Who Should Look Into Refinancing Student Loans?<\/h2>\n
The first place to start is to figure out if you should refinance your student loans at all.<\/a><\/p>\n There are three scenarios you need to evaluate.\u00a0 Answering these questions can make your decision really easy:<\/p>\n If you have private student loans, the decision is easy. You will look into refinancing and most likely do it.<\/p>\n If you are pursuing Federal student loan forgiveness then stop reading.\u00a0 You do not want to refinance because you will lose the loan forgiveness benefit. \u00a0This applies to public service loan forgiveness<\/a> and income-driven repayment plan forgiveness.<\/a><\/p>\n \u00a0<\/p>\n Refinancing in general (this includes any type of refinancing such as home, auto, and credit card consolidation) means that you are replacing one loan with a brand new loan at a new company.\u00a0 This means you will have a brand new rate and term (term means length, i.e. how many years).<\/p>\n This is especially important to understand if you are thinking of refinancing your Federal student loans.\u00a0 Federal student loans have a handful of benefits that private student loans do not include.<\/p>\n For example, you can change your Federal student loan repayment plan whenever you\u2019d like to. Once you refinance your student loans, the only way to change it is to refinance again.<\/p>\n This is important because of \u201cworst case scenarios\u201d. Let\u2019s say something happened to you and your credit score<\/a> falls below 650.\u00a0 You would not be able to refinance again. If you kept your Federal student loans it would be easier to request deferment, forbearance, or enter and Income-Driven repayment plan.<\/p>\n Here is an article that specifically discusses the pros and cons of refinancing Federal student loans <\/a>if you’d like to read more.<\/p>\n This is a question we constantly receive from new graduates.<\/p>\n New grads are confused because they are comparing their old rate to the new rate after they refinance their student loans.\u00a0 They are thinking \u201cWhy would someone accept less money from me?\u201d<\/p>\n However, you have to look at it from the student loan refinance companies\u2019 point of view. They are investors and have a huge pool of money.\u00a0 This money is sitting there not earning any interest.<\/p>\n The refinance company looks at risk and how much they are rewarded for taking that risk.\u00a0 The reward for risk is the interest rate they charge you.<\/p>\n Therefore, the student loan refinance company has one of two choices: 1) Don\u2019t give you the money and have it sit there earning nothing. \u00a02) Invest in you by refinancing your old loans and collect interest.<\/p>\n Thus, student loan refinance companies do not care what your old rate is\u2026.they aren\u2019t collecting the money you pay on the loan you currently have.<\/p>\n This concept of why a refinance company would give you money is important to understand.\u00a0 It will help you realize what their incentives are.<\/p>\n As we discussed above, student loan refinancing is replacing one loan with a brand new loan. Student loan consolidation is simply combining two or more loans into one loan.\u00a0 I\u2019m not going to go into a lot of detail about consolidation because we do so here: Student Loan Consolidation – 4 Things To Know.<\/a><\/p>\n You can also check out this video to learn the differences between refinancing and consolidation.<\/a><\/p>\n However, there are two points I need to make.<\/p>\n First, when we refinance student loans, sometimes we also consolidate them. For example, we might take multiple student loans, refinance them, and consolidate them into one new loan.<\/p>\n Second, if you are paying off your loans and you decide not to refinance your Federal loans, DO NOT CONSOLIDATE THEM<\/u><\/strong>. To find out why, make sure to read the Student Loan Consolidation article<\/a> mentioned above.<\/p>\n Now that you have a high-level understanding of refinancing, its time to make four decisions. We detail each of these decisions below.<\/p>\n When you refinance your student loans, you have to decide the term you want to use. The term simply means how long you have to repay it if you only make the minimum monthly required payment.\u00a0 It sounds simple but choosing the wrong term is one of the top 3 mistakes we see borrowers make when refinancing.<\/a><\/p>\n There are two important concepts you must understand when choosing the term:<\/p>\n This is important to understand because the shorter term loan (i.e. a 5-year loan vs a 20-year loan) has a much lower interest rate. However, refinancing student loans is more than just savings.\u00a0 You have to look at how it impacts your budget as well and factor in items such as cost of living<\/a>.<\/p>\n One last important point to make.