How did you pay for college? If you’re like most people who attended university, you took out student loans each year. Some students even apply for a new, smaller loan each semester! Whatever the case, you’ve likely got a series of student loans on your credit report, each requiring a monthly payment.
If you want to know how to refinance your student loans, read on. Consolidating and refinancing can save you a lot of money, and can positively impact your credit.
Student Loans and Your Credit Score
The last time you checked your credit, you probably noticed your student loans hanging out there. The loans may have looked like a list of accounts by the same lender. In some cases, you may have seen more than one lender on your credit report.
Each student loan you take out is treated as an installment loan by creditors. The absolute easiest way to keep your credit report looking healthy is to make your student loan payments on time. However, that’s not always easy to do.
If you have, for instance, a loan for each semester you went to college, that’s as many as twelve separate loans you’re paying. You may not be able to pay much more than the interest on those loans.
We mentioned that in some cases you may have more than one lender. Perhaps you switched lenders halfway through your coursework, or you may have even taken out two separate loans during college – one for tuition and one for living expenses.
Having so many open accounts will not only hurt your credit score, it’ll also make repayment darn near impossible. So how do you fix it? You refinance!
How to Consolidate Student Loans
The easiest way to refinance your student loans is to consolidate them. Loan consolidation may mean a higher interest rate, depending on your credit score. However, accumulating interest on just one loan as opposed to a dozen will ultimately be much more manageable.
If you took out your student loans using one creditor, refinancing and consolidating can possibly be quite simple. In some cases, you’ll just need to call the creditor. Explain to the lender that you’re having trouble juggling all the loans, and ask them if they can work with you to consolidate loans.
Consolidation is exactly what it sounds like. Your lender will total the amount of your loans and combine them to create one big loan. Be sure you speak with your lender about what happens with your interest. Sometimes the lender will incorporate any unpaid interest into the principal of the loan. Other times you’ll be required to pay outstanding interest before your loans are combined.
Student loan consolidation is easy if you’ve always used the same lender. But if you’ve gone through multiple lenders, the process may be a bit more involved.
Refinancing Multiple Student Loans
To consolidate multiple student loans, you’ll have to do a little bit of shopping. A simple online search can bring back results of student loan refinancing programs, or you could visit your local credit union to explore available options.
In any case, you’ll need to have an income and a fairly decent credit score to refinance your student loans. Lenders are looking for you to have employment and good credit, just as you would need to have for a car loan or a mortgage.
The repayment terms of your consolidation may vary depending on the lender and on your credit. Most lenders will offer you a five, ten, fifteen or twenty year repayment option. Talk with your lender about how much the monthly payments will be, and determine what you can afford.
Consider the interest, too. A 20 year repayment program will have lower monthly payments, but you’ll ultimately pay more in interest. Fixed and variable interest rates are available through most lenders. A variable rate will usually be lower in the beginning but has the potential to become very high.
Feel free to shop around for your ideal lender. Credit unions often have the best rates, but SoFi and other organizations have gotten a good reputation for customer service and loan repayment options. Do your research, and choose the loan that works best for your lifestyle.
Alternatives to Student Loan Consolidation
If you’re genuinely having trouble paying down your student loan debt and you don’t qualify for refinancing, contact your lender. Student loan organizations have programs in place to assist you in times of financial hardship.
Loan deferment is one option graduates frequently take advantage of. A loan deferment means that, for a period of usually 12 months, you’re not expected to make any payments. As a matter of fact, if your loan is a Stafford loan, the government may even make your interest payments for you.
A forbearance on your student loans is another option. A forbearance has the same benefit of allowing you time to get your finances in order. However, during that period of time you’ll still be expected to pay the interest on your student loan. That can sometimes amount to hundreds of dollars each month.
Speak with your lender, and see what options are available. Student loans are very stressful to most graduates, but lenders have been notoriously helpful in formulating solutions for repayment. Remember that deferment and forbearance doesn’t consolidate your student loans. These programs simply delay your repayment.
How to Refinance Student Loans
By far, the simplest way to refinance your student loans is to simply make arrangements with your current lender. If your student loans are current, you can usually negotiate terms for repayment which are much easier to handle than making multiple student loan payments.
If your credit is fair to good, it could be in your best interest to shop around for a consolidation loan. Consolidation loans for people with good credit will ultimately mean you’ll pay much, much less on your loans than you would by juggling many student loan accounts.
If this guide helps you then make sure you check with some of the others we have on similar subjects, including Bankruptcy and Student Loans, How to Save Money in College, and How to Pay Off Student Loans Fast.