There’s no shortage of student loan borrowers who wish they had a time machine, and could go back in time to make better decisions on their college financing decisions – especially on their student loans.
Hyperbole? No, not when the data backs that sentiment up.
According to a recent survey by Citizens Bank, 73% of young Americans with student loan debt “wish they had done more to minimize the burden of their student loans” while “66% report that their student loans prevent them from saving as much as they’d like.”
Since time machines are the stuff of science fiction, student loan borrowers who feel like they’re falling behind have to deal with reality, and that may well mean having to refinance their student loans to keep their personal financial lives manageable.
That said, the need to refinance doesn’t always translate into a positive personal financial outcome.
According to a study by New America, only a “slight majority” of American households would gain a financial advantage by refinancing their student loans – about 52.8%, the study reports. The study does note that “the average interest rate across all student loans is 5.8 percent before refinancing, and drops to 4.2 percent if all eligible borrowers refinance.”
If you believe refinancing your student loan is still a good idea, then the way forward is having a good blueprint to get the job done right.
This is the third in a three-part series on refinancing student loan debt. This series takes a closer look at why and when refinancing a college loan is a good idea – and when it’s not. Keep in mind that refinancing federal student loans means a loss in many benefits that only federal loans offer. These include an option for potential loan forgiveness, income-driven repayment plans, generous deferment options if you become unemployed or have an economic hardship, and an option to discharge loans for death or disability.
This story walks you through the best steps to take in maximizing your student loan refinancing experience.
Your Path to a Successful Student Loan Refinancing Deal
Make no mistake, undertaking a student loan refinancing campaign requires your full attention.
There are abundant moving parts involved and plenty of research and due diligence required by you, the student loan borrower. Details matter. Start your journey with these actions steps – before you apply for a loan.
Get your credit in order
Lenders will expect student loan refinancing borrowers to have sterling credit – often with at least a credit score of 700 or higher. If your credit score isn’t there yet, take the time needed to vet your credit report. You can get a free copy of your credit report from all three major credit reporting agencies at annualcreditreport.com.
If you see any errors, mistakes or evidence that an account listed isn’t your own, contact the credit reporting agency straightaway and ask them to fix the problem.
Reach out to each of the three main credit reporting agencies to dispute problems with your credit reports.
Get your paperwork ready
When you’re dealing with the private sector, expect a more rigid and demanding student loan refinance approval process, than when dealing with the federal government.
That’s why it’s imperative that you get your paperwork ready, which you’ll need to include on your student loan refinancing application. Expect a private lender to ask for these items:
- Name, address, and contact information
- Two recent pay stubs
- Your most recent tax return
- University and type of degree
- Your total student loan debt
- Monthly rent or mortgage payment
- List of other major debts (like a car loan or a home equity loan)
Start looking for student loan refinancing options
Since the federal government isn’t in the business of refinancing private student loans, you’ll have to focus your search on private student loan refinancing lenders.
Start with your own bank or look for some decent private student loan lender options online.
Choose between a fixed rate and a variable interest rate loan
Usually, you’ll opt for a fixed-rate student loan when you refinance – fixed rates are stable, won’t change and you know what you’re paying in interest every month.
Variable interest rate student loans have recently offered generally favorable terms, as those rates are tied to the one-month or three-month LIBOR index, which is increasing off of historic lows.
Fill out your application cleanly and thoroughly
Chances are good that you’ll be able to fill out the loan application right on the lender’s web site, or even on its mobile app, in some cases.
When you get to that point, fill it out cleanly, accurately and fully. Expect a response in a day or so – the lender will run a credit check on your first.
It’s also worth noting that you can – and should – apply to more than one lender. Shopping around by applying for private student loans with multiple lenders will no longer ding your credit score, as long as you keep your loan applications confined to a short period of time.
If You’re Rejected for a Student Loan, Here’s What to Do
If you receive a letter or email rejecting your student loan refinancing application, keep a level head.
Chances are the rejection stemmed from a specific reason, like a weak credit score or a high debt-to-income ratio. Find out why the loan was rejected, spend a few weeks addressing and fixing the problem, and apply again in a month or two.
Or, if you can manage it, get a qualified cosigner with a strong credit score to back your loan. Ask your parent or guardian to cosign your loan. That way your loan will likely be approved, and as long as you make steady, on-time payments, your cosigner can eventually be dropped off the loan.
Now, Pay Off the Loan
Follow the steps listed above to refinance your student loan, and hopefully save some significant cash in the process.
Keep loans costs down by paying the debt down every month. Setting up automatic withdrawals every month from your bank account is a big help in that regard.
Do all that and you’ll have earned the best student loan refinance experience possible – on your terms and on your time table.