\u00a0 All the student loan refinance companies we partner<\/a> with have zero prepayment penalty. This means you can go into a longer-term loan and make payments greater than the required monthly payment.<\/p>\n There are three types of student loans that refinance companies offer:<\/p>\n Fixed rate loans have the same interest rate for the entire term of the loan.\u00a0 If you are trying to keep your student loan plan simple then I highly suggest sticking to fixed-rate loans.<\/p>\n Variable rate loans have interest rates that can change monthly. Sounds awful, right? So why are people enticed to use these loans?<\/p>\n Variable rate loans have lower starting interest rates than fixed-rate loans and depending on your strategy can be useful. When to use variable rate loans is a complex topic so we created this Variable Student Loan Refinance Video Guide<\/a> for those that are interested in learning more.<\/p>\n Specialty loans are infrequently used so we won\u2019t go into too much detail in this guide. However, for your reference, they have special features.<\/p>\n For example, one of FitBUX\u2019s lending partners offers an interest only loan whereby you pay only interest on the loan for a given period of time.<\/p>\n Another one of our lending partners offers a Hybrid loan. This loan has a fixed rate for the first five years then has a variable rate thereafter.<\/p>\n In short, if you are trying to save money and keep it simple, stick to fixed-rate loans and move on to the next decision.<\/p>\n When one of our FitBUX Members<\/a> is refinancing we always ask if they\u2019ve checked rates already. One answer we often time receive is, \u201cYes.\u00a0 However, I didn\u2019t refinance because they offered me a rate in the 5% range and I have loans that are 3% and 4%.\u201d<\/p>\n Guess what? You don\u2019t have to refinance all your Federal loans.\u00a0 If some of your Federal loans are in the 3% or 4% range and the new refinance offer is at 5%….don\u2019t refinance them.<\/p>\n To do so, you’ll most likely need to get a document called the Payoff Statement. The problem is that your current loan servicers don\u2019t always make this easy for you to get.<\/p>\n We are constantly getting on the phone with Members of FitBUX and calling loan servicers to get this information. Approximately 80% of the time we have to get a manager on the phone to get it.<\/p>\n Sometimes it’s worse. Fed Loans won\u2019t give you one but don\u2019t worry. There are workarounds for this problem.\u00a0 Let your FitBUX Expert<\/a> know if you are struggling to get the payoff statement. We\u2019ll jump on a call to help you as part of our \u00a0student loan refinance service.<\/a><\/p>\n In this guide, I want to concentrate on items you need to know about. These items influence who will give you a loan, what rate they will give you, and if you should refinance your student loans or not. The following is a list with details of each item.<\/p>\n (Note: Companies publicize some of this data but not all of it.\u00a0 They do not publish it because they consider it proprietary.\u00a0 <\/em><\/p>\n We\u2019ve helped so many new grads refinance that we have a good feel of who will give you the best loan based on your circumstances.\u00a0 Our lending partners do not have a problem with our Finance Experts advising people based on what we\u2019ve found.\u00a0 However, they have asked us not<\/u><\/strong> to put together a guide detailing our observations and we\u2019ve signed agreements forbidding it. This is why we do not name specific companies and examples in the Refinance Student Loan Guide or our student loan refinance company reviews<\/a>.)<\/em><\/p>\n This is extremely important. Often times we hear from FitBUX Members that work in health care.\u00a0 They tell us about a co-worker who referred them to a certain lender, they checked rates and it was horrible.<\/p>\n For example, MDs will get really good rates at 3 of our lending partners. The physical therapist<\/a> they work with can go to the same lender and have the same qualifying figures (i.e. the same credit score and same debt-to-income ratio) and they don\u2019t get anywhere near the same rate.<\/p>\n This is the number one reason why we hear people say they didn\u2019t refinance. That is, they heard from a co-worker that they should check XYZ company so they did. It was such a bad rate they figured all the companies would be the same.\u00a0 Therefore, they decided not to refinance their student loans. Thus, costing themselves money in the long run.<\/p>\n This is important because newer companies look at different items to qualify you than \u201carchaic\u201d companies (FYI: we use the term archaic to describe companies who use traditional industry metrics when qualifying you for a loan. They tend to be banks and credit unions).<\/p>\n The companies that use these archaic qualifications are typically better for borrowers that have been out of school for more than a year and a half.