Taking out a new loan to pay off existing college debt is known as “refinancing student loans.” Knowing the steps to follow and questions to ask could help students save money on interest rates and possibly pay off their loans sooner. Continue reading to learn how to determine whether refinancing student loans is a good idea and how to get started.
Refinancing Student Loans: A Step-by-Step Guide
The following are the steps students must take to complete the task:
1. Determine Whether Refinancing Is a Good Option
It’s a good idea if they can save money by refinancing. To qualify for the lowest student loan rates, they need good credit and finances. Refinancing federal student loans makes them ineligible for government programs like income-driven repayment and student debt forgiveness.
2. Run A Credit Report
The lender will review at least one of their credit reports and credit scores. Students should verify their reports for inaccuracies regularly. The Fair Credit Reporting Act can allow one to dispute erroneous information on their credit report with the relevant credit-reporting organization. If students discover that their credit isn’t in good shape, they might try to repair it before refinancing.
3. Do Homework On Potential Lenders
A vital component of effectively refinancing student loans is researching student loan refinancing rates and checking with various lenders to find and compare lenders’ rates and costs. According to Lantern by SoFi, students can find different lenders on the website to compare student loan refinancing options and, with Lantern’s help, choose the best financial product.
4. Decide On a Loan Offer
After a student looks over a few loan options, they’ll be better able to choose the one that best meets their needs. They may choose their chosen repayment terms from the lender they choose. A shorter loan term may allow a reduced interest rate and pay off debt more quickly. This can help minimize the size of monthly payments and make budgeting easier by extending the loan duration.
5. Fill Out a Formal Loan Application
Once students narrow down their favorite lender and loan offer, they’ll need to fill out an official loan application. The lender will most likely request a hard credit inquiry at this point to view their entire credit record. One may be required to produce copies of papers and information to the lender, such as:
- Social Security number (SSN).
- A valid driver’s license or government-issued identification.
- Verification of employment (pay stubs, W-2, etc.).
- Statements from existing student loan servicers
6. Sign the Final Paperwork and Wait for Loan Payoff.
Students need to complete some final papers to receive the loan if they’re authorized. Once they sign the loan’s final disclosure paperwork, they have three days to cancel the loan. If the application is turned down, the lender will explain why and give options.
Students should continue to pay their current lender or servicer until they receive proof that the process is finished.
Every year, education prices rise at an exponential rate, necessitating strategic planning for any future or present debt burden. Understanding how student loan refinancing works and how to evaluate lenders can save them hundreds of dollars.