4 Steps to Help You Prepare for Refinancing Your Student Loans

We generally make money when you get a product (like a credit card or loan) through our platform, but we don’t let that cloud our editorial opinions. Learn more about how we keep this compensation from affecting our editorial views.

4 Steps to Help You Prepare for Refinancing Your Student Loans

Student loan refinancing can be an attractive option for borrowers who are managing multiple loans and high interest rates. Through refinancing, you can combine your loans into one monthly payment and potentially score a lower interest rate that could save you thousands of dollars.

Before jumping into refinancing, there are four key steps you should take to prepare.

1. Consider all of your repayment options.

Refinancing can make a lot of financial sense, but there are some serious consequences to consider as well.

Michael Lux, founder of student loan information website The Student Loan Sherpa says, "Because there's no way to undo or reverse (refinancing), it's critical that you understand all of the consequences before you refinance."

One thing to consider is that refinancing your federal loans strips away most federal student loan protections you may have under those loans, such as income-based repayment or loan forgiveness. Having access to income-based repayment and forgiveness can be useful if you're struggling to make payments on your student loans.

Federal student loans typically also come with more flexibility and longer repayment terms, with options like the Graduated Repayment Plan and the Extended Repayment Plan.

Under the Graduated Repayment Plan, you can make lower payments at first and those payments increase every two years. The Extended Repayment Plan allows borrowers with over $30,000 in FFEL Program or Direct loans to extend their repayment up to 25 years. Refinancing typically doesn't offer as much flexibility on the repayment period and the loan may have shorter terms, which may increase your monthly payment.

2. Check your eligibility among various lenders.

If you decide that student loan refinancing is a good fit, the next step is to check your eligibility among various lenders. Each lender is different, so you'll want to make sure that you qualify for the options you're considering.

For example, refinancing may not be available for borrowers in certain states. Earnest doesn't currently offer refinancing in a handful of states. As a result, you may want to check with various lenders to see if refinancing is available in your state. Some lenders, such as Darien Rowayton Bank, also only work with borrowers from certain schools or in certain fields of study.

In addition, lenders generally have different income and credit score requirements. Before going through the process of refinancing, it may be beneficial to go over the eligibility requirements and read the fine print. Typically, you can find the eligibility requirements on the lender's website or in the FAQ section.

3. Review your credit score and credit report.

One of the biggest ways lenders assess your creditworthiness is by looking at your credit score and credit report. Your credit score is a numeric representation of your creditworthiness, and typically ranges from 300 to 850. The higher your credit score, the better.

Your credit report is a comprehensive report that includes your credit inquiries (this typically occurs when you've applied for credit), your payment history and more.

Before you refinance, it may be a good idea to check your credit score and review your credit report to see if there are any errors. If you realize your credit score is low, you may want to spend time improving your credit score first to potentially qualify for lower interest rates and save money.

Student loan expert, Heather Jarvis says, "People with mediocre credit scores tend to be offered mediocre refinancing terms. Most private lenders look for credit scores above 650."

You can get your free credit score and reports at Credit Karma, and also get one free credit report from each of the major credit bureaus once a year at annualcreditreport.com.

4. Collect your paperwork.

Before you apply to refinance your student loans, you may want to gather certain paperwork that might be requested by your prospective lender. Assembling the following items of paperwork can help the process run smoothly:

  • Your most recent paystub.
  • Your most recent W-2 form.
  • Your current loan servicer's information, including name, address, phone number and email address.
  • Your current loan balances and interest rates.

Jarvis also advises "getting a clear inventory of your student loans by reviewing your credit report and loan records. Note your interest rates and whether the rates are fixed or variable."

Your prospective lender may require additional paperwork, but having these items ready is a good start.

Bottom Line

If you use these four steps to prepare and get your financial ducks in a row, you may be able to save yourself some time and money.

About the Author: Melanie Lockert is a freelance writer and editor currently living in Portland, Oregon. She is passionate about education, financial literacy and empowering people to take control of their finances. Her work has been featured on Rockstar Finance, GoGirl Finance, The Globe and Mail and more.

Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.

Advertiser Disclosure: We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

Comment on this Article

Write your comment:
Enter Your Comments