Got student loans? If you do, whether they’re private or federal, they’ve got specific parameters on how they need to be paid back. And if that repayment timeline is in the relatively near future, it might be time to familiarize yourself with your loan repayment terms.
Sure, it’s not the most fun way to occupy your weekend, but understanding how your loan repayment works—including what the repayment timeline will be and what your interest rates are—is important.
Why? First, it’s important to know exactly what you’ll need to do to pay back your loans as agreed upon. Plus, as part of that process, you can also determine if refinancing your student loans could help you to get a better interest rate, a more favorable repayment term, and so forth.
When you refinance a loan, you’re replacing your old loan(s) with a new one with new terms. If, for example, you applied to refinance your federal student loans with a private lender, they would pay off all your old student loans and issue you a brand new loan with new terms and a new interest rate. Here are some pros and cons of refinancing those loans.
Pros of Student Loan Refinancing
There are plenty of advantages to refinancing your student loans. First, refinancing allows you to combine all of your student loans into one new loan, ideally making repayment less of a hassle. If this appeals to you—and if you have both federal and private loans—you may want to make sure that the lender you choose will combine those two types (federal and private) into one loan.
SoFi student loan refinancing allows borrowers to combine federal and private loans. If you only have federal loans, refinancing with SoFi is absolutely still an option. But you could also consider consolidating your federal loans with a Direct Consolidation Loan because when you refinance with a private lender, you’ll lose access to federal loan repayment benefits.
But when you consolidate federal loans with a Direct Consolidation Loan , you’ll still be able to take advantage of federal loan repayment benefits you qualify for, like deferment, income-driven repayment plans, and Public Service Loan Forgiveness (PSLF).
However, when you consolidate your federal loans, your new interest rate will be the weighted average of your combined loans rounded to the nearest eighth of a percent—so you could end up paying slightly more in interest than you were initially.
Another potential benefit of refinancing student loans with a private lender is that you may qualify for a better interest rate if your financial profile has improved since you took out your original loan(s). You can use handy tools like our student loan refinancing calculator to get an idea of how much you could potentially save on interest if you opt to refinance.
You may also be able to get a more favorable term. If, for example, you need a longer term to have payments fit comfortably into your budget, that’s typically an option. Or, if it’s more important to you that you get out of debt faster, making fewer interest payments overall, then you could potentially select a shorter term.
Here’s something else to consider. When you first got your loans, you might have needed a co-signer. Since then, you may have established stronger credit in your own name and would like to release your co-signer. In that case, you may be able to apply to refinance your student loans in just your name, thus removing your co-signer in the process.
Or, you may discover that, if you have someone with strong credit serve as your co-signer when you refinance, you may benefit from more ideal repayment terms.
Is refinancing right for everyone, though? No. Read on!
Cons of Refinancing Your Student Loans
If you refinance federal student loans (with or without private student loans included in the refinance), then you’d lose any federal repayment benefits you might have wanted to use. This includes any forgiveness programs, including those connected to income-driven repayment plans and deferment. So, we strongly urge you to investigate those federal programs first to see what’s best for your unique situation before deciding whether or not to refinance.
If you choose to go with a longer term when refinancing and pay according to that agreement, you’ll likely pay more in interest than if you chose a shorter term. However, extending your loan term may get you a lower monthly payment, thus making your monthly payments more manageable.
Some lenders charge origination fees when you refinance. If they do (SoFi doesn’t!), then you’ll need to factor this into your decision. You may also want to check to see if your lender will honor your grace periods.
Want to see if refinancing could be right for you? We’ve created a quick quiz that might help.
IMPORTANT: The projections or other information generated by this quiz regarding the likelihood of various outcomes are hypothetical in nature, do not reflect actual results, and are not guarantees of offers.
One More Thing to Consider
Let’s say you’ve just finished college and your six-month student loan grace period is coming to an end. You might take our quiz and realize that refinancing could help you get out of debt quicker, or make your loans more manageable. Alternately, you might decide that refinancing isn’t best for you right now, and that’s perfectly okay, too.
If the latter is true for you but you’re still curious about refinancing, you can always return to see if you pre-qualify for a better interest rate when your financial situation has changed. Once you’ve been out of college for a few years, increased your earnings, and established a longer credit history, you may find that you’re a better candidate for student loan refinancing.
External Websites: 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.
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SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF DECEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.