We at Scholly pride ourselves in helping students find free money for college by finding Scholarships, but we know that loans are still often a necessity. That doesn’t mean the payments need to be a burden. One way to lower the amount you have to pay in total, and the amount you have to pay monthly, is to refinance your student loans. This is a relatively new concept, so it’s not surprisingly borrowers have questions about what student loan refinancing is and how it can help them save money.
We have partnered with CommonBond to help our members through the process of refinancing their loans to make life more affordable. According to this Forbes article here are the 10 most frequent questions borrowers asked CommonBond this year, and their answers:
What is refinancing and what type of loans can be refinanced?
When you refinance, you take out a new loan to pay off your current student loans. People refinance student loans for a variety of reasons. Refinancing can lower a borrower’s interest rate, decrease monthly payments or let the borrower switch from a fixed-rate loan to a variable-rate loan or vice versa. Some private lenders, including CommonBond, can refinance federal and private student loans as well as previously consolidated loans.
How can private lenders offer lower rates than the federal government?
Private lenders can offer creditworthy borrowers better terms than the federal government because they customize the rate based on a borrower’s risk rather than a formula set by Congress.
What tradeoffs do I make when I refinance my federal loans to a private lender?
The federal government offers income-driven repayment plans and public service loan forgiveness. People who plan to use these extra borrower protections should keep their federal loans.
How is my interest rate determined when I refinance my student loan?
The interest rate for a refinancing loan depends on a variety of factors, including credit history, income, the choice of a variable or fixed rate for the loan, and the length of the loan term.
What’s the difference between a fixed-rate and a variable-rate loan?
The interest rate on a fixed-rate loan remains unchanged over time regardless of what happens with other interest rates. A variable-rate loan fluctuates based on a market benchmark rate. If that market benchmark rate increases, so too would the rate and vice versa. Most private student loans with variable rates use 1-month LIBOR, which is the estimated rate at which international banks lend to each other in a given month, as their market benchmark.
Who is eligible to refinance?
It depends on the lender. U.S. citizens and permanent residents who graduated from one of more than 2,000 universities or graduate programs are eligible to refinance with CommonBond.