There are many different refinance companies available for student loans. The difficulty isn’t in finding one, it’s in choosing the right match based on a variety of factors. When we first started the refinance process, we had really only heard of Sofi, however we soon learned there were dozens more companies to choose from. After researching for many weeks and finally having our loans refinanced on the THIRD attempt, we learned a few things we wanted to share and hopefully help other people with during this process:
COMPARE INTEREST RATES
Obviously the first thing we looked for was which company was offering the lowest interest rate. However, there were other factors that determined our final decision. When we did a simple google search we found a handful of websites (NerdWallet, Student Loan Hero, etc.) that showed estimated ranges from several lenders. This helped narrow down which lenders were offering the most competitive rates. After selecting a few that appeared to be the lowest, we proceeded to each lender’s website in order to verify quotes based on our personal information (i.e. how much debt needs refinanced, monthly income, etc.). This required a soft credit check.
A couple of questions that came up for us during this process:
- Are the quoted interest rates reliable?
- No, the initial interest rate is only an estimate until the formal application and hard credit pull are complete.
- Will my credit score be affected by completing multiple applications?
- Unfortunately, we received conflicting answers about this. Some lenders insisted all hard credit pulls within a 30-day period would count as ONE collective credit check. Other sources begrudgingly admitted each credit check affects your credit score by about 5 points. That being said, it’s advisable to limit the number of applications you move forward with.
- Should I pursue a fixed or variable rate?
- This can depend on your repayment timeline. For shorter terms (5 years) there is less risk choosing a variable rate because you are more likely to pay down the loan before it changes. In our case, we preferred to lock in a fixed interest rate.
Interest rates vary quite a bit based on the term length and if they’re fixed or variable. For our refinance, we proceeded with a moderately higher, fixed interest rate and longer term in order to have the flexibility of a lower monthly payment. Ultimately, the decision depends on your own repayment goals.
CONSIDER A CO-SIGNER (IF APPLICABLE)
Sometimes a co-signer makes the difference in acceptance or rejection for applicants with high debt-to-income ratio (DTI). Additionally, a co-signer can help lower the interest rate (as it did for us). Keep in mind: the co-signer does assume equal responsibility for the loan amount, which warrants serious discussion prior to proceeding.
We learned each company has very different policies concerning how many co-signers are allowed on the application and how the co-signers’ income will be considered in the underwriting process. Here are some points to consider:
- Number of co-signers
- Some companies will not allow any co-signers, whereas others will let you apply with one or multiple.
- DTI calculation
- If they do allow a co-signer, some will combine the co-signer’s DTI with the applicant’s and others will only consider them separately. If the latter is the case, you lose the benefit of combining both the applicant’s and co-signer’s incomes.
- Co-signer release
- This allows the cosigner to remove themselves at a later date. Considering the risk for a co-signer, especially in the event of death, this can be a great benefit.
CHECK THE MAXIMUM LENDING AMOUNT
Some companies cap the amount of loans they will refinance. For example, multiple lenders limit to $300-350K for graduate/medical student loans. If you have more than $300K worth of student loans like we did, look for companies without maximum lending amounts.
COMPARE BORROWER PROTECTIONS (You may not lose all of your federal loan protections!)
If you encounter financial hardship such as unemployment or illness, some lenders offer loan forbearance which allows you to stop payments on your loans (usually up to 1 year). Keep in mind the interest will still accrue and be capitalized during this period, but you can typically make interest only payments during this time to prevent that from happening. Additionally, and surprisingly, a number of lender policies indicate they will actually discharge your loans upon death with the proper documentation.
KICKBACKS/REFERRALS ARE A PLUS
Side bonus if you think you’ll be referring family and friends. The majority of companies will reward referrers and referees. Sofi, for instance, will give you $300 for every referral and the applicant $100.
LINKING YOUR ACCOUNT TO AUTOPAY CAN SAVE YOU MONEY
If you allow automatic payments to be deducted each month, some lenders will reduce your interest rate! We were able to save 0.25% by signing up for autopay. Sometimes there are bonuses for doing your personal banking with them as well.
DON’T BE PENALIZED FOR PAYING EARLY
For us, it was very important to be able to make extra payments as we please. If you are in the same position, you want to make sure you can prepay without penalty. Also, make sure you can designate payments to the principal loan and not just to the interest. In our case this required writing a letter with specific instructions to ensure all extra payments go toward the principal.
CUSTOMER SERVICE IS MORE IMPORTANT THAN YOU THINK
This one you won’t find in your google search. We found there was a huge difference in customer service between companies. It’s never fun when someone puts you on hold every time you have a question or sounds like they are reading a script. We were very happy with First Republic’s service, which pairs you with a specific lending associate for communication. It was convenient to have someone easily accessible. It also allowed for continuity throughout the application process. Unfortunately, most companies do not assign a personal lending associate, so you will be more reliant on their customer service phone line. Don’t be afraid to call each lender and ask plenty of questions. Make sure all your questions are answered before you submit final applications!
CHOOSING A LOAN REFINANCE COMPANY IS A PERSONAL CHOICE
Take the time to shop around for a lender that meets your needs. Consider comparing two or three companies to make sure you are getting the best rate and protections. As long as you are making the appropriate considerations, you will be happy with your decision.
Have you applied to refinance your loans? How was your experience and which company did you go with? What additional factors did you consider? Comment below!