Joseph Reinke, CFA
I hope you enjoy reading this blog post.

If you want our team + technology to help with your finances, click here.

Joseph Reinke, CFA
I hope you enjoy reading this blog post

If you want our team + technology to help with your finances, click here.

Student Loan Refinancing: 8 Myths Debunked

  • FitBUX
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  • Student Loan Refinancing: 8 Myths Debunked

We often get questions about student loan refinancing in our student loan webinars or from FitBUX members who use our free student loan refinance solution.  It is easy to tell how confused students and new grads are on the subject. This article goes deeper and debunks 8 myths we often hear about.  If you want a guide that walks you through refinancing start to finish, check out our ultimate student loan refinance guide.

Below are the 8 myths:

  1. I Have To Refinance All My Loans
  2. I Can Only Refinance One Time
  3. It Costs Money To Refinance
  4. I Should Wait Until My Credit Score Goes Up Before I Refinance
  5. I Got Denied By A Lender And All Lenders Are The Same
  6. If I Use A Co-Signor, They Are Liable For The Entire Life Of The Loan
  7. I Can’t Make Prepayments
  8. I Can’t Refinance Because I Can’t Afford To Pay Two Lenders
  9. Not A Myth But Very Relevant

Note: It is important to make sure student loan refinancing is right for you. We highly recommend scheduling a free call with a FitBUX Coach to discuss what makes sense for your situation.  Also, if you are pursuing loan forgiveness or PSLF, you do not want to refinance so stop reading!

Myth #1: I Have to Refinance All My Loans

This is the largest myth we see. Unfortunately, it costs borrowers thousands of dollars.

The confusion stems from a misunderstanding that student loan refinancing is an “all or nothing” type of deal. This myth is simply not true. If you are getting an offer of 5%, then only refinance your loans above that rate.  Leave the loans with a current interest rate of less than 5% “as is”.

Refinancing only specific loans may require additional steps with your loan servicer, but it will be well worth it when it’s all said and done.  This can be a pain but that is why we help you through it with our free student loan refinance service.

Note: If you’re considering refinancing specific loans, you will have to gather the required information.  Make sure the right loans are refinanced!

FitBUX's Free Student Loan Refinance Service

Myth #2: I Can Only Refinance One Time

This actually applies to student loan refinancing and mortgages.  Rates have been dropping for the past 20 months. Unfortunately, many haven’t taken advantage of it because of this myth.

You may refinance as many times as you’d like.  In fact, there are often times strategic reasons to do so such as:

  1. Interest rates drop so you can save more money.
  2. You now have a deeper/longer credit history and a higher credit score. Therefore, you can get a lower interest rate, all else being equal.
  3. When refinancing, you may be able to reduce your required monthly payment.  This may not save you money.  However, it will provide you with a more flexible repayment plan since a larger portion of your payment would become voluntary. This makes it easier for you to qualify for a home loan.

One awesome thing to note… Student loan refinancing should be free so it makes since to refinance multiple times if it saves you more money!

Myth #3: It Costs Money To Refinance

The number one question we get asked at FitBUX is: “How much does student loan refinancing cost?”  This myth occurs because parents tell their children this… and it might have been true 20 years ago. However….

REFINANCING STUDENT LOANS IS FREE. Unlike most loans, such as mortgages, there are no fees associated with student loan refinancing.

There is one small caveat to this. If you refinance via a credit union, some of them may require you to become a Member of that credit union. A small percentage of them have a one-time membership fee of $20…this is still worth it of course because you can potentially save thousands by refinancing.

Student Loan Refinance Giveaway

Myth #4: I Should Wait Until My Credit Score Goes Up Before I Refinance

This is a horrible myth and I struggle to understand where it came from or what financial “guru” thought this up.  The simple answer is no do not wait. If you qualify to refinance your student loans now and it fits into your overall repayment strategy, DO IT NOW. Refinance today and if your credit score increases then refinance again in the future.

