Americans have a record amount of student loan debt and the amount is only growing each year.
Some students may owe more than $100,000 and a few students have managed to rack up more than $1 million in student loans.
Being in debt is stressful and student debt is especially tough, thanks to restrictions on discharging the debt in bankruptcy.
If you have a lot of student debt, you’re likely to spend years paying it off before you can start building your financial future.
Refinancing might help you get out of debt or at least manage your current cash flow.
What is Refinancing?
Put simply, refinancing debt is taking out a new loan to pay off your existing loans.
For example, if you have 3 different loans, one for $30,000, one for $40,000, and one for $60,000, you could take out a $130,000 loan and use that money to pay off all of your existing debts.
This lets you deal with a new lender, change the interest rate on your debts, start a new repayment term, and get the other benefits of starting a new loan.
Benefits of Refinancing
There are two main reasons you would want to refinance your student debt:
1. Consolidate loans
One major benefit of refinancing is that you can consolidate your debts.
If you have multiple student loans, that means you have multiple payments that you have to make each month.
If your loans are with different services, that means you need to manage multiple accounts in different places and send multiple checks each month to pay your bill.
By refinancing, you can combine all of those loans into a single loan.
Instead of making multiple payments each month, you’ll only have to make one.
Another benefit is that your monthly payment may be reduced, which means you’ll have more money to spare each month.
2. Save on interest
The other reason you may consider refinancing is to reduce the interest rates of your loans.
Much like the stock market, the interest rate market is constantly changing. Over time, the rates on new student loans will increase or decrease.
If you took out a student loan when rates were high, you can save money by refinancing to a loan with a lower rate.
Some student loans have variable rates, which means the rate that is charged on the balance of your loan changes with the interest rate market.
Refinancing to a fixed-rate loan when rates are low can help you lock in that low rate.
Loss of Hardship Programs
One thing to keep in mind when you’re looking to refinance your loans is that many federal student loans come with several financial hardship programs.
Deferment and Forbearance Pros & Cons
It's super important to fully understand that refinancing these types of loans will result in the loss of these benefits.
Here are some of our favorite lenders that will refinance loans larger than $100,000:
SoFi is an online lender that offers all sorts of loans to its customers. It will refinance as much as it takes to fund your education.
CommonBond offers student loan refinancing for balances up to $500,000. It offers low rates and the terms of up to 20 years.
LaurelRoad is a national lender that offers multiple different types of loans.
There’s no limit to the amount of student debt you can refinance with LaurelRoad and you can take as long as 20 years to repay the loan.
Earnest is a lender that looks at more than just your credit score when making a lending decision. You can refinance up to $500,000 for up to 20 years with the company.
5. Wells Fargo
Wells Fargo is a popular bank that will let you refinance up to $120,000 in student loans.
You can save even more with automatic payments from a Wells Fargo checking account.
Though it may be better known as a credit card issuer, Discover also offers student loans.
You can refinance $150,000 in student loans for up to 20 years.
LendKey connects you with credit unions and community banks that offer borrower-friendly loans.
You can use LendKey to refinance loans up to $125,000.
CollegeAve is an online student lender that lets you refinance as much as $150,000 in student debt. You can choose a 5 or 15 years repayment term.
Deciding if Refinancing is Right for You
There are a few questions to ask yourself when trying to decide if refinancing is right for you.
Do your loans have fixed or variable rates?
One good reason to consider refinancing is if your student loans have variable interest rates.
Opening a loan with a variable rate can be a good idea when rates are high. If rates go down, you’ll save money.
The downside is that rising rates will make your loan cost more. In fact, if rates rise significantly, you can wind up with a monthly payment that is unmanageable.
Refinancing a variable rate loan to a fixed rate loan when rates are low mean you can lock in a lower rate.
Would you reduce your interest or monthly payment?
Even if you have fixed-rate student loans, the market for interest rates may have dropped since you first opened your student loan.
Refinancing your loan will let you reduce the interest rate that you’re paying, saving you money in the long run. Just make sure that the savings exceed the fees you’ll pay to refinance.
Refinancing can also reduce your monthly payment if you get a lower rate or combine multiple loans into one.
Will consolidation help you make ends meet?
Consolidating your student loans does two things to help reduce your monthly payment.
The first is that you have just one minimum payment to make, rather than multiple. Odds are good that this payment will be lower than the sum of the payments you were making before.
The second is that you can choose a new repayment term.
If your old loans had you on schedule to pay your debt off in 10 years, you can refinance and consolidate your loans with a new loan that has a 20-year term.
You’ll pay more in the long run, but you’ll pay less each month, giving you more money to pay other bills and buy groceries.
Would you pay your loans off sooner?
You can also take the opposite strategy, refinancing your student loans to a new loan with a shorter term.
This can force you to pay off your loans more quickly, helping you be debt free sooner than you would have been otherwise.
Tips to Get Out of Debt Quicker
Refinancing is just one strategy you can use to get out of debt quickly. There are a few other tricks you can try.
Pay more than the minimum
The most obvious way to get out of debt ahead of schedule is to make payments that are larger than the minimum payment.
One good way to do this is to get on a bi-weekly payment schedule. Most loans will require one payment per month, for a total of 12 payments per year.
If you make a half-size payment every other week, you’ll make 26 payments a year, which will be equal to 13 months of payments.
It won’t feel much different to making your regular monthly payments, but you’ll actually be paying extra on the loan.
Take advantage of government assistance programs
Many government student loans are eligible for programs such as loan forgiveness.
If you are eligible for these programs, take advantage of them. Usually, you must work for a non-profit for a certain amount of time and make very careful records of your payments and work to confirm your eligibility.
If your loans are forgiven, you’ll also have to pay income tax on the amount forgiven.
Though actually getting your loans forgiven can be difficult, you can save a lot if you can manage it.
Reduce balances before applying
The interest rate you pay on a loan is determined by the perceived risk to the lender offering the loan.
Loans with a lower balance are seen as less risk (because you'll likely have a higher credit score), so you can sometimes get a better rate by paying down your debt before refinancing.
Aim to get below milestone amounts like $100,000 before refinancing to save the most you can.
Loyalty rate discounts
Some lenders, like Wells Fargo, offer loyalty discounts if you have other accounts with the bank. You can often save as much as .25% off the interest rate of your loan by signing up for automatic payments. On a large balance, even .25% can be huge savings.
Reduce unnecessary expenses
Take the time to think about what expenses are really necessary to your life.
Try to cut out your daily Starbucks habit, or take a short vacation by car rather than traveling overseas.
Put that extra cash towards your student debt.
Boost your income
While there are many criticisms of the modern gig economy, it can be helpful for people who want to earn some extra money.
Try to pick up a side job, such as driving for a rideshare company, walking dogs, cleaning houses, or freelancing.
All the extra cash you earn can go towards your debt.
Student debt can be a lot to handle, but refinancing can help make paying it off a bit easier.
Even if you have a huge loan balance, there are lenders out there that are able to help, and MyBankTracker is here to guide you along the way.