money in the future, whether it’s opening a credit card or buying a car. Payment history makes up 35% of your FICOⓇ score , so missing a payment can be bad news t when it comes to your credit.
Consolidation combines multiple federal loans into one loan—and one monthly payment. Your interest rate becomes the weighted average of all your old interest rates, rounded up to the nearest one-eighth of a percent.
This might not lower your payment, or your interest rate, but it can potentially help make your federal student loan payments more manageable.
If you have private student loans, you can’t apply for a Direct Consolidation Loan. If you have federal and private student loans and still want to have one streamlined payment, you may want to look into refinancing with a private lender—both federal and private student loans may qualify for refinancing.
Refinancing is a lot like consolidation, but instead of combining your loans with a weighted interest rate, you get a new loan with new loan terms and a new interest rate. And depending on your financial standing, that might even mean you get a better interest rate when you refinance.
If you’re having trouble qualifying for refinancing, you can consider finding a cosigner. A friend or relative with great credit can be your cosigner to help you qualify for a loan or get a better interest rate.
But having a cosigner means that if you don’t make the minimum monthly payments, your cosigner may be on the hook for them. And if you default on your loan, both your credit and your cosigner’s credit may take a hit.
Option 2: Refinancing for a Lower Monthly Payment
Whether you’ve already consolidated your loans or you’re struggling to pay several little loans every month, missing payments can be detrimental to your credit report.
Payment history makes up 35% of your FICOⓇ score—which means on-time payments have a substantial impact. Sometimes, other bills like rent and utilities are your main financial priorities and you don’t have much left for other things—even other bills.
If you’re struggling to make student loan payments and are worried about missing payments, refinancing for lower payments might be worth looking into. And it’s especially important to think about refinancing before you miss a payment, because your financial credibility could go down once you’ve missed a student loan payment.
Refinancing your student loans can help you lower your monthly payments when you’re having trouble making them, typically by opting to extend your loan term. Even if your interest rate isn’t the lowest, you can concentrate on making on-time payments to help reestablish a good track record.
Keep in mind that a lower monthly payment doesn’t necessarily mean you’ll pay off your loan faster. The goal here is to make your monthly payments more workable for your budget.
But it might extend the life of your loan and in turn, you could end up paying more in interest over the course of the loan.
If your monthly payments start to become manageable and you can pay more into them every month, you may want to consider doing so. But check with your lender first. Some charge fees for paying off your loans early.
Option 3: Refinancing for a Lower Interest Rate
Generally, a lower interest rate might reduce the cost of your debt overall—depending on your loan term. Review all your lender options to find one that offers you the lowest possible rate. If that rate still isn’t lower than what you’re currently paying, it might not be worth it.
The lowest interest rates are typically offered to those with excellent credit (among other positive financial factors). You might want to build up your credit score if you want to eventually refinance your student loans for a lower interest rate.
Option 4: Refinancing to Pay Off Your Loans Sooner
Refinancing to pay off your student loans sooner means you might have to make larger monthly payments—that’s because a shorter loan term would increase your minimum payments. Chunking away at your loan principal means at the end of your loan’s life, you will have paid less interest overall. Shortening your loan term so you get out of debt faster might be a good reason to refinance.
If you have a solid job with steady income, you may be able to structure your budget to pay off more of your loan every month, resulting in paying it off sooner. But if you don’t have reliable income, this may not be the best option for you.
Are You Ready to Refinance Your Student Loans?
Regardless of your reason, you have plenty of options when it comes to refinancing your student loans. Get quotes from multiple lenders so you can find the refinancing offer that best suits your needs.
Don’t settle for options that don’t help you. If you aren’t getting a good deal on any of your refinancing options, it’s okay to walk away.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.