When we talk about your student "loans" — plural — we mean this literally. The average student juggles seven loans with two to three different loan servicers. So the typical graduate needs to track a bevy of payment due dates, and might even be paying higher interest rates than necessary.
Making so many different loan monthly loans payments is complicated, too, leaving many borrowers searching for an easier way. But there's more to consolidation than just simplifying repayment.
Aside from dealing with many loans across multiple servicers, consolidating and refinancing student loans can save money on interest and lower monthly payments.
However, lots of lenders are eager to roll your loans into their portfolio, and it's often hard to know which bank to choose. The answer, though, depends on what you value most. Time? Money? Convenience? Support?
We can't make that decision for you. But we can help you compare student loan consolidation rates and other variables that will affect your loan repayment.
First, determine your goals for refinancing
There are several reasons to refinance your student loans. Borrowers goals may vary, so it's good to know exactly what you're looking for before researching and selecting a student loan refinancing lender.
Here are some goals you may have when refinancing:
1. Save on interest
Chances are, lenders view you as a lower-risk borrower now that you're out of school than when you were a freshman. Lenders reward lower-risk customers with lower interest rates. You can compare student loan consolidation rates to find the lowest rates and the greatest savings. Lower interest rates mean you'll pay smaller monthly bills, and spend less money on interest over the life of the loan.
How much less? Let's imagine you have $20,000 in student loans, at a 5% interest rate, which you're repaying over 120 months (10 years). Using a student loan refinancing calculator, you'll see your monthly payment is $212, and over the life of the loan you'd pay $5,455 in interest.
But if you could lower your interest rate to only 4% and keep the 10-year term, your monthly payment would drop to $202 and you'd pay $4,298 in interest over the life of the loan — a savings of $1,157.
2. Lower monthly payments
Private and federal student loans usually have a 10-year repayment term. But once you've got a job, lenders are more flexible with loan repayment terms, with some stretching as much as 25 years.
Longer repayment terms mean lower monthly payments. But you'll pay more in interest over the long run. Lower payments often are a good choice when you're starting out and cash is tight.
If you've got a little extra cash at the end of the month (if only!), you can always increase your payments or make an extra payment, which will reduce the time of your loan and the amount paid toward interest.
3. Remove Co-Signers
If you're trying to become an independent adult, you don't need the stress of having co-signers breathing down your neck about paying your student loans. Refinancing, especially if you've got a good job, can remove Mom and Dad from your student loans and the financial part of your life.
There may be other reasons you wish to refinance and consolidate, too, including switching student loan servicers, the need to make only one payment, and paying off student loans faster. No matter what your reasons, keep them in mind as you move on to the next step
Look for in a lender with an offer that accomplishes your goals
There are plenty of lenders willing to consolidate private loans, and it's sometimes hard to know which one to select.
First, read eligibility requirements, which differ with each lender. Most — not all — will refinance student loans only if you've graduated from college or a graduate program, have good credit, a steady job, and a favorable debt-to-income ratio.
If you qualify for refinancing, select a lender that offers terms that best suit your needs. The following is a list of loan features you should consider when making your decision:
1. Rates
Loan consolidation rates are all over the map, currently ranging from 1.9% to 8.65%, depending on your credit. Of course, you should compare student loan consolidation rates and choose a lender that will give you the lowest rate. But unless you've got a great job and a high credit score — unusual for people just out of school — you'll have to accept whatever rate you can get.
2. Loan Rate Types
Lenders typically offer fixed and variable rate loans. Fixed rates are usually higher than variable rates; but variable rates can start low and end up high by the end of the loan, although they have a cap. Whichever you select will depend on the monthly payment you can afford now, and how much risk you can tolerate regarding future rates.
3. Terms
Lenders offer loans you must repay over 5 to 20 years; some lenders will only go out 15 years. The longer the repayment time, the lower the monthly payment, but the more you will ultimately pay in interest over the loan's lifetime.
4. Eligible Degrees
Most lenders will let you consolidate private and federal loans for both undergraduate and graduate schools. However, most lenders want to see a degree before refinancing your loans. And some lenders only accept degrees from certain schools, so you'll want to check lenders' lists of eligible institutions first.
5. Unemployment Protection
Many lenders understand that newcomers to the job market often switch jobs frequently during their first few years as a working adult. A U.S. Bureau of Labor Statistics study of baby boomers found that people born from 1957 to 1964 held an average of 11.7 jobs from ages 18 to 48, holding an average of 2 to 3 jobs during later periods of their lives.
Lenders understand that job-hopping is a function of youth, and some will pause payments up to 18 months while you're looking for work. However, take into account the conditions when you can request deferment as it varies for each lender.
6. Loan Discounts
Most lenders will give you a .25% discount if you allow them to automatically deduct monthly payments from your bank account. Some lenders will give you another small discount if you maintain a bank account at their institution.
7. Co-Signer Release
Lenders know that neither you nor your parents want to be linked by debt forever. Some lenders will release co-signers if you make timely payments for 36 consecutive months.
Which Bank Should You Choose?
Which of these qualities are most important? Would you be willing to pay a slightly higher interest rate in exchange for unemployment protection or a co-signer release? Are you more interested in lowering your monthly payments or improving your loan terms?
We can't answer these questions for you. Your answer will depend on factors like your job prospects, income, family situation, and other personal considerations. Talk to a multitude of banks that are willing to refinance your loans and decide which one fits you best.
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