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Inspiration + Insights • Forbes

How This Woman Refinanced Her Student Loans In 4 Steps

By Andrew Josuweit | 4-min read

When journalist Kassondra Cloos graduated from Elon University in 2013, she couldn’t believe how much her student loan balance had grown. She wasn’t able to make payments while she was in school and as a result, her interest had ballooned past the original principal. When she graduated, her student loan bills cost more than her monthly rent.

Cloos knew she needed to take control of her finances.

She’d heard that student loan refinancing could lower her interest rates, so she checked her rates with a few lenders. Unfortunately, Cloos didn’t have enough credit history to qualify without a cosigner. She decided to build up her credit score and apply again later.

After a few years of careful budgeting, Cloos ultimately refinanced her student loans in late 2016. Between her new low interest rate and meticulous budgeting, she was able to pay her refinanced student loan off fast.

We spoke with Cloos to find out exactly how she went about applying for student loan refinancing. If you’re interested in refinancing your own student debt, read on to see how Cloos did it.

Step 1: Check your rates

You can see whether or not you qualify for refinancing in just a few minutes. Many lenders let you check your rates by providing a few pieces of basic information.

You’ll likely enter your name, address, loan amount, education level, and university. Plus, you may indicate how much you spend on rent each month. Then, the lender will run an instant soft credit pull to check your background.

This pre-application won’t impact your credit score. Within a minute or two, you can view interest rates and compare offers from multiple lenders.

If your credit score is low, you could take steps to build it up as Cloos did. “I always made a point to pay off all my credit card statements in full the month they’re due,” said Cloos.

She didn’t apply to many credit cards or carry “too high a balance in comparison to what was available to me.” Cloos was also “religious about checking my credit score and making sure it was going in the right direction.”

If you also have poor or insufficient credit, you may not qualify for refinancing offers right away. But by taking steps to grow your credit, you could make yourself a better candidate for offers in the future.

Step 2: Select your new loan

If you qualify for refinancing, lenders will likely offer you a variety of loans with different terms and interest rates. You can typically choose between five, seven, 10, 15, and 20-year repayment terms. Plus, you’ll have the option of variable and fixed interest rates.

Many borrowers go with the lender that offers the lowest interest rate, but you should also pay attention to the repayment period. You could choose a short repayment term to get out of debt fast, or you could choose a longer term if you need to lower your monthly payments.

No matter which offer you choose, use a refinancing calculator to see how much you’d save or spend with the new loan.

Besides a low interest rate, Cloos prioritized flexible repayment options in her search. “I was hesitant and took a while to decide after I applied [for refinancing],” said Cloos, “because the federal government has a lot of protections in place for borrowers.”

When you refinance a federal loan into a private one, you lose access to these federal protections. Of course, you don’t have to include all your loans into your new refinanced loan.

Cloos, for instance, refinanced her unsubsidized federal loan to lower its interest rate. She left her subsidized loan alone, however, because refinancing would not have helped her save money

When it comes to choosing a loan, find the one that would most benefit your particular situation. If it won’t help you, don’t refinance.

Step 3: Fill out a full application

If you find a loan you like, your next step is to submit a complete application with your chosen lender. Most lenders ask for the following information and documents:

  • Proof of citizenship (Social Security number or government ID number)
  • Valid ID number (driver’s license or passport)
  • Proof of income (pay stubs or a job offer letter)
  • Official statements for all your federal and private loans
  • Cosigner’s information, if you’re applying with one

As a recent graduate, Cloos appreciated that her lender didn’t set strict requirements for income or credit score. 

Every lender has its own process for assessing refinancing applicants. If you don’t qualify for a loan with one lender, you could find another that’s a better fit.

Step 4: Wait for approval

Once you’ve submitted your application, all you have to do is wait for approval from the lender. In the meantime, keep paying your current loans. Don’t stop making payments until everything is finalized and you’ve set up automatic payments with your new loan servicer.

Cloos’s application was approved in just two days, but it took a few more weeks before her new loan was funded and she had officially refinanced.

For Cloos, the process of refinancing started in 2013 when she made the commitment to build up her credit score. But the actual application and funding steps took less than a month from start to finish.

Before you refinance, learns the pros and cons

Student loan refinancing has helped Cloos and borrowers like her take control of their student debt, but refinancing also has some downsides.

If you refinance federal loans with a private lender, for example, you lose access to federal programs such as income-driven repayment plans and Public Service Loan Forgiveness. Some private lenders offer flexible terms if you lose your job, but not all of them do. Ask about their policies before refinancing your loans.

Once you know the pros and cons of refinancing, you may be able to simplify your monthly payments and reduce your interest rate. And if you’re as financially strategic as Cloos, you could get out of debt years ahead of schedule.

 

This article was written by Andrew Josuweit from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

The views of the author of this article do not necessarily represent the views of Gradifi.