Refinancing your student loans is a big deal and can be a hard choice to make. There's plenty of companies out there that will refinance your student loans, so how do you pick which one to go with? When deciding whether or not to refinance, you want to get as much information as possible and make an informed decision. You also already have your loans with your current servicer and have to decide if it's worth leaving them.
Are you ok with losing federal benefits?
If you have federal loans, they come with added benefits that you will lose refinancing with someone else. You can check if you have any federal loans here. Create an account to see if you have federal loans and how much they are. If your loan isn't listed on there, it's probably private.
If you do have federal loans, you'll have to think about the benefits that you get from them. While your interest rate or payment may be lower if you refinance, you have great options with a federal loan. However, the interest rate is already pretty low compared to private student loans and refinancing may not benefit you.
Federal loans also give you other great options, such as income based repayment, where you pay a small percent of your income (or nothing in some cases). You also have the option of entering forbearance, where you don't need to make any payments for a few months. Be careful though, because this can cause interest to build so it should only be used as a last resort.
With subsidized loans, you'll also have access to interest-free deferment. If you choose to go back to school, or another approved reason, your payments will pause and no interest will build up. If you qualify for deferment, or will qualify soon, you should probably hold off on refinancing.
Will you be able to pay the loan back?
When refinancing, you have to think about if you will be able to pay the loan back on the schedule given. Losing the benefits means that you'll have to make your payments on time. You will have less flexibility with payments. It's also important that you're able to budget for the refinance and know how much you can put towards your loans each month.
While getting a lower interest rate is great, you should also make sure the payments are affordable. A longer term can help lower your monthly payments to be more affordable, although you would pay more overtime. Remember though, you can always make a payment higher than your monthly payment. You can never make a payment lower than your monthly payment.
Shop around to find the best option
Different lenders have different criteria, which means that some will be cheaper for you than others. It's worth shopping around and looking at multiple companies to see which will give you the best rate. Most companies will give you a risk-free quote before deciding to move on, so you can see which one is cheapest for you. You can also use a service like LendingTree to compare all of your refinance options.
Make sure you check if there's any prepayment penalties with your provider. Even though these aren't much of an issue these days, they could still come around. This could make refinancing come with an extra charge you weren't prepared for.
What about an Income Share Agreement?
Of course, if you're tired of loans altogether, then you could try refinancing with an income share agreement. Unlike a loan, and income share agreement doesn't have interest. In an income share agreement, you pay a small percent of your income over a period of time, so your payments are always affordable. Another benefit is that you don't have to make payments if your income is below $25,000 a year. Be warned, you can pay more than you would with a traditional loan, but there's also a payment cap that can prevent that from being too high.
If you're interested in refinancing your loans with an income share agreement, check out Defynance.
