Unlike one-size-fits-all federal loan consolidation, student loan refinancing comes in all shapes and sizes, due to the wide variety of private banks, credit unions and online lenders which offer it.
These lenders’ competition for your business has spurred on new ways to refinance — and new ways to benefit from it beyond the traditional perks of lowering your interest rate or adjusting your monthly payment.
Consider these five useful innovations that could make student loan refinance worth your while.
1. Accessible eligibility requirements
Along with putting your financials under the microscope, refinancing companies also require you to meet basic eligibility requirements. Many lenders, for example, require you to be a citizen holding a diploma.
But not all lenders demand this. Citizens Bank is an example of a refinancing lender that opens its doors wider than the competition:
- Noncitizens: Many lenders work with green card-holders, but Citizens Bank takes the step of also working with some foreign nationals who don’t have green cards — so long as they have a cosigner who has citizenship or permanent residency. In the future, you could see other lenders adopting this innovation, as CommonBond announced in August 2018 it would start lending to noncitizens who hold work visas.
- Non-graduates: Students who left college without a degree are eligible to refinance with Citizens after making 12 on-time payments toward their debt. EdVestinU goes further, allowing you to refinance while you’re still enrolled. “We just require that they make interest-only payments,” Rich Neilsen, EdvestinU’s education program manager, told Student Loan Hero.
If you don’t fit the traditional criteria for refinancing, you might find a lender with more accessible eligibility requirements. Just ensure they also offer the loan term, rate, and repayment protections you want.
2. Holistic underwriting practices
Although there are still industry standards around credit scores, online lenders typically have more creative underwriting than was what available when student loan refinancing in its infancy. Instead of checking boxes on a black-and-white form, online lenders offer more ways for you to gain approval.
One lender, Earnest, boasts that it considers thousands of data points to gauge your reliability as a prospective borrower. It reviews your bank accounts, for example, to determine whether you’re a good saver and have historically avoided late, overdraft and insufficient-funds fees.
Similarly, Earnest and other top-rated companies don’t require that you have a job or earn a certain income — only that your (or your cosigner’s) debt-to-income ratio is good enough to reasonably repay your refinanced loan.
That could make refinancing a more viable option if you’re a freelancer or are self-employed.
3. Hybrid loan rates
No, this isn’t an auto loan for fuel-efficient vehicles. Some student loan lenders have begun offering mortgage-like hybrid-rate loans since CommonBond pioneered the practice in 2015.
With a hybrid loan, you would typically receive the cost assurance of a fixed rate for the first portion of your repayment, followed by a riskier variable rate for the remainder. That makes hybrid loans attractive to borrowers who plan to prepay the loan before the variable rate activates. The variable rate could also remain affordable in a low-rate environment.
If you’ve debated between fixed and variable rates, a hybrid loan — with a low introductory rate — could be the perfect solution.
4. Flexible repayment options
If you’re looking to refinance student loans in order to lower your monthly payments, you might be intrigued by LendKey’s unique offering — interest-only payments for up to four years. Such an arrangement would lengthen your repayment (and make it more expensive), but it could be the right option for your finances, particularly if you’re early on in your career and expect to increase your income.
That’s just one example of lenders’ greater flexibility when it comes to repayment options.
Many refinancing companies have moved to feature loan terms of 5, 7, 10, 15 or 20 years, for example. More recently, however, Earnest began offering you the ability to choose any loan term between 5 and 20 years. For example, you might run the numbers using a student loan payment calculator and decide you’re best suited to repay your debt over six years, or eight years, or 13 years — the choice is yours.
If you value this sort of flexibility, you might be happy to learn that Earnest doesn’t stop there. The Navient-owned lender also allows you to choose your monthly payment due date and skip one payment each year, as long as you’re in good standing.
5. Job-loss protection
You might think you’d completely yield job-loss protection when you refinance federal student loans. After all, it’s generally only federal loans that come with up to three years of unemployment deferment, a period where you could push the pause button on your loan repayment.
But although private lenders haven’t come close to matching that offering, they’re meeting refinancing borrowers halfway. SoFi’s Unemployment Protection program, for example, offers its members up to 12 months of forbearance in three-month spans. It even includes career-coaching services to help you find your next position.
If your part- or full-time job serves as your primary source of income, but it’s on shaky ground, consider lenders with such job-loss protections.
And note too that the best student loan refinancing company for you might not always be the most innovative one. Sometimes your local, brick-and-mortar bank or credit union might be a better fit for you than a cutting-edge online lender. But while you’re shopping around for refinancing options, it can’t hurt to see what online lenders are offering. Their latest innovation could help you refinance and, eventually, erase your debt.
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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.