5 Must-Dos Before Refinancing Your Student Loans

First Republic Bank
October 16, 2017

For many high-achieving graduates, outstanding student loan balances often obstruct longer-term, more exciting financial goals. A student loan refinance, however, can give borrowers the power to pay off loans faster or lower monthly payments, depending on financial goals. Borrowers may be able to:

  • Reduce your monthly payments by refinancing to a lower interest rate, giving you more money in your pocket to meet other financial obligations, OR
  • Pay off your loans earlier by refinancing to a shorter term, giving you a leg up on your other, longer-term life goals.

If you have multiple existing loans, you may be able to bundle them through refinancing and have just one monthly payment to manage. A single monthly payment is more convenient for many borrowers. It also decreases the likelihood of accidentally missing a payment.

Steps to refinance (and get the best rates):

  1. Know your credit score. Check your credit report for free. If your score is low, take steps to improve it. Make sure all payments are up to date and paid consistently; if a payment is erroneously listed as late, contact the lender to clear the blemish from your credit history.
  2. Demonstrate consistent work experience. Be prepared to provide documentation that backs up your work history and to explain any gaps in employment.
  3. Exhibit a history of steady income. Collect your income tax returns and any other documents that show your salary history.
  4. Find your debt-to-income ratio by dividing your monthly debt payments, including rent or mortgage payments and minimum credit card payments, by your monthly gross income. The lower this ratio (e.g. less than 43 percent), the stronger your financial profile is to lenders. The key is to keep outstanding balances as low as possible.    
  5. Show that you have money saved up. Gather your checking, savings and investment statements, and prepare to share them with your lender. More cash on hand can improve your financial presentation.

Consider your long-term student loan strategy:

  • Before refinancing your student loans, you should know that the terms of your new loan may differ from those of your current loans, so you should carefully review the terms of your current loans, both private and federal.
  • If you don’t intend to use your existing loan’s income-based repayment or forgiveness provisions, you may benefit by swapping those loans out for one with a lower interest rate. Once you refinance, however, you can’t get those provisions back. You may also lose the interest rate deduction (if you qualify).

At First Republic, a personal banker can help walk you through the entire process, including any future milestones like homebuying or saving for retirement. Then, you’ll be on your way toward paying off your loans and living your life the way it was always meant to be lived — student loan free.

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