Post-college life

Refinancing Your Student Loans? Use this Checklist to Save the Most Money

There's a reason refinancing student loans is growing in popularity – people are discovering just how much money they can save on interest. Since 2012, graduates have saved $4.5 billion by refinancing over $20 billion worth of student loans.

When you refinance, your current loans are paid off and replaced with a single loan with a new interest rate, term, and monthly payment. You can refinance to lower your monthly bill, or you can choose a more aggressive plan to pay off your loans as quickly as possible. If you get a better interest rate, you could save thousands overall. So how can you make sure you get the best rate possible?  

1. Review your current picture

Before anything else, take some time to understand what refinancing might mean for your student loans. Take an inventory of your current loans, balances, interest rates, minimum payments, and payoff timelines. Now is also a good time to get a sense for how much discretionary income you may have in your budget for your loans, so you have a sense for what your ideal payment plan might be.  

2. Work on your credit score

This is a big one. Your credit score helps lenders evaluate your ability to pay back loans, based on your borrowing history. With most lenders, you’ll need a minimum FICO score of around 660 to be eligible to refinance. The higher your score, the better rates you’ll be able to get.  

6 ways to boost your credit score for a student loan refinance

3. Pay down other debts

When you pay off a debt, like a credit card balance, there’s a good chance your credit score will get a boost. Second, your debt-to-income ratio or “DTI,” which looks at your monthly bills vs your monthly income, will also improve. Both factors can help you get better rates (just keep in mind that it can take a month or two for credit bureaus to update your score).  

4. Look into adding a cosigner

If your credit score isn’t high enough to refinance just yet, you can still refinance by adding a cosigner to your application. And even if you can refinance on your own, adding a cosigner could help you qualify for better rates if they have a higher score.

Your cosigner would need to apply using their own credit and income information and agree to be on the hook for your loan if you are unable to pay for any reason. A cosigner can be a parent, spouse, family member, or friend – and they don’t necessarily have to be attached to your loan forever. At CommonBond, if you make consecutive, on-time payments for three years, you can request that your cosigner be released. If at that point you meet the criteria for your particular loan without your cosigner, we can take them off your loan.

5. Compare new payment options

Qualifying for better rates can save you money. Next it’s time to consider which payment plan will work best with your budget – allowing you to make ends meet, pay off your loans, and make progress on your other goals.  

Here’s a way to think about your options:

  • Shorter terms typically mean lower rates. If you’re able to manage a higher monthly payment with a shorter term, you could save thousands in interest.  
  • Fixed-rate loans are the most predictable, since the rate will never change.
  • Variable loans tend to have lower starting rates, but can change from month to month (up or down) based on market rates. If you plan on paying off your loan in a relatively short period of time (say, a few years), you could save money with the variable option.  
  • Sometimes it makes sense to take a higher rate. If you need to make room for other financial goals, a longer-term loan will typically come with a lower monthly payment, but a higher rate and longer payoff timeline.
  • Prepayment can help you save. If you’re not ready to commit to an aggressive monthly payment, you can choose a more comfortable plan, but pay more than the minimum each month (or whenever possible). You’ll still save on interest and speed up your timeline, and CommonBond will never penalize you for prepaying.
  • You can save with autopay. CommonBond members get a .25% discount on their rate by enrolling in autopay. It’s also a great way to ensure you never miss a payment.

Explore your rates and payment options

6. Shop around

It never hurts to compare rates with different lenders. (You can check your rates with CommonBond for free with no impact to your credit score). Once you’re ready to move forward with an application, lenders will ask you to authorize a “hard credit pull” which will temporarily decrease your score, typically by about 10 points.

7. Think long-term

Sometimes people can get caught up waiting for rates to go as low as possible before they refinance. The reality is that there’s no crystal ball to tell us if they’ll increase or decrease in the future. And as long as you can get a better rate than you have now, there’s a good chance you’ll save more money in the long run by refinancing sooner, rather than continuing to pay your higher rate loans while you wait to see if rates go down.

Since refinancing has no upfront costs with many lenders, including CommonBond, it’s a tool you can use over the life of your loans. Read why one CommonBond member refinances her student loans every year.

Start your CommonBond refinancing today

Subscribe to our newsletter: