Are You a Good Student Loan Refinancing Candidate?
If you’re currently managing student debt, you’ve probably been hearing about the option to refinance your education loans. You may have learned about this opportunity from friends who’ve done it themselves, news stories about the growing number of options or your financial institution. All this talk about potential savings, simplifying your loans and other benefits has piqued your interest, but how do you know if refinancing is right for you?
Every borrower has a unique financial situation, but if more than one of the following situations rings true for you, you could be a great candidate for refinancing your student loans:
You have excellent credit
Demonstrating responsible credit management with a FICO score of 750 or above puts you in a better position to qualify for refinancing. It’s also essential that your current student loans are in good standing and not in deferment or forbearance. Lenders often use credit history as an indicator of a dependable borrower, which could help make you a better candidate for refinancing your student loans.
Plus a strong salary
A robust, consistent income is a good signal of your ability to make on-time loan payments, especially when you have significant debt to repay. For most refinancing applications, you’ll need to submit a copy of last year’s tax returns and a recent pay stub. If you are self-employed or have other sources of income, you may need to provide additional documents.
And, you have some money saved up
Showing an ability and willingness to save money is a good way to demonstrate responsible money management. Particularly important is showing evidence of short-term savings with enough liquidity for life’s unexpected expenses. Some lenders may ask to see a current checking or savings account balance before extending credit. Prepare for refinancing by building a small nest egg — it will also help you practice establishing a healthy financial future.
You also have a significant amount of debt
The higher your outstanding student loan balance, the more you could benefit from refinancing. Potentially lowering your interest rate by several points can result in substantial savings in interest payments when you owe more than $25,000.
With high interest rates on your student loans
Many professionals who completed graduate school in the last decade took out student loans at rates above six percent. If this is true for you, you have something to gain by potentially lowering your interest rate.
Finally, you don’t plan on using the features of your current loans
Choosing to refinance means you’re likely to lose some features associated with your existing student loans. But if you don’t expect to take advantage of deferment options, income-based repayment or forgiveness provisions, you might not miss having them.
If the above situations ring true for you, refinancing your student loans could be a good fit. Of course, it’s always recommended that applicants contact their legal and financial advisors for assistance in deciding whether a particular product is right for them.