We often get questions about student loan refinancing in our student loan workshops or from FitBUX members who use our student loan refinance solution. It is easy to tell how confused students and new grads are on the subject. We dive deep in our Student Loan Refinance guide. However, this article goes deeper and debunks 8 myths we often hear about.
Below Are the 8 student loan refinancing myths:
- I Have To Refinance All My Loans
- I Can Only Refinance One Time
- It Costs Money To Refinance
- I Should Wait Until My Credit Score Goes Up Before I Refinance
- I Got Denied By A Lender And All Lenders Are The Same
- If I Use A Co-Signor, They Are Liable For The Entire Life Of The Loan
- I Can't Make Prepayments
- I Can't Refinance Because I Can't Afford To Pay Two Lenders
Note: It is important to make sure student loan refinancing is right for you. We highly recommend reaching out to your 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 when it comes to student loan refinancing. Unfortunately, it costs borrowers thousands of dollars.
The average person using FitBUX has 10 to 20 student loans. On our FitBUX Coaching calls, we ask each person if they've looked into student loan refinancing. The most popular response is, “Yes, but they offered me a 5.0% rate. I have loans at a lower interest rate than that so I didn’t refinance.”
The confusion stems from a misunderstanding that student loan refinancing is an “all or nothing” type of deal. Simply not true. Using our example above. If you have a few loans at 6.5% or 7.0%, then only refinance those loans. 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.
Myth #2: I Can Only Refinance One Time
Nope. This actually applies to student loan refinancing and mortgages. You may refinance as many times as you’d like. In fact, there are often times strategic reasons to do so such as:
- Interest rates drop so you can save more money.
- 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.
- 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 gives you more flexibility if you wanted to save for a down payment on a home for instance.
Myth #3: It Costs Money To Refinance
The number one question we get asked at FitBUX is: "How much does student loan refinancing cost?" 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.
Myth #4: I Should Wait Until My Credit Score Goes Up Before I Refinance
No. 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:
- Interest rates may increase causing refinancing rates to move up.
- 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.
- 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
Nope. 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 now which one of our lending partners would give you a loan and which would give you the best rate.
Myth #6: If I Use A Co-signer, They Are Liable For The Entire Life Of The Loan
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.
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.
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.
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.
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.