Top Tips for Refinancing Student Loans

BIG Ideas:

• When you refinance, you consolidate your student loans into a single loan with a private lender.
• As you consider refinancing student loans, make sure you know the type of loans you have, how much you owe, your monthly payment, and interest rates.
• Refinancing student loans could help you lower your monthly payments, pay off your loan sooner, or lower your debt-to-income ratio to make it easier to qualify for other loans.

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Mission accomplished!

You wanted a college education and now you have it – a shiny degree and the key to a brighter career and future. But even though school may be behind you, the cost of your education has caught up with you as your loans enter repayment.

Whether you just graduated from college or have been out for a few years, refinancing student loans into one private loan could help you make your payments more manageable and help meet other financial goals.

But is a student loan refinance the right move for you? Read on for some helpful refinancing tips and info to help you decide.

1. Know what you owe. You likely got your loans early on in your college journey, so you may not be fully aware of the details of what you owe. Now is the time to educate yourself. Start by opening up your loan statements or logging on to the student loan website. Make sure you know these important details:
    
   Type of loan: Are your student loans with the federal government or private lenders like a bank, financial institution, or non-profit lender?
    
   Interest rate: As you inventory your loans, make sure you know the interest rates and whether they are fixed or variable. A variable rate means that your monthly payment could increase if rates rise.
    

   Amount you owe: For each loan, determine your outstanding balance and the monthly payment.
    

   Loan term: The term of your loan (the length of time you have to pay it back) will greatly impact your monthly payment. If you have a longer repayment term, your monthly payments will be lower, but you’ll pay more in interest over the life of the loan. Conversely, with a shorter term, your payments will be higher each month, but you’ll save on interest over the life of your loan.

 

2. Know when payments begin. If you’re nearing the end of school or just graduated, your loans may have a grace period before you have to start making payments. Make sure you understand when the grace period ends and when your payments are due.

 

3. Determine if your existing loans meet your needs. Depending on your financial situation or goals, you may want to refinance your student loans, which means consolidating them into one loan with a single lender. There are many good reasons to refinance a student loan, including:

 

• • Lowering your monthly payment. Your budget may not have enough room for you to comfortably afford your monthly payments. Refinancing to a longer-term loan could help you lower your payment each month. 

    But, buyer beware. Lengthening the term on your loan will result in paying more in interest over the life of the loan.

   

  • Paying off your loan sooner. On the other end of the spectrum, you may want to refinance to shorten your loan term. Do you have a goal in mind for when you want your student loans to be paid off? 

    Paying your loans over a shorter period will mean higher payments over the short term, but your loan will be paid off sooner, lowering the total interest you pay on your loans.

   

• • Reducing your debt-to-income ratio. If you know you need to borrow in the shorter term to buy a car or home and want to improve your chances of qualifying for a loan, you could refinance your loans to lower your monthly payment.

   

That would help to reduce your debt-to-income ratio so you qualify for a new mortgage or car loan. Think carefully before doing this. Make sure you carefully assess your needs before you load up on too much debt.

 

4. Understand the drawbacks of student loan refinancing. If you’re thinking about refinancing student loans, know the implications. For example, when you refinance a federal student loan, you’re replacing it with a private loan. So, you could potentially lose some of the benefits of government loans, including income-driven repayment and potential forgiveness of your loans.

 

4. Calculate the financial impact of student loan refinancing. Wondering what your monthly payments will be if you refinance? Use our helpful Refinance Calculator. Also, to learn more to help you decide if refinancing student loans is right for you, check out our Refinance Guide.

Brazos is here to help with your student loan payments

For more than 40 years, Brazos Higher Education has been helping make education more affordable for students and parents. As a non-profit, we can offer you low rates and personal service to help you save money and build the bright financial future you’ve earned with your degree. Contact us today!