Refinancing student loans is something many recent graduates are considering. While the job market is better than it has been in years, students are still leaving college with astronomic amounts of debt compared to previous generations. If you aren’t making the money you planned when you set the initial terms of your loan, it may be tempting to look at changing those terms.
Or maybe you just want to switch from a variable rate loan to a fixed rate loan. Whatever the reason, refinancing can be a labyrinthine process. Here are some common questions you might find yourself asking should you begin the process.
The question of eligibility is usually the first on everyone’s mind. Refinancing sometimes means locking in a better interest rate or lowering your monthly payments. Obviously, the lender takes a risk and/or a financial hit in doing this, so not everyone will be afforded this opportunity. Typically you’ll need a high credit score (it’s unlikely anything much below 700 will do the trick) and a stable work history. These are usually not things that recent grads have to offer, so it’s probably not something you’ll be able to do until a few years after you finish school.
If you refinance a federal loan, you would most likely give up the opportunity to have an income-based plan or any future loan forgiveness. It’s important to consider the reality of those situations given that those advantages could come in very handy in the future. That said, if you have a high-interest federal loan, there’s a possibility you could find a new, private lender that would be able to lower it.
If you attended New York University with a mixture of federal and private debt (or simply a few different loans), you could consolidate those loans into one instead of refinancing. It may just be that simplifying your life to have one payment a month as opposed to many would be just as beneficial in the long run as refinancing. Plus, there’s a chance that you could refinance your way into a fixed rate loan out of a variable rate loan. Variable rate loans are subject to interest rate changes every month, so getting a fixed rate loan through consolidation could make it so you’re ultimately paying less.
If you’ve just graduated and are panicked about making your payments, refinancing your student loans shouldn’t be your first move. Yes, you can get a co-signer if you’re ineligible, but there are many steps you can take before making the big refinance leap. If you really want to find your way to a fixed rate loan, make sure interest rates are as low as they’re going to be for a while before you do that. That said, if you’re already planning on graduate work that wouldn’t be paid for by an employer (UAB offers an online MBA program), it might be a good time to refinance so you can immediately start saving for that prospect.