How to choose the best student loan terms for refinancing

If you're interested in paying off your student loans faster or simplifying the loan repayment process, a student loan refinance may be the solution for you. A loan refinance involves obtaining a new loan from a private lender and using it to pay off one or more existing student loans. It can consolidate multiple debts, lower your monthly loan payments and, potentially, save money — as long as you choose the best student loan terms for refinancing.

With the Federal Reserve setting current interest rates at which banks can borrow at close to 0%, many refinance companies are offering unprecedented loan rates. But you'll need a good credit score and proof of income to qualify. To compare rates and terms with multiple private lenders to make sure you're getting the most favorable loan rate possible, check out Credible.

As you compare loan rates, there are a few key questions to keep in mind to make sure you get the best possible terms on your refinance loan.

How do you choose the best student loan refinance offer?

There are three simple things you can do to ensure you choose the best student loan terms for refinancing.

1. Determine what loans to include in your refinance: Generally, you'll want to include only private loans as refinancing federal student loans would require you to give up important benefits, including the flexibility to change your loan repayment options and the possibility of student loan forgiveness.

2. Shop around and compare lenders: Different private lenders have their own qualifying criteria. Rates can vary substantially among them, so get quotes (monitor when rates drop) from several private lenders to see which offers you both the lowest loan payment and lowest total loan costs. Find your rate now.

3. Calculate your potential savings: Credible's student loan refinance calculator can help you get a sense of what your new payment would be with each private lender.

HOW TO REFINANCE HIGH-INTEREST RATE STUDENT LOANS

Is it worth refinancing student loans?

As you compare rates, think about what you hope to accomplish by refinancing student loans — and determine if it's worth it. Some of the most common reasons to refinance include:

• Lowering your monthly loan payment: You can drop your loan payment by securing a lower interest rate, refinancing to a longer loan repayment term, or both.
• Reducing total interest costs: Reducing your interest rate can lower the cost of borrowing. However, you'll want to make sure you don't extend your loan repayment timeline too much as you could raise total costs by doing so since you'd end up paying interest over a longer time.
• Simplifying the repayment process: You can take one new refinance loan to pay off several existing loans, thus reducing the number of monthly loan payments.
• Paying off loans faster: If you shorten your loan repayment timeline with your refinance loan, you can become debt-free sooner and reduce borrowing costs by paying interest for less time.

The decision you make about which loan is right for you and whether now is the right time to refinance will be shaped by your goals.

WHY YOU'LL LIKELY SAVE MONEY IF YOU REFINANCE STUDENT LOANS NOW

What are the pros and cons?

Pros

• You can reduce your monthly loan payment.
• You can lower your total costs.
• You can simplify the repayment process if you have one loan to manage instead of several.

Cons

• You could end up paying more over time if you lengthen your repayment period (but this is easily avoided by choosing a loan with the same loan term or a shorter one).
• Not everyone can qualify for a new refinance loan at a favorable rate. If you find yourself in this situation, a cosigner could help you to get approved.

Refinancing federal loans, on the other hand, has significant downsides including giving up generous deferment or forbearance policies; losing the flexibility to change your repayment plan as needed or opting for income-driven payment plans; and giving up any chance at loan forgiveness. You generally don't want to refinance federal loans unless you're confident you won't need any of the special benefits or protections they provide.