There are a lot of options when it comes to refinancing your student loan debt – and there are a lot of companies that want to help.
The hard part is knowing what you should look for when shopping for student loans. Should you even refinance your student loan?
We’ve put together a student loan refinancing tool that can help you make the decision, but let’s talk about how to compare student loan refinancing companies.
What Really Matters With Student Loan Refinancing
The first thing to think about is what really matters when it comes to refinancing your student loan debt? Should you do it? What factors should you consider?
For most borrowers, the key factors to consider are:
- Do you have Federal or private student loans?
- Can you currently afford your payments?
- Will you be taking advantage of any student loan forgiveness programs?
- Are you comfortable with variable rate student loans?
Federal vs. Private Student Loans
If you have Federal student loans, it doesn’t always make sense to refinance, and some lenders don’t even offer Federal student loan refinancing. However, if you have private student loans, it can make a lot of sense to refinance.
The reason has to do with the benefits and requirements of Federal versus private student loans. Federal student loans offer a lot of benefits, such as income-based repayment plans, student loan forgiveness, and typically don’t require a cosigner. All of that makes them worth keeping for many borrowers, even if the interest rate on a private loan is less.
Can You Afford Your Payments?
Typically, if you have Federal student loans and you can’t afford your payments, refinancing is not the best path. Instead, you should focus on switching to an income-based repayment plan.
However, if you can afford your monthly payments under the Standard 10-Year Repayment Plan, then refinancing your loan could make sense and save you money.
Will You Be Taking Advantage Of Student Loan Forgiveness Programs?
If you have Federal loans and you plan on taking advantage of student loan forgiveness programs, then you must keep your Federal loans. The government will only offer forgiveness for your Federal loans, not private student loans.
Are You Comfortable With Variable Rate Student Loans?
This can be a tough one for some borrowers – but to get the best student loan interest rate, you typically have to accept a variable rate student loan. Variable rate loans offer the lowest initial rates, and in many circumstances, will not exceed the total cost of a fixed rate student loan.
Only in a rare circumstance where interest rates rise dramatically early-on in your loan will it cost more to have a variable rate student loan. We’ve also put together a variable rate student loan calculator that can highlight those costs and changes in the loan.
How To Compare Student Loan Refinancing Companies
Now that you know what to look for when refinancing your student loan, what should you look for in student loan refinancing companies?
There are a few key things that you should compare across all lenders:
- The Interest Rate or APR
- Variable or Fixed Rate Loan
- Repayment Term or Length
- Do You Need a Cosigner?
The Interest Rate
You should typically go with the lender that offers the lowest interest rate on the loan. However, not all lenders automatically advertise their lowest rate. Some lenders may offer a 1.9% loan and offer no incentives or rebates to the borrower. Another lender may have a base rate at 2.00%, but offer a 0.25% rebate if you sign up for automatic payments. That would make your actual interest 1.75%, which is lower than the first lender.
As a borrower, make sure that you’re looking at what each lender is offering.
Variable or Fixed Rate Student Loan
You’ll always get a lower initial interest rate with a variable rate student loan. However, with a variable rate loan, your interest could rise over time (and it likely will). The question you have to ask yourself is will it rise and ever be greater than the current fixed rate loans? In many scenarios it won’t, but there are scenarios where it could.
When comparing lenders, make sure you’re looking at fixed versus variable rate loans.
The repayment term is the length of time you have to pay the loan. When comparing lenders, you’ll quickly see that they all offer different terms – which could make some lender’s monthly payments look lower than others. Make sure if one lender offers a 15 year repayment, you’re only comparing it against other lenders at 15 years.
Do You Need A Cosigner?
Whether you need a cosigner for your student loans or not depends on a lot of factors, but some lenders may require it. If you don’t have excellent great and a few years work experience, you may want a cosigner to help you get the best rate and terms for you loan. Otherwise you may not get the best rates.
However, make sure you’re comparing lenders that are either requiring one or not, to make sure you’re getting consistent rates.
Using A Tool That Can Help Compare Student Loan Lenders
Check out this tool below that we’ve put together that will compare the top lenders for you and show you where you can get the best rates, as well as other borrower perks.
Check out Credible Student Loan Comparison. You can see what your student loan refinance rate and fees could be in as little as two minutes. We love this tool because it’s the easiest way to compare multiple student loan lenders in minutes. As a bonus, College Investor readers get a $200 bonus when they refinance with Credible.
Check it out for yourself (it’s free):
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.