Student loan refinancing tips, myths and savings

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Co-Founder at LENDEDU, Guest Contributor

Student loans have become the new normal for most graduates. In fact, the Class of 2015 graduated with more student loan debt than ever before. As the six-month grace period comes to an end for graduates nationwide, many students will start the task of repaying an average student loan balance of over $30,000. The key to beating student loan debt after graduation is efficiency. Making the right payments, at the right time, and on the right loans can mean the difference between saving and overpaying.

Over the last couple years we’ve seen dramatic growth within the student loan refinance industry. We all know that you can refinance a mortgage or even an auto loan, but consumers are just starting to realize that you can refinance student loans, too. And if you know where to look the savings can really add up.

What is student loan refinancing?

Student loans are expensive. Student loan refinancing can help you lower the interest rate you pay to make your student loan debt a little less expensive.

Student loan refinance is the process of consolidating and refinancing federal and/or private student loan debt with a private student loan lender. When you refinance, you are able to restructure your student loan debt as well as refinance at a potentially lower interest rate. Student loan refinance lenders offer rates as low as 1.92% and offer a wide variety of loan options. When you refinance you can select a new term length from five to 20 years and you can even choose from fixed, variable, and mixed interest rates. There are generally no application, origination, or pre-payment fees to refinance.

Keep in mind that student loan refinancing is only offered by the private market. The Department of Education does NOT currently offer a student loan refinance option.

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Potential Savings

The amount of money you can save through student loan refinancing varies depending on the options you select, your creditworthiness and the amount of debt you have. The largest student loan refinance lender, SoFi, reports an average savings of $14,000 per borrower. If you are stuck with high interest rate private student loans, refinancing savings could really add up and help you repay your debt on a much quicker timetable.

Outside of savings, student loan refinancing can help you match your student loan repayment to your financial goals. By selecting a new term length and interest rate, you can repay your loans on a schedule that aligns with your financial future.

In general, the longer the term length you choose, the higher the interest rate. Moreover, variable interest rates usually start at least 100 basis points below fixed rates with most lenders.

RELATED: 8 tips on how to make student loans work for you

Potential Risks

Like any major financial decision, there are risks involved with consolidating and refinancing your student loans with a private lender. The biggest concern for most borrowers is the fear of losing federal student loan protections.

When you refinance federal student loans with a private lender you are no longer eligible for income-driven repayment plans such as income-based repayment. You are also ineligible for Public Service Loan Forgiveness. If you think you will need to an income-driven repayment plan or if you are in the public sector, you should consider these risks before refinancing.

How to Get Started

The student loan refinancing process has gotten a lot easier in recent years. The applications can be started online and can be completed in less than 30 minutes.

However, choosing the right student loan refinance lender is a little more challenging. A host of new lenders have entered the market including SoFi, LendKey, CommonBond, U-fi, and Darien Rowayton Bank. Each lender offers slightly different rates and options. More importantly, each lender offers different benefits. Benefits have become a pretty big selling point in the industry. Some lenders offer cosigner release, unemployment protection, mentoring, networking, and even cash-back.

You may get approved at one lender and not another. It always makes sense to shop around with at least a couple lenders.

RELATED: Try the 529 Savings vs. Loans Calculator

About the Author: Nate Matherson is a Co-Founder at LendEDU. LendEDU helps students compare multiple student loan lenders in one place. Nate started LendEDU to ensure than none of the 43 million Americans pay more than they should on their student loans.