Mistakes to Avoid When Refinancing Student Loans

Mistakes to Avoid When Refinancing Student Loans

BIG Ideas:

  • When you refinance your student loans, you’re replacing federal student loans with private student loans.
  • Understand that private lenders may charge fees for refinancing, so read the fine print carefully.
  • Before you refinance federal student loans, make sure you don’t plan to take advantage of loan forgiveness and income-driven repayment.

Nobody likes owing money, especially when you bear the burden of expensive student loan debt. That debt can drain your budget, leave you sleepless, and keep you from reaching other goals in life like buying a home, getting married, or moving out of your childhood home. There is, however, a way to get some relief: with student loan refinancing.

Refinancing a student loan involves obtaining a new loan from a private lender to pay off other loans from the federal government or other lenders. It can be a smart move that could save you hundreds of dollars in interest on your loans and lower your monthly payments.

But for student loan refinancing to work for you, there are some things you should know – and mistakes you should avoid.

Let’s take a look at them:

Not shopping around. Unlike federal loans, rates, fees, and terms for private student loans vary significantly from lender to lender. So, if you’re planning on refinancing, shop around and compare rates and terms, which will impact your monthly payments. Private student lenders may also charge fees, so read the fine print.

Not determining what your new payment will be. Refinancing your student loans could save you money, but it’s important to understand how much money. To help with that, you can use our student loan refinance calculator.

Not knowing your credit. Unlike federal loans, which are based on need, private loans and the interest rate charged on them are based on your income and credit. So, before you decide to refinance, you’ll want to get pre-qualified with a private lender to see the interest rate for which you can qualify.

Not seeking a co-signer. If your credit and income won’t get you the best rate, consider getting a co-signer with good credit. Co-signing is a big responsibility, so make sure you know what’s involved and ask the right person.

Giving up federal loan benefits. Again, when you refinance your student loans, you’re replacing federal student loans with a private loan. That means you’ll no longer be eligible for certain benefits that come with federal student loans, such as income-driven repayment and forgiveness. So, before you sign on the dotted line to refinance with a private loan, make sure you won’t need these federal benefits.

Not knowing that you can refinance more than once. Interest rates are constantly changing. So, it’s likely that they could drop after you refinance. The good news is that there’s no limit to how many times you can refinance private student loans. That means if rates drop or your credit improves, you can refinance again. Just remember to check that the lender you choose doesn’t charge a fee for refinancing. At Brazos, we never charge a fee for refinancing a student loan.

To summarize, student loan refinancing can be a great way to reduce debt and free up room in your budget. Just do your homework and shop around to ensure you’re maximizing savings and not giving up federal loan benefits you may use.

Brazos Can Help You Save On Student Loan Refinancing

For more than 40 years, Brazos Higher Education has been helping make education more affordable for students. As a Texas non-profit, we offer great rates and no fees on refinance loans. Contact us to learn more.