Dealing with student debt can feel like…well…a lot. I’ve been there, I get it.

As much as we want to ignore it and pretend that it doesn’t exist, it can really keep you from living your best life. It did for me. I spent too long feeling stuck in a career that wasn’t right for me because I was trapped by my massive loan payments. When I got married to my debt-free husband, it weighed on our relationship.

I did a few things to get myself out of debt: I focused on spending money only on things I really cared about, I negotiated for raises and fair pay, and I refinanced my student loans.

I’m not an expert in refinancing, but I did a lot of research, I made a great decision, and I learned a lot from the process.

As with everything on this site, this isn’t personalized financial information. My goal with this guide is to arm you with the best information so you can make the most well-informed decision for you.

 

1. Refi-what?

Before we get into the nitty-gritty of whether refinancing is right for you and how to shop around for the best refinancing options, let’s pause to clear up a couple of words: consolidation and refinancing.

These words are often used interchangeably, but they’re not the same thing. At all. But when people talk about them they sometimes sound the same.

Consolidation:

Loan consolidation takes all of the federal student loans that you have and allows you pool them together into one loan. Rather than making multiple payments, you just need to make one. The drawback here is that your interest rate won’t go down – it might even go up ever so slightly. You often have to consolidate if you want to change your loan payment options, such as extending the loan term past 10 years or using income-based repayment options (where you pay a percentage of your income to your loan balance).

Refinancing:

With refinancing, you’ll ditch your current loan(s) for a new loan, usually from a new lender that, in theory, will have a lower interest rate. If you have both federal and private loans you can combine them with refinancing (though you may lose some federal benefits, which we’ll get to later). The goal of refinancing is to get you a better interest rate on your loan. That’s where its whole benefit lives.

 

2. How much does your interest rate really matter?

Let me put it simply: a lot.

I’ll use myself as an example. I had graduate school loans, which come with the worst interest rate. They were government loans, so my rates were between 6.8% and 7.9% (I had multiple levels of loans. That’s what happens when you need six figures of loan help to put yourself through grad school). Those rates are really high considering that at the time mortgage rates were around 3.5%.

But when I graduated I had the opportunity to refinance my loans into one loan with a rate of 5%. I got busy and decided not to refinance. I’d do it later.

Cut to 18 months later and daily reminders from my sweet husband to refinance. I get it, my debt was affecting him too. I didn’t really think that refinancing to 5% would make a huge difference, but I did it anyway. Here’s what happened:

My monthly payment on a 10-year repayment schedule dropped $180 a month (it went from roughly $1,450 to $1,270 a month). Each month that I didn’t refinance I was basically burning $180 (because I was paying that $180 in interest).

For the 18 months that I didn’t refinance, I ended up spending an extra $3,240 on interest payments. Ugh. That could have been an amazing vacation somewhere.

With my original loans, the total interest I would pay after 10 years would be $52,000

With the new loan, my total interest after 10 years would be $32,000.

That’s an immediate savings of $18,000.

If I refinanced but kept paying my original monthly payment of $1,450, I would have finished paying my loans 1.5 years faster.

I could go on, but I think you get it. The interest rate matters. A lot.

If you want to see how much you can save, there are a number of loan repayment calculators out there. This one is my favorite. Calculate how much you’re paying in interest using your current loan interest rate. Then calculate it again using a rate that you could get if you refinanced. It might be a little shocking.

 

3. What should you consider before refinancing?

Are you a good candidate?

You’ll need to apply and be approved to refinance a loan. The lender will look at a few things, including your income and your credit score. If you have a good income and a strong credit score (usually 700+), you’re likely a good candidate.

What will you be giving up?

Are there federal loan protections that you’ll be giving up if you refinance? For example, do you use an income-based repayment option that caps your monthly payment based on your income level?

Or are you a candidate for loan forgiveness? Check out the public service loan forgiveness program and the teacher loan forgiveness program. Don’t rush into refinancing if you’re going to be giving up a federal program that could forgive your loan balance.

How stable is your income?

Is your job less than stable? Federal loans offer deferment programs (where you can stop making loan payments in the case of illness or loss of job). Not all private loans offer that same protection.

Have you heard of any good companies to refinance with?

Often your best source of information will come from friends experiences. That’s how I ultimately decided to go with Sofi. I had a lot of friends who had great experiences with them and I wanted that experience too.

 

4. Things you should ask a lender before refinancing

Not all lenders are created equal. While there are a number of great companies you can refinance with, you want to be sure you’re working with a good one.

What happens if you’re laid off?

How long will they let you defer (not pay) your loan?

What if you go back to school?

Will they put your loans into deferment if you go back to school?

