Student loan refinancing in 2022: how to do it and what to know first

THROUGH Sam becker20 December 2021, 16:32

A San Jose State University graduate walks through a floor exhibit before the opening ceremonies begin, as seen in December 2021. (Aric Crabb — MediaNews Group / East Bay Times / Getty Images)

Now has never been a better time to consider refinancing your student loans. With interest rates at record highs, refinancing can be a smart move for many student borrowers, provided they’ve taken everything into consideration. There are currently over 43 million people with student loan debt in the United States, and borrowers have an average balance of over $ 39,351.

As a result, tens of millions of people could potentially save money by refinancing their loans at lower interest rates, especially with student loan payments resuming in February after a two-year freeze. Here’s what to keep in mind before shopping around for a new rate.

Important things to consider before refinancing your student loans in 2022

The first thing to know about refinancing your student loans in 2022 is that the timing is perfect in terms of interest rates. “Variable rates have no other way but to increase,” says Mark Kantrowitz, a student loan expert who has written five books on scholarships and financial aid. “Borrowers may want to refinance because interest rates are at or near historically low levels. You can potentially get a lower rate, especially if your rates are much higher than they were a few years ago.

Second, borrowers who were taking a brief vacation to make loan repayments due to the pandemic should be prepared to start paying again. That’s because the Biden administration has confirmed that the hiatus will end at the end of January.

The third bullet in the air is the prospect of some kind of student loan forgiveness action coming from above. The idea has been debated by the Biden administration for some time, and it is difficult to say whether concrete legislation or executive action is seriously considered. From Kantrowitz’s perspective, any program that deals with loan cancellation is likely to be limited in terms of eligibility, and private student loans likely won’t be included to any potential extent. However, he adds, “if it happens, it will happen as soon as possible.”

Federal borrowers could forgo certain benefits and protections by refinancing their federal loans to private loans and, potentially, any prospect of loan cancellation. In short, federal loans offer better benefits, but private loans tend to offer lower rates, leaving borrowers with a choice.

Of course, if borrowers wait too long to potentially capitalize on lower rates, they could miss it, as the Federal Reserve has previously signaled that interest rates will rise in 2022. If you are considering refinancing a student loan in 2022, here are the steps to follow:

1. Find your options and shop

The first thing to do if you are considering refinancing, or at least exploring your options, is to look for a new lender. While a new, lower interest rate may be a priority for many people, it’s also a good idea to look at the fine print.

“We recommend not only the interest rate, but also all the terms and conditions of any potential refinancing, including fees,” says Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling . “There may also be prepayment penalties when you refinance. “

There are many websites and services that will compare loan rates and terms – Coleman cites SoFi, Credible, and CommonBond as the most popular – and says shopping is “the wise thing to do” as the first step.

2. Calculate the numbers and make a decision

It is important to note that the refinancing offers and the corresponding effective interest rates will be largely based on your credit. “Any loan offer to refinance will be based on the borrower’s credit profile,” Coleman explains. “The borrowers with the best credit scores will get the best refinance deals. “

With that in mind, it may be helpful to take steps to increase your credit score if necessary.

Once you have a few great refinancing offers, consider the interest rates and fees that apply, and then decide which one is right for you. And if you’re also wondering how refinancing your student loans might affect your taxes, there won’t be much of an effect.

“A student loan is a personal loan and cannot be deducted,” says David Beck, a New York-based CPA. “There is no tax advantage to refinancing a student loan. “

3. Submit the request and sign the dotted line

Once you have decided to refinance, all you have to do is complete the application and submit it. While doing this, remember that you will likely need a set of documents and information: a government-issued ID, your social security number, bank statements, and statements from your loan officer. current student.

Additionally, if you need a co-signer, you may also need that person’s personal information.

Finally, go back to make sure you’re comfortable with all of the loan terms: interest rate, repayment term, and any applicable fees. It never hurts to see everything again.

4. Wait until the process is complete and start making payments to your new lender.

The most important thing to do, says Coleman, after submitting your application, is to sign the loan documents from your new lender, assuming of course you’re approved. And second, you need to keep making payments to your old lender while everything is being processed.

Assuming everything happens immediately, you risk missing payments which could hurt your credit and lead to late fees. Eventually, you’ll get the green light from your new lender, and then you can change your payments.

In practice, the process of refinancing your student loans is not too cumbersome. The critical aspect is that you do some initial homework and take into consideration that refinancing can have repercussions depending on the specifics of your loans.

However, if getting a lower rate and lowering your monthly payments is all that matters to you, it’s probably time to pull the trigger, Kantrowitz says.

“If you want to lock in a low rate, now is the time to do it. “

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