U.S. students and their families have over $ 1.5 trillion in student loan debt, according to June 2018 data from the Federal Reserve. And the amount shows no signs of overturning.
If you’re feeling overwhelmed by your student loans, refinancing them can help you get a lower interest rate, a monthly payment, or both. But finding the right refinance lender is not easy. There are several student loan refinance lenders, each with different offers and approval requirements, and scams mixed together.
To make it easier to find the right lender and avoid getting robbed along the way, here are seven questions you should ask a student loan refinance lender before you apply.
How long have you been in the business?
Student loan refinancing is a relatively new concept. Some of the major lenders in the market have been in business for less than a decade.
The more a company is in business, the more time it has to perfect its offerings and the customer experience. That’s not to say that companies that have been in business longer are inherently better. But if the business is brand new, it will be more difficult to find customer reviews to see what kind of experience you will have.
No matter how long a business has been in business, look for customer reviews and complaints online. “The Consumer Financial Protection Bureau tracks borrower complaints,” says Christy Rakoczy, writer for Student Loan Hero, “so check that a lender you plan to work with doesn’t have a history of issues.”
More importantly, this question can help you spot a scam. If you can’t get a clear answer and can’t find a lot of company information online, beware.
Scammers may contact you with promises to help you lower your monthly payments or interest rate, or help you get your loans canceled. But they often charge a fee and take off with the money or submit an application to the United States Department of Education to get you a income based repayment plan or one loan forgiveness program – both of which you can do yourself for free.
What types of interest rates do you offer?
Some of the major student loan refinancing lenders offer interest rates in the range of 2-3%, but these very low interest rates often come with a caveat.
In other words, they are usually variable interest rates, which means they can increase over time if market interest rates rise. Fixed interest rates, on the other hand, remain the same throughout the life of the loan. So which is the best?
“It really depends on how quickly you plan to pay off your loans,” says Alyssa Schaefer, marketing director of Laurel Road student loan refinancing. “It might be a good idea to switch to a variable rate if you think you’re going to pay off the loan quickly. But for a longer term loan, you’ll probably want to think of it as fixed, because it’s a more stable rate that’s locked in. .. “
Find the Best Student Loan Refinance Lenders
What are your eligibility conditions?
Each lender has their own criteria for approval, and it is no different with student loan refinancing. Some student loan refinance lenders post a minimum credit score requirement on their website, making it easy to find out if you have a chance of being approved. Others, however, are less transparent.
“Many lenders will refinance with a wide range of credit scores,” says Schaefer. “But when you put yourself in the higher ranges – the mid to high 700s – that’s when you can get the best price possible.”
Also, lenders generally won’t refinance your student loans if your balance is too low. Earnest, for example, refinances loans as low as $ 5,000, but the Citizens Bank threshold is $ 10,000. So even if your total student loan debt exceeds these amounts, you may not be eligible if each loan does not meet the minimum requirement.
Also check the other eligibility conditions. For example, a lender may require that your current loans be in good standing, that you don’t have bankruptcy on your credit report, or that you are up to date on rent or mortgage payments.
Some student loan refinance lenders allow you to get prequalified with a flexible credit check – which won’t affect your credit score – to determine if you have a chance of being approved. Go through this process with at least three to five lenders to see what deals you might get.
If I need a co-signer, can I remove it later?
“If your own income is too low to be refinanced or if your credit score is not good enough to qualify,” says Rakoczy, “you can dramatically improve your chances of being approved for a loan by applying with of a co-signer ”.
Even though you may be approved by yourself, a co-signer can potentially help you get a lower interest rate.
But convincing someone to co-sign a loan for as long as 20 years is no small feat. Not only does this loan show up on their credit report and affect their debt to income ratio, it can also ruin their credit if you fail to do so.
Fortunately, some student loan refinance lenders offer a co-signer release program that allows you to withdraw your co-signer from the loan after making a predetermined number of consecutive, one-time payments. The number of payments required varies depending on the lender.
However, when doing your research on co-signer publishing programs, make sure that you and the co-signer understand that getting approval is not easy. According to a 2015 report by CFPB, only 10 percent of borrowers who requested the release of the co-signer were approved.
To improve your chances of getting your co-signer withdrawn, work on improving your credit, paying off other debts, and increasing your income to encourage the lender to view you as less risky.
What fees do you charge?
Your interest rate is not the only thing to watch out for when choosing a student loan refinance lender. Some lenders charge various fees.
“There are set-up fees, prepayment fees, and various fees that come with your billing,” Schaefer says. “Some lenders charge one of them, but not all of them. Some lenders charge all of them.”
According to Rakoczy, some of these fees can be a red flag that the lender is in fact a scam or at least not worth working with.
“Legitimate refinance lenders generally don’t charge an application fee, and many don’t charge an origination fee,” she says. “Don’t pay a company money just to see if you can qualify for refinance.” As for other fees, look for lenders who charge as little as possible.
Do you offer discounts?
Some lenders offer discounts on your interest rate if you are a regular customer or if you set up automatic payments on your account. Citizens Bank, for example, will reduce your interest rate by up to half a percentage point if you or your co-signer has an eligible account with the bank.
In many cases, these discounts are already incorporated into the interest rates posted by lenders on their websites. So, keep this in mind when you compare the rates.
What do I lose if I refinance?
Depending on the type of student loans you currently have and the lender refinancing, you could lose a lot of protections and benefits by refinancing.
Federal student loans provide borrowers with access to income-oriented repayment plans and loan forgiveness programs. If you can’t manage your student loan repayments at some point in the future, or if you qualify for a loan forgiveness, refinancing would eliminate these options because most student loan refinance lenders don’t offer them.
That said, some of these private lenders do offer some protection. SoFi, for example, will temporarily suspend your payments if you lose your job through no fault of your own. In addition, its career coaching team will try to help you find a new job.
Others may offer options for abstention or deferment if you are going back to school or experiencing financial difficulties.
In short, refinancing your federal student loans can be a mistake if you anticipate needing the protections they offer. But if you can easily manage your payments and don’t qualify for federal loan forgiveness programs, choose a refinance lender that offers the type of protection you want.
However, finding the right student loan refinance lender can be time consuming. Do your due diligence and shop around for the best rates and other terms.
“While you can search for individual lenders to compare rates,” says Rakoczy, “it’s often easier to use online tools that aggregate lender information to quickly see what multiple lenders are offering.
Also, keep an eye on fees and check customer reviews from each lender you are considering to make sure you have a good experience. Doing this process correctly can make your life and your student debt repayment plan a lot easier.