There are many reasons not to wait such as:

  1. Interest rates may increase causing refinancing rates to move up.
  2. Lenders may modify their approval methodologies at any given time. Thus, you may qualify today but may not tomorrow. The financial crisis of 2008/2009 is a perfect example of what could happen as was the beginning of COVID.
  3. Every day that goes by, you are paying extra interest. Thus, you are costing yourself money.

Myth #5: I Got Denied By A Lender And All Lenders Are The Same

I hear this myth everyday.  It occurs because people don’t know they have choices or they think all lenders are the same.

Just because you were denied by one lender does not mean you can’t get approved by another. Each student loan refinancing company has different criteria they use to see if you qualify.

Your FitBUX Coach will let you know which one of our lending partners would give you a loan and which would give you the best offer.  You can also check out the reviews of FitBUX’s top 10 student loan refinance companies.

Bottom line, not all lenders are created equal.

Myth #6: If I Use A Co-signer, They Are Liable For The Entire Life Of The Loan

Parents are the #2 culprit of spreading this myth.

First things first, a co-signer is liable for your loan. This means if you don’t make payments on your loans, they’re on the proverbial hook for said loans. For more info on using a co-signor check out this article.

The primary purpose of adding a co-signer is to either 1) qualify for a loan if you’re not able to qualify on your own or 2) to get a lower interest rate.

Some lenders have co-signer release policies. For instance, if you make payments for let’s say 12 months, you may be able to remove the co-signer and keep the same interest rate.

Different companies have different policies for student loan refinancing, i.e. some have a co-signor release after 1 year, some 3 years, and some don’t have one at all.  If you have questions about this or need help, be sure to check out our free student loan refinance service.

Myth #7: I Can’t Make Prepayments

Many think once they refinance the only payment they can make is the monthly required payment. Not true. If you are trying to pay off your loans as fast as possible, you can make prepayments and there is no penalty for doing so. Nothing changes.  

As a side note. This myth also happens for those that are in Federal loans, mortgages, car loans, credit cards, etc… People think they can’t make bigger payments, i.e. they believe they have to make the required payment and that is it.  Not true… you can make prepayments on any loan you have as long as it doesn’t have massive prepayment penalties.

Myth #8: I Can’t Refinance Because I Can’t Afford To Pay Two Lenders

When you refinance (partially or fully), your new lender pays off your previous loan. Thus, your required monthly payment is reduced at the old lender.

This myth occurs primarily because of Federal loans and when people only refinance some of their loans.  For example, let’s say you have 10 Federal loans and your monthly payment is $1,000.  You decide to refinance 5 of them and the new payment for the refinanced loan is $400.  You combined payment should not be $1,400.  The reason being is that your Federal monthly payment should drop also.

There are only two times your Federal loans wouldn’t drop.  The first is due to the lender making a mistake.  If that is the case, you just have to call them and tell them to drop the monthly payment.  The second is that you consolidated your Federal loans.  However, you may still be able to have them drop the required monthly payment.  Note: If you stay in your Federal student loans, 99% of the time you’ll not want to consolidate them.

Not A Myth But Very Relevant

This isn’t a myth but it costs people a lot of money so I wanted to point it out.  Many people go through the whole refinance and then stop when they get the truth and lending act document to sign.  This document shows an item that is call the finance charge.  People misinterpret this “charge” as a fee so they stop doing the loan because they think its going to cost them a lot of money.

This is absolutely false.  We have an entire article dedicated to explaining the finance charge on loans so be sure to check it out.  P.S. The finance charge applies to all types of loans.

Conclusion

There you have it. 8 major student loan refinancing myths debunked. If you are paying down your loans, make sure to look into student loan refinancing. See if it can help you save money.

If you’d like to read more articles about money, be sure to check out FitBUX’s blog.

Article by: Joseph Reinke, CFA, CEO of FitBUX


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