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Borrowers generally refinance student loans to get a lower interest rate or a lower monthly payment. In some cases, refinancing can save you thousands of dollars over the life of your loan. If you have Nelnet student loans you may be able to refinance into a loan from a private lender. However, there are some important things to consider before you refinance.
Benefits of Refinancing
When you refinance a student loan, you borrow a new loan to pay off an existing loan. Borrowers refinance student loans for a number of different reasons, including:
- Get a lower interest rate
- Lower monthly payments
- Release a cosigner
- Switch loan servicers
The most common reason borrowers refinance is to reduce their interest rate. A lower interest rate can save you money and help you pay off your loans faster.
Student Loan Refinance Example
| Existing Loan | New Loan | |
| Loan Balance | $25,000 | $25,000 |
| Term | 10 Years | 10 Years |
| Interest Rate | 7% | 4% |
| Monthly Payment | $290.27 | $253.11 |
| Total Payment | $34,833 | $30, 374 |
| Savings | $4,460 |
What to Consider Before Refinancing
Nelnet is a loan servicer for federal and private student loans. You can’t refinance directly through Nelnet, but you can refinance your Nelnet loan with Nelnet Bank or another private student loan lender.
If your Nelnet student loans are federal loans, there are some important things to consider before refinancing. Specifically, when you refinance into a private loan you lose access to certain deferment and forbearance options and flexible repayment plans.
Currently, federal student loans held by the U.S. Department of Education are eligible for automatic forbearance and a temporary 0% interest rate. However, this relief period is set to expire on October 1, 2021. When the relief period ends, federal borrowers still have access to other repayment options.
For example, some federal student loan borrowers are eligible to switch to an income-driven repayment (IDR) plan. An IDR plan reduces your monthly payment, and any outstanding student loan debt is forgiven after 20 or 25 years of payments.
The government also offers loan forgiveness options for some federal student loan borrowers. Depending on your job, you may be eligible for Public Service Loan Forgiveness or Teacher Loan Forgiveness. With these repayment programs, the borrower’s student debt is cancelled after they make a certain number of payments. Under current law, student loan forgiveness is tax-free. If you think you will qualify for federal loan forgiveness, it may not make sense to refinance.
Some private lenders do offer deferment and forbearance for borrowers who have trouble making payments. If you decide to refinance, you can explore these options as you research private lenders.
Refinancing Versus Loan Consolidation
Another option to help manage your student debt is to consolidate your student loans into a Direct Consolidation Loan. However, it’s important to note the differences between loan consolidation and student loan refinancing.
Student loan consolidation combines multiple loans into one loan with one monthly payment. You may also be able to lower your monthly payment by extending the repayment term on the new consolidation loan. Another benefit is that a federal Direct Consolidation Loan is eligible for IDR plans and Public Service Loan Forgiveness.
But, unlike student loan refinancing, the new interest rate on a Direct Consolidation Loan is not based on current rates or your credit score. Rather, the new interest rate is calculated as the weighted average of the interest rates on the old loans. So, if your goal is to lower your interest rate, refinancing student loans may be a better option.
How to Refinance Nelnet Student Loans
Refinancing your Nelnet loans can help to reduce costs and make your debt more manageable. But, before you refinance, it’s important to explore your options carefully.
Here are the steps to take to refinance Nelnet student loans:
Compare private lenders
Once you decide that student loan refinancing is right for you, the first step is to research private lenders. A borrower cannot refinance a federal student loan into another federal student loan. You can refinance your Nelnet student loans with Nelnet Bank, or you can choose another private lender, such as SoFi, Earnest or College Ave.
The most important factor to consider when shopping for a new private student loan is the interest rate. A lower interest rate means you end up paying less over time. Compare rates from multiple lenders at once with Credible.
Pay attention to whether the rate you’re looking at is a fixed interest rate or a variable interest rate. Fixed rates stay the same throughout the life of the loan, but variable rates may fluctuate based on market conditions. In other words, there’s a chance that your monthly student loan payment could increase. (Federal student loans only offer fixed interest rates).
A student loan refinance calculator can help you determine how much you’ll potentially save with a new loan.
Also, remember that interest rates on private education loans are based on the borrower’s credit score. You might see a low rate being advertised, but that doesn’t necessarily mean it is the rate you’ll qualify for.
You’ll also want to pay attention to each lender’s eligibility requirements for refinancing. You may need a cosigner if you don’t have stable income and good credit history. Having a cosigner may also get you a better interest rate on a private student loan.
When you refinance student loans to a private lender you will lose some of your repayment flexibility. Be sure to review the deferment and forbearance options offered by each private lender. You might be in a good financial situation now, but there may come a time when you need a more flexible repayment plan.
Submit your application
Once you decide on a lender, the next step is to complete a refinancing application and submit the required documentation. This may include proof of employment, residency and graduation and loan statements.
Some borrowers receive a conditional approval from the lender within minutes. However, even if this happens the lender may request additional documentation. If your loan application is denied, you will generally receive an explanation from the lender. In some cases, you may be able to qualify by adding a creditworthy cosigner.
Stay on top of payments
It typically takes about three to four weeks for the refinance to take effect. You’ll have to continue making payments on your original loan until the transaction and lender purchase is complete.
Pay attention to the due date and the loan term on your new refinance loan. Some private lenders charge a late fee after a borrower makes a payment just one day late. Automating payments is a great way to keep your repayment on track, and you might qualify for an interest rate discount.
