Like the beginning of a new year, student loan refinancing can offer you a fresh start.
And this time, you could enjoy a lower interest rate or reduced monthly payment, as well as choosing which lender or servicer helps you reach the finish line.
These are among the six reasons to refinance your student loan debt in 2019.
1. Reduce your rate
After staggering four rate hikes across 2018, upping its benchmark by a full percentage point, the Federal Reserve is expected to impose increases of roughly half a percentage point during 2019.
Although it’s difficult to pinpoint the perfect time to refinance your student loans, this year could be the right time for you, as banks, credit unions and online lenders are still offering relatively low rates.
Don’t simply rely on lenders’ advertising, however. To qualify for the bottom of their best rate ranges, you’ll need a strong credit score and a healthy debt-to-income ratio. A steady, well-paying job helps, too.
You might treat 2019 as the year to strengthen your refinancing application, even if you decide it’s not the year you’ll be able to snag that super low rate.
A lower rate equals greater savings. Say you refinance $30,000 on a 10-year term and manage to cut your original average rate of 8% down to 5%. You’d save $5,494 over the next decade — no small chunk of change.
Check out our student loan refinance calculator to see what your own numbers look like.
2. Stretch your paycheck
Some borrowers see refinancing as a way of lowering their interest rate, but others see it as a pathway to reduce monthly payments.
A smaller monthly due could stretch your paycheck, which could be helpful if debt repayment isn’t your only financial goal for the year ahead.
By refinancing your federal loans and their 10-year standard repayment plan, you could switch to a longer term with a private lender. Most lenders offer you the ability to choose a term anywhere between five and 20 years.
If temporarily lowering your payments via refinancing is your top priority, shop around. You might be surprised by what you find. LendKey, for example, offers interest-only payments for up to four years.
As you seek a lower monthly payment in 2019, keep a couple of caveats in mind. By choosing a longer repayment term, for example, your loan repayment becomes progressively more expensive. That’s because interest will accrue and capitalize onto the principal loan amount.
Say you refinanced that $30,000 loan to a longer, 20-year term. Despite lowering your rate from 8% to 5%, you’d pay an additional $3,839 in interest over the life of your loan.
Also, don’t forget about the federal government’s income-driven repayment plans. With a plan like income-based repayment, you could tie your dues to a percentage of your discretionary income — and hold on to government-exclusive protections, such as access to loan forgiveness programs. It’s a preferable alternative to refinancing for many borrowers.
3. Snag some perks
If you’re considering refinancing federal loans, you might be worried about what you’d be giving up. The list includes access to loan forgiveness, plus the ability to switch repayment plans or receive mandatory forbearance.
Although private lenders won’t offer the same protections, their benefits are getting better and better all the time.
Consider some of the recent innovations being offered by top-rated lenders:
- SoFi’s Unemployment Protection program lets you pause your loan for up to 12 months, and it includes career coaching support to find your next gig.
- Earnest allows you to choose your payment due date, select from a much wider assortment of repayment terms than at most lenders, and skip one payment annually.
- CommonBond has pioneered hybrid loans for student refinancing, offering a loan that blends fixed and variable rates.
- Laurel Road is among the group of lenders that give a parent the chance to refinance federal PLUS Loans in their child’s name.
If an atypical loan feature makes refinancing right for you, survey the landscape in 2019 to see if any reputable lender offers the benefits you seek.
4. Simplify your repayment
If you’re holding federal loans, you might be cautiously optimistic about NextGen, the Department of Education’s plan to reorganize how student loan servicing works. If it fulfills expectations when it arrives sometime in 2019, NextGen will allow you to make your monthly payments in one place at one time.
“Cautiously optimistic” are the operative words here. NextGen is a massive undertaking, and government projects can sometimes move more slowly then we’d like, so you might not want to count on the new platform simplifying your repayment.
On the other hand, refinancing offers you that simplicity now. By replacing your federal loans (and private loans, if you have them), you’re not just receiving a new interest rate and repayment term. You’re also simultaneously consolidating (or grouping) them by replacing them with a single refinanced loan.
5. Choose your lender
When you first borrowed federal loans, you weren’t given the option to select your loan servicer.
Refinancing, however, allows you to choose your lender based on whatever criteria matter most to you. For example, you might be seeking a lender that services its own loans or offers a unique perk (see point No. 3 above).
Regardless of what you want in a new lender, remember that this year, you’re in charge. Shop around and hold potential banks, credit unions and online companies accountable for what you want out of refinancing. If they’re unable to meet your needs, move on to a competitor.
6. Gain financial independence
Student loan refinancing is more accessible in 2019 than it has been at any point previously.
In mid-2018, for instance, CommonBond announced it would accept refinancing candidates who are visa holders who have graduated from a U.S. university. Citizens Bank has been refinancing debt for college dropouts. Plus, more and more lenders are removing employment and minimum income from their eligibility requirements.
If you’ve found refinancing to be out of your reach, you might now be in luck. As a creditworthy applicant, you could thank the cosigner on your original loans by removing their name from your refinance application.
If not — maybe your credit score still needs work — take the first months of 2019 to strengthen your application. A cosigner could help you do just that. Plus, through refinancing, you could release that cosigner within a relatively short period. Splash Financial and LendKey are among lenders that offer cosigner release after just one year of prompt payments.
That would give you greater financial independence by 2020 — and put you on a path to becoming debt-free on your own.