From potentially lowering your interest rate to offering new repayment terms, student loan refinancing comes with a bunch of sweet perks.
One major benefit is the chance to simplify repayment by combining several loans into one. Instead of tracking multiple payments to different loan servicers every month, refinancing lets you make a single payment to a single lender.
But while combining your loans can simplify repayment, doing so is not always a financially savvy move. Instead of automatically refinancing all your loans, consider whether refinancing just one or two loans could save you more money in the end.
Why you should cherry-pick which student loans to refinance
With the average borrower paying off 3.7 student loans, according to Experian, refinancing all your loans into one easy payment might seem like an obvious move. But there are other factors to consider before you combine your debt into one lump sum.
You might save more money by refinancing just some of your loans
If your main goal is to save money, you might be better off refinancing just one or two loans, instead of all the ones you have in your name.
For example, let’s say you have three loans; Loan A has a 7.0% interest rate, Loan B has a 5.0% rate, and Loan C has a 3.0% rate. If, when you apply for refinancing, you get an offer for a refinanced student loan at a 4.5% rate, this would only save you money on your first and second loan.
In such a case, although you won’t get to simplify your monthly bills as much, you would probably want to save the most money on interest by refinancing Loan A and Loan B, but leaving Loan C alone.
You might want to keep access to federal plans and programs
Another reason you might not want to refinance all your student loans is to keep your access to federal plans and programs. Federal loans are eligible for a variety of income-driven repayment plans, forgiveness options and other benefits.
If you refinance federal loans with a bank, you turn those loans private and lose all federal perks. And if you run into financial hardship, your private lender might not be as flexible as the government is about adjusting your monthly bills.
Likewise, your new refinanced private loan won’t qualify for forgiveness programs such as Public Service Loan Forgiveness or Teacher Loan Forgiveness. If you want to remain eligible for federal programs, you could still refinance your private loans for a potentially lower interest rate, but leave your federal loans out.
Make the most of instant rate quotes to compare interest rates
If finding the lowest interest rate is your goal, take advantage of instant online rate quotes to compare refinancing offers.
After providing a few basic pieces of information — your name, loan amount and education level, for example — you’ll see what rates you could get on a refinanced loan. Searching for these rate quotes won’t impact your credit score at all, since they only involve a soft credit check.
Once you’ve seen your offers, you can use our refinancing calculator to estimate how much you’d save by refinancing. If you see an offer you like, you can go ahead and submit a full application.
Just remember to keep paying off your student loans in the meantime, since it can often take a couple of weeks or more before your refinanced student loan is up and running.
Shop around with multiple lenders to find the best offer
Just as you should be strategic by cherry-picking which student loans to refinance, you’ll also benefit by comparing offers from a variety of lenders.
Online lenders such as SoFi, CommonBond and Earnest offer some of the most competitive rates in the student loan refinancing space. Meanwhile, refinancing marketplace LendKey makes it easy to compare several offers at once from community banks and credit unions.
Along with searching for the lowest interest rate, consider other benefits, too. Some lenders offer forbearance if you run into financial hardship, for example. SoFi even has career coaching and community events for its customers.
Although saving money on interest might be your priority, don’t forget about secondary factors that could make one lender stand out above the rest.
Making the best decisions with your student loans
Refinancing can help you manage your student loans better, but be careful to go about the process in the right way. Pay close attention to the details of your offer, so you can choose the right lender and repayment plan for your needs.
Ultimately, everyone’s financial situation is unique, and the best decision for you might look different than it does for someone else. Assess each of your student loans individually so you can decide if refinancing all, some or none of them is the right decision for you.
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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.