Student Loan Refinancing Strategy Guide
Photo by rawpixel.com on Unsplash If you’re considering refinancing your student loans and want to make sure you don’t miss something major this strategy guide is your place to start. It covers everything you need to know to decide if refinancing is...
How I Became a Better Student Loan Refinancing Candidate In a Year
This post is about why I got a lower interest rate the second time I refinanced my student loans. This post is a reminder that if you didn’t get the best interest rate the first time you refinanced you can work on a few key areas and try again in a year or two.
Estimated read time ~4 min.
*Links to refinancing companies in this post are referral links which means I may get a referral bonus if you refinance your student loan through one of them. All the links (except CommonBond) also offer you a referral bonus when you use it! All the companies I link to are companies I have researched and trust or have used myself.*
I first refinanced $99,000 in June of 2016 and got a variable rate offer of 3.36%, my fixed rate offers were all over 1% higher so I decided to take a chance on the variable rate. Over the course of the next year the rate crept up to 4.1% so I decided it was time to refinance again.
Start looking into refinancing again if your variable interest rate has crept up significantly and you’re currently a better refinancing candidate.
I used the rate estimators on all the refinancing company websites I was familiar with. That narrowed my playing field to three refinancing companies based on interest rates alone, Earnest, ELFI, and CommonBond. Unfortunately SoFi’s estimates were at least 1% higher than the rest. So I submitted formal applications to these three companies.
Use the rate estimators on multiple refinancing company websites to decide where to submit formal applications so you get the best interest rate.
After submitting formal applications I got approved for refinancing by all three companies and now had some leverage. At that time my loan was serviced through Earnest and when I was obtaining required documentation from them for the formal applications they told me to contact them if I got a more competitive rate. ELFI gave me the most competitive interest rate so I contacted Earnest to see what they could do. At first they said they couldn’t match the interest rate but later that day I was contacted and they offered to match the ELFI’s rate and I was able to refinance for a 3.37% fixed rate over a 5 year term.
If you’re already working with a refinancing company you like, use market competition to lower your interest rate.
So how did I get a lower interest rate just over a year later? It wasn’t because the market improved, in fact it had gotten slightly worse as evidenced by my increasing variable interest rate.
The second time I refinanced I owed $26,000 less on my student loan principal and owed less on my auto loan. I also had a slightly higher increase in my full-time salary. All this means my debt-to-income ratio looked much better than it did the year prior.
Over time your debt-to-income ratio will get better as you pay down your debt and as you increase your income.
By the second time I refinanced I had more assets too. My employer-sponsored 401K performed well and I continued to contribute and get my employer match so had an additional $20,000 in that account. Building my savings account was a big focus in 2017 so that account also had more cash.
Grow your assets. Making consistent contributions can increase your assets by tens of thousands of dollars.
Finally my credit score continued to improve based on responsible credit use and the age of my credit history. By the time I refinanced the second time my credit score was 783 which was around 50 points better than before. One thing that often plagues us young folks is the relative age of our credit history. I was a late comer when it came to credit cards so my history now is only about 7 years old. It’s not terrible but it’s also not even close to as long a history as say my parents have.
Continue responsible use of credit cards to improve your credit score. Keep your oldest account open if you have relatively “young” credit history.
Have you refinanced your student loans a second time? Are you considering refinancing for the first time? Let me know in the comments below or on the Repayable Facebook Page!
Four Traits the Best Candidates for Student Loan Refinancing Have
Today’s post is going to share the financial criteria that make you an ideal candidate for refinancing.
Estimated read time 4 minutes.
Oh student loan refinancing you’re so sexy. You promise to slash my interest rate and save me thousands of dollars. I can see the backpacking trip across Europe I can buy with that savings now. But behind that allure I wonder What are you hiding? Where’s the catch?
Here’s the catch. Refinancing is the best option for those with substantial financial security. And I’m not just talking about the ability to pay your bills every month. I’m talking standard adult level financial security. The kind that looks at your assets (hah! what assets, my education?) and liabilities (all your other debts) and your earning power and monthly cash flow.
Read on to see if you’re financially secure enough to refinance your student loans.
You have a high and predictable income.
How high? That’s a tricky question but essentially the higher the better. Refinancing companies are cherry picking safe investments so the higher your income the more likely you are to repay your debt. Think about this, the average income of someone refinancing through Earnest was over $130,000.
Refinancing companies also want to see predictable income, meaning they favor people who are employed and have a steady paycheck coming in. For your own sake you also need to have predictable income because a refinanced loan is a private loan and can lose much of the payment flexibility offered by federal loans.
You have a good to excellent credit score.
Most refinancing companies only refinance student loans for borrowers with credit scores over 680, some go down to 660. The better your credit score the better your interest rate.
You have some assets.
This doesn’t just mean something like a house. This includes your savings account and investment accounts such as a 401K or IRA. The more money you have in assets, the better you look to refinancing companies.
You’re ready to pay off your debt.
Refinancing shouldn’t be used to stretch out the length of your repayment term. A federal loan is more flexible and forgiving when it comes to unplanned financial problems. If you feel like you need a lower monthly payment, choosing a different federal repayment plan is a better option.
If you have high interest private loans refinancing could be a good option because a lower interest rate could lower your monthly payments without extending the duration of your repayment.
Still interested in refinancing?
If you’ve answered these questions positively, you should start looking into refinancing. Every day you wait you’re racking up interest. Get started with these articles. If you’re not quite sure if refinancing is right for you send me an email jeni@repayable.org and we’ll talk through your student loans and find a repayment strategy that works for you.
Is Student Loan Refinancing Right For You?
How to Choose the Refinancing Benefits You Need
How Much Does Refinancing Student Loans Impact Your Credit Score?
Photo credit: Tim Gouw
Read this if you’re thinking about refinancing your student loans but are worried about the impact that could have on your credit score.
Estimated read time ~3 minutes.
Submitting formal applications for student loan refinancing shows up on your credit score. So what? How does refinancing actually impact your credit score? Read on to find out when refinancing can negatively impact your score.
The Basics of Your Credit Score
There are six main factors that determine your credit score; your on-time payments, credit usage, total accounts, average age of credit, derogatory marks, and credit inquiries.
Student loan refinancing applications count as credit inquiries and are factored in to your credit score and are reported for two years. What does this mean if you’re refinancing?
Where Student Loan Refinancing Comes In
Each formal student loan refinancing application will count as a credit inquiry.
Stick to rate estimators which run a soft credit check (which doesn’t affect your credit score) to shop for the lowest rates. When you’ve found the lowest rates select three or four companies to apply to and submit your applications in one batch.
Overall Impact
If you have a good-excellent credit score and use credit responsibly three or four inquiries from refinancing will have minimal impact on your credit score.
It is important to note that a rejected application for refinancing will also show up on your credit score. Plugging accurate information into the rate estimators found on refinancing company websites can help you understand if you’re qualified for refinancing.
In June I re-refinanced my student loans for a fixed rate of 3.37% through Earnest. I submitted formal applications to Earnest, CommonBond, and ElFi. My credit score has gone down by two points since then, which is an insignificant change.
If you’ve been avoiding refinancing because you’re worried it might tarnish your golden credit score, it’s time to take a closer look. The savings a low interest rate can land you are worth the minimal impact to your credit.
Have you refinanced? How did it impact your score? Let me know in the comments below or on the Repayable Facebook Page.
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