Are you considering consolidating or refinancing your student loans? Student loan refinancing and consolidation is a very competitive marketplace, so getting to know how a company may be able to help you with your student debt and how to shop around can have a positive impact on your bottom line.

To be clear, in this article we are talking about consolidating and refinancing with a private lender – not the federal government (which offers a program that allows borrowers to consolidate multiple federal student loans into one new one).

When you refinance multiple federal and/or private student loans you typically also have the option to consolidate them into one new private loan with only one monthly payment. Aside from making your loans more manageable, when you refinance, you also may receive better terms on your loans including lower interest rates and a repayment term that better fits your financial situation.

Find Out What You Want in Refinancing & Consolidation

Before you speak with any lender, put pen to paper and clarify why you want to consolidate and refinance. Everyone’s financing situation is unique, and therefore their reasons to refinance may be entirely different.

What are your goals for consolidation? Are you simply struggling to manage multiple debt payments each month and want to lower your monthly payment? Do you currently have student loans with high interest rates and want to save? Or, maybe you want to refinance your student loans to shorten the term length to pay off your loans faster.

Ask yourself the following questions to help clarify why you are seeking refinancing:

Would you like to pay off your debt over a shorter term? Can you make higher monthly payments in order to shorten your term?

Would you like to reduce monthly payments, even if this usually means extending the original term of the loan to upwards of 30 years and increase the overall cost?

Would you like to make one lump payment every month instead of multiple and often confusing payments?

Would you like to remove the cosigner from the loan?

Student Loan Refinancing & Consolidation Factors to Consider

Getting a better idea of why you want to refinance is only the first step, the second is to get a better grasp of the language used by lenders. Knowing the terms means you can ask for what you want.

Interest Rates

Do you know what type of interest your student loans currently have and what the refinance lenders offer? There are pros and cons to both types: fixed and variable.

Fixed rates typically start off slightly higher than variable rates but will stay the same until the end of your repayment term. Most federal student loans have fixed interest rates and some private student loans.

Variable rates, on the other hand, are set based on the market and will fluctuate over the life of your loan. Of new student loans, typically only private lender offer variable rates.

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When you refinance, you will usually have the choice between a variable and a fixed interest rate. If you choose a variable interest rate, you will have a lower rate to start, but it may end up increasing to be higher than what the fixed rate would have been.

Repayment Terms

Repayment terms describe the length of your loan repayment period. Shorter repayment terms usually mean you will have higher monthly payments but will pay less interest over the life of the loan while longer terms come with lower monthly payments but a higher loan cost. Refinance lenders normally offer term lengths anywhere from 5 – 20 years.

Financial Hardship Options

Not all private student loan refinance lenders offer financial hardship options yet these can be very helpful if you have a financial crisis in the future. Discuss with the lender what options they offer (forbearance or deferment, for example) to explore what might happen if you run into trouble making payments in the future.

Federal student loans typically have many more protections then private student loans (which you will have if you refinance) so be sure to consider what you are giving up before moving forward with refinancing.

Eligibility Requirements

Every lender will have different eligibility requirements, with some being stricter than others. Most lenders look at credit score and income as a starting point.

How to Find the Best Student Loan Refinance & Consolidation Rates

If you haven’t already noticed, the market is flooded with student loan refinancing options, often making it hard to figure out which is the best for you. To help clear up this confusion, we have created a guide that reviews and compares the top student loan refinance lenders on the market, giving clear refinance rate comparisons, terms, eligibility requirements, and other important information.

If you think you have found a lender that suits your needs, you can go ahead and apply on its website. Most lenders will first do a soft credit pull (that doesn’t affect your credit) to see if you are likely to be eligible. After this, you will likely be shown some estimates of the rates you will receive based on different term lengths. If you decide to move forward, the lender will likely perform a hard credit pull (that will slightly reduce your credit score) to determine if you are actually eligible and to figure out what your interest rate should be.

Conclusion

Student loan refinancing and consolidation can seem confusing at first, but it really isn’t too complicated once you get the basics down. Be sure to compare student loan consolidation rates, as well as any refinance rates you may be considering.