Thinking about refinancing your student loans? It’s a great way to simplify your monthly payments, reduce confusion in the repayment process, and even lower your interest rate. However, the process for refinancing can be confusing. If you’re wondering how to refinance student loans, we’ll outline what you can expect from the process below.
What is student loan refinancing?
Refinancing describes the process of combing your existing student loans into one by taking out a new loan. Essentially, you’re using this new loan to pay off your old ones, and obtaining a new one with only one monthly payment.
While the terms “refinancing” and “consolidation” are sometimes used interchangeably, there is a key difference between the two. Consolidation combines existing federal student loans into one through a Direct Consolidation Loan. Private student loans cannot be consolidated. (If you’re looking for more information on how to consolidate student loans, check out our article here.)
A main benefit to refinancing your student loans is the potential to get a lower interest rate, which can save thousands of dollars over the life of your loan. Plus, it gives you the opportunity to simplify repayment with one monthly payment instead of multiple.
Because refinancing involves comparing options through different lenders, the process can vary. In general, you’ll apply for a refinancing loan the same way you did for your original private student loans. You’ll want to shop around for different interest rates and compare terms to find the best option for you.
Before you apply, gather all of the information you’ll need. This usually includes:
- All federal and private student loan totals
- Each loan’s interest rate
- Each lender/loan servicer’s information for quick reference
- Recent pay statements
- Your credit score
You may also be able to select what type of repayment term you’re interested in. These will typically range from five to 20 years, so you can select a term that will work best with your budget.
Refinancing has a lot of benefits, and when done right, can save you a lot of money over the long run. There’s a lot to consider when refinancing your student loans, so make sure to do your research ahead of time to select a loan that’s right for you.