6 Tips to Remember When Refinancing Student Loans
Refinancing student loans initially may seem easy enough until you begin to dig into the details. What starts as a simple loan can suddenly feel like a pile of complicated paperwork and unending loose ends. If you decide that student loan refinancing is a good idea for you, get organized and make it easier to take control of your financial future with these tips to remember when refinancing student loans.
Tip #1. Find out what type of loan(s) you currently have outstanding. Student loans come in many forms including private and federal. Typically, federally guaranteed student loans are eligible for lower interest rates than private loans. Calculate the cost of consolidating all loans versus keeping private and federally funded loans separate.
Tip #2. Get your credit in great shape before applying to refinance or consolidate loans. Refinancing student loans is a lot like any other loan; the lenders will use your credit and payment history to determine rates and loan eligibility. Start several months in advance so you will be able to make corrections to your credit report in the event of errors or omissions. Having a solid credit score not only allows you to qualify for better rates but also reduces the fees associated with other monthly bills.
Tip #3. Watch the interest rates. Unlike mortgage or car loans, student loan rates on federal loans only change once each year – usually on July 1st. If you are interested in refinancing federal student loans and are unsure of whether not interest rates will remain low then lock-in prior to the rate change.
Tip #4. Verify requirements in advance. Take time to verify eligibility requirements prior to making a final decision. Each lender has different standards and requirements that must be met in order to qualify; for example, minimum student loan refinance amounts or "out of school" status.
Tip #5. Understand rights and responsibilities prior to taking on a new loan. Be sure you fully understand the rights and responsibilities associated with taking out a new loan prior to signing any papers. Remember, you can reduce student loan repayment terms by lowering the interest rate, extending the repayment period or both. Review all of your options in advance before making a final decision.
Tip #6. Compare discounts and other incentive programs. Many student loan consolidation programs allow considerable discounts for early payment, the establishment of a direct or automatic draft payment plan and on-time payments. Combined, these incentives and discounts can reduce rates by 1 full percent or even more when refinancing student loans.