Chances are your life is different from when you first took out your student loans. If your career, finances, or priorities have changed since then, there’s probably a better payment plan out there – one that can save you money and help you reach your goals faster. So, whether you want to travel, buy a home, or save more, let’s look at how refinancing can help you get there.
Does your repayment plan still make sense?
Refinancing allows you to get a new payment plan that fits your financial goals better. When you refinance, we pay off your current loans and replace them with a single, smarter 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. And, since refinancing has no upfront costs with many lenders, including CommonBond, it’s a tool you can use over the life of your loans. Start exploring new payment options with CommonBond today.
Do you need more room in your monthly budget?
If you’re focused on other financial goals like saving more, buying a home, paying for a wedding, or building a vacation fund, refinancing can lower your monthly student loan bill by helping you qualify for a lower interest rate, extend the length of your loan (such as from a 10-year to a 20-year loan), or both.
Tip: If you’re saving up for a house down payment, lowering your student loan bill can help you decrease your debt-to-income ratio (DTI), which is an important factor if you plan on applying for a mortgage.
Are you able to put more money toward your loans each month?
People are often surprised to find that, even though they've been paying the minimum amount due each month, after a few years they’ve made only a small dent in their overall balance. This is because their minimum monthly payments have mostly been paying down the interest accumulated, not the principal (or original) amount of the loan. If you can manage a more aggressive payment, a shorter-term loan (such as a 5-year loan) will likely come with a higher monthly bill but a lower interest rate, faster timeline, and less interest overall.
Tip: Not sure you can commit to a steep increase in your student loan payments? You may want to choose a payment plan with a more comfortable monthly bill, then set up your autopay to pay more than the minimum. You’ll still save on overall interest and speed up your timeline by paying extra each month, but you’ll have the option to go back to making minimum payments if you ever need more wiggle room in your budget.
Can you get a better deal?
Whether you’re looking to pay less OR more each month, you could save on interest in either scenario by qualifying for better rates. Even a .50% decrease in your rate could save you thousands. There are two main factors that could help you:
1. Market rates have dropped
If you haven’t refinanced your loans since taking them out, there’s a chance that current market rates (basically determined by how the economy is doing) are lower than what you’re paying.
2. Your finances have improved
Market rates are just one piece of the puzzle. Lenders also look at factors like your income, credit score, total debt, and monthly bills. That means if you’ve started working, gotten a raise, paid off credit card or other debt, or improved your credit score, there’s a good chance you could qualify for better rates.
Tip: 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.
Quick refinance facts
- Refinancing lets you combine your loans into a single loan with one monthly payment.
- You can refinance your private loans, your federal loans, or both.
- You can refinance undergraduate, graduate, MBA, law school, dental and medical school loans.
- The better your credit score and income, the better the interest rates for which you can qualify.
- You can save an additional .25% in interest by putting your bill on autopay.
- There is no upfront cost to refinance with CommonBond, no prepayment penalties, and an option to pause payments (known as “forbearance”) for up to 24 months for financial hardship such as job loss.
Tip: If you have federal loans, you may eligible for an income-based repayment plan (IBR), public service loan forgiveness (PSLF), or other type of repayment plan. If you’re interested in taking advantage of that, we recommend checking to make sure you’re eligible (99% of people who have applied for PSLF have been denied and taking the appropriate steps. You should also run the numbers to make sure taking advantage of these actually saves you money in the long run. You can learn more at studentloans.gov.
How to pick the right payment plan for your situation
Student loans have a few basic components to them:
- Interest rate – these typically fall between 2.5% to 9%
- Monthly payment – this goes toward both your original balance (principal) and interest
- Term – typically 5, 7, 10, 15, or 20 years
- Type – typically a fixed-rate, variable, or hybrid loan
At the end of the day, you’re looking for a monthly payment that works with your budget – allowing you to make ends meet, pay down your loans, and make progress on your other financial 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.
How to get the best deal possible
Lenders look at your full financial picture when you apply for a loan – things like your credit score, income and debts. Working on these different areas can help you qualify for better rates, now and in the future.
1. Work on your credit score
The higher your credit score, the lower the interest rates for which you can qualify, which can help you save tens of thousands of dollars. With most lenders, including CommonBond, you’ll need a minimum FICO score of around 660 to refinance.
Tip: Keep in mind that different companies use slightly different criteria to calculate your credit score. For example, your FICO score may be slightly lower than your Vantage score. In general, any steps you take to improve will help across all your scores.
2. Add a cosigner
If your FICO score isn’t high enough just yet, you can still refinance by adding a cosigner to your application. Even if you are able to 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.
Tip: If adding a cosigner isn’t an option, keep in mind that many people who come to CommonBond are just 20-40 points shy of the minimum 660 score required to refinance. Even though they don't qualify right away, they’re often able to work on their score and come back to refinance within a year or less.
3. Examine your monthly cashflow
Lenders want to make sure you can comfortably make your minimum monthly payment. To do that, they consider both your monthly income and your monthly bills – factors like housing costs, credit cards, car payments, and student loans. This is sometimes called your debt-to-income ratio, or DTI. If your minimum monthly payments take up too big a portion of your monthly income, or you don’t have a large enough “cushion” in your monthly budget, you may not be able to qualify for a refinance.
There are two ways to improve this ratio. First, you can work to increase your monthly income by seeking a raise, a new job, or taking on extra work. Second, you can work on reducing or eliminating any recurring monthly payments. Keep in mind that the focus here is on your minimum monthly payments, not total debt, so you may want to consider trying to pay off an auto loan, or paying off or consolidating high interest credit cards.
4. Consider your total debt
In addition to your monthly cashflow, lenders also consider how your total debts (including things like your mortgage balance, credit card debt, and student loans) compare with your income. Even if you meet the credit and monthly cash flow requirements, you may need to pay down some of your total debts before you can qualify.
How to get started
CommonBond makes it easy to explore your refinance options in just a few minutes online with no commitments, no documents, and no impact to your credit score. From there, it can take as little as 10 minutes to complete your application, and a few days for our team to review and approve your loan.
1. Explore your rates and payment options
To show you the rates for which you’re likely to qualify, we’ll need you to tell us a few quick things:
- Your estimated student loan balance
- Your annual income (before taxes)
- Your social security number (so we can run a soft credit pull, which doesn’t affect your score)
- Your resident status (we can work with you if you’re a U.S. citizen, permanent resident, or H1-B, J-1, L-1, E-2, or E-3 visa holder)
- Your highest degree (you're eligible if you hold a degree from one of 2,000+ schools in our U.S. network)
2. Verify your information
Once you’ve chosen a payment plan, we’ll ask you to complete your application by verifying some of your information. This can take as little as 10 minutes. We can often get all the information we need automatically online, but in some cases, we may need you to upload some documentation. Here’s everything we may need:
- We’ll ask you to authorize a “hard credit pull.” This is something that all lenders require in order to approve a loan application and will temporarily decrease your credit score.
- Proof of income, such as a recent pay stub or tax documents
- Recent loan statements for each loan you are refinancing
- Proof of graduation, such as a copy of your diploma, transcript, or letter from your school
You can save your application online and come back to it at anytime, although your hard credit pull is only valid for ninety days.
3. Approval and sign-off
After you’ve submitted your application, we’ll take a few days to review and let you know if we’re able to approve your loan. Then, we’ll ask you to sign some final documents so we can pay off your old loan and set you up with your new CommonBond loan.
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