\u00a0 This is the case because you have payment history (i.e. you\u2019ve already started making payments on your loans).<\/p>\n Newer companies have developed underwriting criteria that are geared towards new grads.\u00a0 Those companies will give you better rates and should be the ones you focus on if you recently graduated and are refinancing student loans.<\/p>\n Are you salaried, hourly with fluctuating hours, are you self-employed, or have specialty type of income?\u00a0 This can make a major difference in getting a loan.<\/p>\n Salary is the easiest for lenders to predict. If you are a salaried employee then you don\u2019t have much to think about.<\/p>\n When you are self-employed or you are an independent contractor you will have to show two years of tax returns to qualify.\u00a0 The only way around that is to have a co-signer. However, there are exceptions to this.<\/p>\n For example, if you are a 1099 employee<\/a> (a.k.a. an independent contractor), lenders require two years of tax returns. One company we work with doesn’t need two years as long as you work in health care!<\/p>\n If you are paid hourly, it is extremely important that you submit pay stubs from weeks that you worked \u201cfull-time\u201d.\u00a0 Do not submit pay stubs from a week where you only work 10 to 20 hours.<\/p>\n If you have a specialty type of income, it can be extremely hard for you to refinance. For example, travel health care workers earn about 50% of their income from a tax-free stipend. This is not considered income by lenders which makes it extremely difficult to qualify.<\/p>\n We\u2019ve convinced two out of our ten lending partners to consider stipends as income for our Members. However, they are so strict on this that if you were to apply on your own they will most likely deny your application!<\/p>\n Your credit score is important for two reasons:<\/p>\n On top of it all, let\u2019s say you have a 752 credit score. Company A might give you a better rate on a 10-year loan and Company B might give you a better rate on a 15-year loan.<\/p>\n Sound confusing? It is and the only thing I want you to take away from this is knowing your credit score will help determine which student loan refinance lenders to look at.\u00a0 If you want to check your credit score, I recommend opening a free account at Credit Karma.<\/a><\/p>\n Want to learn a way to get a higher credit score? Check out this article<\/a> for a trick I’ve used since college.<\/p>\n Also, if you have outstanding credit card debt it may be weighing your credit score down.\u00a0 Therefore, you may want to consolidate your credit cards into a personal loan<\/a>.\u00a0 We’ve seen a number of people do this and their credit score goes up. However, you must be careful because doing so will affect your debt-to-income ratio which I discuss below.<\/p>\n This is important for two reasons\u2026First, if you do not qualify on your own, a co-signer may help you qualify. Second, even if you do qualify it may help lower the rate and save you more money.<\/p>\n There are two important topics you need to know about co-signers:<\/p>\n Here is an article that goes into more detail about adding a co-signer on a student loan refinance<\/a>.<\/p>\n This is important for debt-to-income ratios.\u00a0 Some student loan refinance companies do not look at housing expense.\u00a0 Others will ask you how much your rent is but won\u2019t verify it.<\/p>\n If you own a house, you don\u2019t have to worry about that debt with the lenders that do not look at this expense. However, others are going to factor it into their debt-to-income calculations. If you are trying to buy a house but are having a hard time qualify because of your student loans, then check out this article on how to lower your DTI ratio to qualify for a home loan<\/a>.<\/p>\n Most student loan refinance companies have a maximum debt-to-income ratio of 30%.\u00a0 Two of FitBUX\u2019s lending partners<\/a> will go up to a 40% maximum.<\/p>\n This is important to calculate before you begin refinancing your student loans.\u00a0 If you are right up against those numbers you may want to manipulate the ratio so you can qualify.\u00a0 Manipulating this ratio is highly complex and may not work for everyone so I\u2019m not going to go into it in this guide.\u00a0\u00a0<\/p>\n This is especially important if you have both Federal and private loans and you are only looking at refinancing your private student loans. Some student loan refinance companies will not use your minimum payment from your income-based repayment plan to calculate your debt-to-income ratio.<\/p>\n Instead, they use what your payment would be on a standard 10-year loan or a percentage of your overall loan balance.<\/p>\n This is important because those calculations may disqualify you from refinancing.