How to Refinance a Student Loan

Many students may have heard of refinancing student loans but aren't sure what it entails. If you are in this position, understanding what refinancing is can help you with the possibility of lowering your overall monthly expenses, a bonus if you're in a situation where money is tight, especially right after graduation before you secure a high-paying job. The best way to begin the process of refinancing a student loan is to use a student loan refinance calculator and then decide on a private lender. After settling on a lender and being accepted, you can start to see the results of refinancing that extend beyond lower monthly payments.

What Is Refinancing?

Refinancing a student loan refers to getting a new loan to replace your old one, usually with a better interest rate, reducing both your monthly payments and how much you end up paying overall. While refinancing is generally a good idea, there are some potential disadvantages to doing so that could hurt you under certain circumstances. For example, if you've received your student loans federally, you have certain protections, such as deferment or forbearance. Once you refinance, these protections are stripped away, making you completely liable for your monthly payments. Therefore, only if you are certain of your financial situation should you consider refinancing in the first place.

Refinancing a Student Loan

Firstly, use a student loan refinance calculator to figure out exactly how much you could save. You can find these calculators through lender sites themselves or general lending advice websites. Doing so will give you a good idea of whether to go ahead with the actual process of refinancing or not. Once you have a solid number in mind, it's time to start looking up the best private lenders to refinance with. The type of private lender you will go with will depend on what features you are looking for. For example, there are private lenders specifically for medical school, PLUS or MBA loans, to name a few. Some of the most-used lenders include Earnest, SoFi and PenFed.

Final Steps

After you have gathered together a few lenders, you will want to retrieve rate estimates and scope out the lender's eligibilities. You can get rate estimates in a variety of ways. Some lenders will show their rates directly on their websites, while others require a pre-application process. You can also read about what they need in terms of credit score requirements. Once you compare rates and decide on a lender, you'll need to complete the lender's application, providing identification, information on your current financial status and other essential details.

Making Payments

After you submit your application, you will either be sent an acceptance or a denied application, which should come with a reason for why you were rejected. Usually, rejections can be fixed by taking on a co-signer or improving your credit score. If accepted, you can start making repayments after 3 days, called the recession period. After that, continue making your payments every month to ensure you remain in financial good standing.