Want to refinance graduate student loans? This is how to do it
Graduate students may save money if they refinance student loans. Here's what you need to know about refinancing. (iStock)
Graduate school can open up many doors professionally. A graduate degree may be a prerequisite to work in your field or may give you a leg up when it comes to getting hired. But it also comes at a cost, as graduate programs are expensive.
Many people have to borrow to attend grad school due to the exorbitant price tag. According to Credible data, the average graduate school loan debt is $84,300. However, the amount varies by degree. Those who obtain a professional degree in law or medicine generally owe the most.
Still, loans are an issue for most people who pursue a degree beyond college. In fact, while graduate students collectively take out around 40% of all student loans they represent just 14% of students enrolled in universities. In the 2017-2018 school year alone, grad students borrowed around $37.6 billion.
If you're one of the many grad students with educational debt, you may wish to refinance private student loans to make repayment easier. Use an online student loan refinancing calculator to see how much refinancing could save you. And visit Credible to compare student loan refinancing rates from multiple lenders without affecting your credit score.
How to refinance graduate student loans
Typically, you should refinance only private student loans. Refinancing federal loans doesn't make sense for most borrowers.
Refinancing federal loans requires you to give up many borrower benefits, including loan forgiveness options and flexibility in repayment plans. President Biden may also help borrowers with federal student loans. And payments and interest are currently suspended through September due to COVID-19.
If you have private loans, however, refinancing could potentially save you money and be a smart move. To refinance graduate student loans, take these seven steps.
1. Check your credit score and report
Good credit is essential to qualifying for a refinance loan at favorable rates. Check your credit history to see if there are derogatory remarks affecting your score. And always make payments on time.
If your credit score is too low to refinance student loans at a competitive rate, work on improving it before applying -- or ask a cosigner to help you refinance to make paying back student loans faster and easier.
Not sure where you fit on the credit score spectrum? Then you should start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.
2. Work on improving your debt-to-income ratio
Lenders consider your total debt relative to your income when deciding if they'll help make student loan payback easier by approving you for a refinance loan.
If your debt-to-income ratio is too high, maximize your chances of loan approval by paying off as much debt as possible. This doesn't necessarily have to be student loan debt -- repaying any loans will improve your DTI ratio.
3. Decide on your goals for refinancing
You can refinance for different reasons. Your goal may be saving money over time. That would mean you'd want to choose a loan with a shorter payoff timeline. These tend to come with lower interest rates. You could save both because the costs of borrowing are lower and because you're not paying interest for as long.
Or you may want to reduce your monthly payment as much as possible. In that case, your goals for refinancing might lead you to choose a loan with a longer payoff timeline that comes with lower monthly payments. You can visit Credible to explore different loan options and see how your repayment timeline affects monthly and total costs.
4. Research lenders offering student loan refinance loans
Many lenders offer student loan refinance loans. However, not all lenders cater to grad school students, who often owe more money. If you have a high loan balance, find a lender that will give you a large enough refinance loan.
5. Shop and compare rate quotes from several lenders
It's a good idea to get quotes from multiple lenders -- at least three. That's key to making sure you get the most competitive possible rates and terms. Credible makes it easy to do this, as you can view a table that compares rates from different lenders at once.
6. Complete your student loan refinance application and wait for approval
Once you've found a lender offering an affordable interest rate, a payoff timeline that makes sense, and monthly payments in your budget, apply for your loan. You'll be notified quickly if you're approved and can then complete the process of getting a new loan to repay existing debt.
Remember, don't submit an application to refinance student loans unless you've made sure the lender is offering the most competitive terms. Credible makes it easy to find the best loan option. Visit Credible today to compare student loan refinancing rates from multiple lenders at once.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.