<\/p>\n Student loan refinance companies exclude many of these schools from their \u201celigible\u201d list.<\/p>\n For example, if you received a Graduate Degree from the University of St. Augustine for Health Sciences<\/a> you may not be able to use it on your application. You\u2019d have to use your undergrad school to qualify which means you will receive a higher rate.<\/p>\n When we surf the internet trying to find answers for refinancing student loans we are faced with two major problems:<\/p>\n To understand these calculations, be sure to check out our article titled the 3 Mistakes People Make While Student Loan Refinancing.<\/a><\/p>\n Once you sign on the dotted line to complete your student loan refinance, you have a few more housekeeping items on your checklist.<\/p>\n You will want to log into your old loan servicer and make sure your loans have a zero dollar balance, i.e. you don\u2019t owe anything. Sometimes, the loan servicer miscalculates how much is owed and its common that you will still owe a few dollars to completely pay off the loan. Make sure you pay it. If you don\u2019t you will be in default.<\/p>\n If you are only refinancing some of your loans, then this step is crucial. Federal loan servicers do not always apply the refinance money to the correct loans.\u00a0 You want to make sure the high-interest rate loans you wanted to refinance were paid off.<\/p>\n You also want to make sure the balances are zero and the loan servicer didn\u2019t classify the payments as \u201cPaid Ahead\u201d. Paid Ahead status saves you no money in the long run.<\/p>\n This applies to those that are only refinancing some of their loans.<\/p>\n After you refinance your loans, they should have zero dollars owed on them. This means the required payment for those loans should be $0. Thus, your overall required payment at your old loan servicer should drop.\u00a0 This is extremely important, especially if you have Great Lakes.<\/p>\n After you refinance, if your situation changes you can always refinance again. This could be beneficial if interest rates go down, you get married and can afford a higher monthly payment, etc\u2026<\/p>\n So, the first steps in student loan refinancing is understanding what it is.\u00a0 Then you must do your homework as to which student loan refinance company will be best for you.\u00a0 Last, you\u2019ll want to make sure your old loan servicer does what they should do when they receive the refinance money from your new lender.\u00a0<\/p>\n Article Written by: Joseph Reinke, CFA<\/a>, Founder of FitBUX<\/a><\/em><\/p>\n \u00a0<\/p>\n","protected":false},"excerpt":{"rendered":" Refinancing student loans is always a hot topic.\u00a0 We\u2019ve helped over 30,000 new grads that have more than $2.6 billion in student loans explore refinancing. Since we get no education on money growing up, most are extremely confused about student loan refinancing.\u00a0 Therefore I developed this extensive guide. As a side note before we dive […]<\/p>\n","protected":false},"author":1,"featured_media":11020,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[184],"tags":[160,1915,126,147,121,9],"class_list":["post-10999","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-student-loan-refinance","tag-fitbux-student-loan-help","tag-guide","tag-student-loan-consolidation","tag-student-loan-refinance","tag-student-loan-repayment","tag-student-loans","post-wrapper","thrv_wrapper"],"yoast_head":"\n\n
![\"Student](\"https:\/\/d3qfjk3vrhi5n0.cloudfront.net\/articles\/wp-content\/uploads\/2019\/02\/Refinance-Student-Loan-Decision-Tree-2-300x245.png\")
<\/p>\nWhat Exactly Is Student Loan Refinancing?<\/h2>\n
Why Would A Lender Give Me A Lower Interest Rate?<\/h2>\n
Refinancing Vs. Consolidation<\/h2>\n
The Four Student Loan Refinance Decisions<\/h2>\n
Decision #1: What Term Do I Use?<\/h3>\n
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Decision #2: What Type Of Loan Do I Use?<\/h3>\n
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Decision #3: Which Loans Do You Want To Refinance?<\/h3>\n
Decision #4: Choosing The Right Student Loan Refinance Company<\/h3>\n
Profession<\/h3>\n
When Did You Graduate<\/h3>\n
Type Of Income<\/h3>\n
Credit Score<\/h3>\n
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Do You Have A Co-Signer?<\/h3>\n
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How Do They Treat Your Housing Expense?<\/h3>\n
What Is Their Maximum Debt-To-Income Ratio?<\/h3>\n
Are Your Federal Loans On An Income-Based Repayment Plan?<\/h3>\n
Did You Go To A For-Profit School?<\/h3>\n
Calculating How Much Refinancing Student Loans Really Saves You<\/h2>\n
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3 To Do\u2019s After Your Student Loan Refinance Is Complete<\/h2>\n
1 – Make Sure Loans Are Paid Off<\/h3>\n
2 – Make Sure Your Old Loan Servicer Dropped Your Monthly Payment<\/h3>\n
3 – You Can Refinance More Than Once<\/h3>\n
Conclusion<\/h2>\n