What if you become ill and can no longer make my payments?

Again, do they allow you to defer because of a serious illness? If so, for how long?

Do they offer fixed or variable rates?

Take a good look at their rates and think about whether you want one that is fixed for the life of the loan or one that adjusts when interest rates increase (or decrease).

Are there any prepayment fees?

If you want to pay off your loan early, you don’t want to be penalized for that.

Do they charge any loan origination fees?

Most don’t, but it’s a good idea to check.

How much will your monthly payment change?

Because, you know, refinancing is all about saving money.

How is their customer support?

You can likely tell this just from talking with them. Don’t put up with bad customer support. This is likely going to be a long-term relationship.

What other benefits do they offer?

For example, Sofi offers career counseling, member discounts, and meetups. Commonbond offers social impact through its partnership with Pencils of Promise. These extra benefits may not be what you base your refinance decision on, but it can help tip the scales to one lender or another.

 

5. What documents do you need to find before refinancing?

I told you it took me 18 months to refinance my loans. What I didn’t mention was I filled out the application months before I actually refinanced.

Why?

I was able to fill out the application based on memory (my pay, my loan balances, etc), but once I was conditionally approved they needed the documents to verify everything. I’m kind of a mess with documents. So I put this off until my conditional pre-approval ran out and I had to reapply all over again.

Don’t make my same messy mistake. Here’s a short list of what to have on hand when you apply:

  • Most recent pay stubs
  • Recent W-2 or prior year’s tax return
  • A listing of all current loans and their interest rates

 

6. Lenders you might consider

Take some time to shop around, compare lenders, and see what loan options you might qualify for. Many lenders have a pre-approval process so you can see what loan terms you may qualify for, without having it affect your credit (lenders will specify if they do a soft inquiry that will not affect your credit).

To get you started, here are some good options:

CommonBond

Founded in 2012, CommonBond offers a simple online refinancing process. They have competitive interest rates and you can see what rate you could qualify for before you actually apply. They have an in-house customer support team to answer any questions you may have. And they have a partnership with Pencils of Promise to fund a child’s education every time a loan is funded.

LendKey

LendKey isn’t just a lender, it’s also a connector; the company connects you with community banks and credit unions. You apply with a uniform application and LendKey shows you offers that you qualify for from banks and credit unions. Because LendKey partners with thousands of community banks and credit unions, you’ll see offers from banks that you wouldn’t otherwise have received. If you’re looking for an alternative to big banks, LendKey is a great option.

Sofi

Sofi is one of the largest student loan refinancers and stands out with its focus on other features, such as career counseling and wealth management support. I used Sofi to refinance my business school loans, so I’ll give you a quick review of my experience.

 

What I liked about Sofi:

Customer support: to be honest, Sofi was the only lender I looked at. I contacted them and was immediately impressed with the human touch – I didn’t wait on hold forever and when I emailed them I received really quick responses.

Speed: 10 minutes to fill out the application and less than a week to fund the loan. I couldn’t have been happier.

Savings: this helped to not only lower my monthly payments but incentivize me to pay it off faster.

Benefits: once you become a Sofi member, they have a lot of benefits that you can take advantage of. These include career coaching, unemployment protection, member discounts, community events, and a program to help entrepreneurs. I kind of bought into this club idea, which is impressive because they’re a lender. When was the last time you got this excited about a lender?

 

What I didn’t like about Sofi:

To be honest, not much. I’ve heard a few other people say that they can be a little selective, but I’m not sure how true this is anymore. When they started the rolled out their refinancing program to a select number of schools (fortunately, Duke was one of them). They no longer restrict eligibility based on school so I doubt they’re any more selective than any other refinancer.

They also had a scandal last year where their CEO was ousted by the board for sexual harassment allegations. I know that’s not a financial consideration, but it might be a consideration for you, nonetheless.

 

Would I use Sofi again?

We almost did. We looked at refinancing our house, and Sofi was our first pick for a lender. Not only did we get a preferential rate because I had paid off my loan with them (member discount perk), they also offered the best rate, lowest fees, and great customer service. I don’t exactly know why, but for some reason they just made me trust them more than any other financial institution I’ve used.

We ended up not refinancing our house, due to other financial considerations, but the next time I’m shopping around for a lender, they’ll be my first stop.

 

7. Now what?

If refinancing sounds like the right next step for you, reach out to some lenders to see if what loan refinancing options they will offer you.

And don’t let the party stop there. Refinancing is just the beginning. Get it paid off.

Once you’re done refinancing, or if you decide refinancing isn’t right for you, read this article for 3 of the tactics I used to pay off $120k in student loan debt in 3.5 years.

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