The Biden administration may have thrown a lifeline for students by delaying student loan payments until May 1. But as Washington DC plays the “will they” or “won’t they” game on student loan cancellation, borrowers must find a way to save money. Be careful if you want to save money on student loans. Here’s everything you need to know about it. Student Loan Refinancing: A Step-by-Step Guide.
Consolidating your existing federal or private student loans, or both, into a single new student loan with a reduced interest rate is possible with student loan refinancing. You can receive a lower interest rate, a lower monthly payment, and pay off your student loans faster if you refinance your student loans. You can also pay off your student debt over a period of 5 to 20 years. Most importantly, you can save money for other life needs, such as retirement, buying a property, investing, or paying down debt. Depending on your current student loan balance and your interest rate, refinancing your student loan can save you over $ 30,000 over the life of your loans.
How to get approved for student loan refinancing
Is refinancing my student debt a good idea? If you want to save money and get a lower return on your student loans, refinancing may be a viable option for you. You will need to work only with one lender, as this executive branch does not refinance student loans. Each borrower will have their own set of underwriting guidelines, and each respondent’s financial situation is individual. Therefore, not everyone who owes money on a student loan can refinance it. However, the best advice for getting approved for student debt refinancing is:
1. Have a good to exceptional credit rating.
When it comes to paying off student loans, lenders favor consumers with good to excellent credit scores. Why? Your credit score reflects your financial responsibility. Lenders want to see that you cover your expenses on time and pay off your debt. The best student loan companies require a credit score between the mid to late 600s. However, some lenders may not require a basic credit score.
Insider tip: A credit score of 700 or higher is ideal for increasing your chances of acceptance.
2. Have a job
Generally, you must be employed to be eligible for student loan refinancing. Why? Lenders want to know that you have a stable job. This will give them the assurance that you will pay off your student loan on time each month. If you are a graduate and have a documented job offer to start working in the near future, you are exempt from the employment rule. A job offer or a documented employment contract may be accepted as proof of employment by some lenders.
Insider tip: If you are unemployed or on leave, you may want to put your application on hold until you are fully employed again.
3. Have a stable and recurring source of income.
You are about to be accepted for student debt refinancing if you have a stable, recurring monthly income. Why? Lenders want to know that you have enough money each month to pay off your student debt. Lenders will have more confidence in your ability to make monthly student loan payments if you receive a consistent salary each month. It can be more difficult to refinance student loans if you don’t have a constant monthly income.
Insider tip: If you are a consultant, freelance or entrepreneur, you can try to prove your financial stability by providing other proof of your income or assets.
4. Earn enough money to pay off your debts and cover your living expenses.
What is the minimum income required for student loan refinancing? Many lenders do not have a minimum income requirement. While others have a modest requirement. Lenders, above all, want to make sure that you have adequate monthly cash flow to cover living expenses and debt payments. Do you meet the requirements? Take a look at your pay stubs to see how much money you make after tax each month. Is there enough money left after subtracting your new student loan payment (after refinancing)? As well as additional debt payments for other essential living expenses? If you answered yes, you could be a great candidate for refinancing.
Insider tip: Be sure to take into account all sources of income, including secondary jobs.
5. Pay off any student loan debt
Lenders will look at your other debts, such as mortgages, credit card debt, and auto debt, in addition to your student loans. As part of the underwriting process, lenders will take into consideration your total monthly debt payments. Why? Even with the reduced student loan rate, lenders want to make sure that you can pay off all of your debt each month.
Don’t worry if you have additional debt. If possible, repay another loan to reduce the amount. You should be a serious competitor if you have enough cash each month to meet your debt commitments.
6. Very Important Secret – Pay Off Credit Card Debt
If you have credit card debt, credit card consolidation can help you immediately lower your monthly payment. By merging your existing credit card debt into one personal loan, you can get a reduced interest rate when consolidating credit card debt. A personal loan has a fixed interest rate and often has a repayment period of one to seven years. A smaller monthly payment could make it easier for you to refinance your student loans.
Insider tip: Consolidating your credit cards will help increase your credit score.