As the $1.2 trillion in outstanding student loan debt continues to grow, college graduates find themselves with more student loan debt than ever before. If you are one of the 7 in 10 seniors graduating with student loan debt this year you may be confused and frustrated. The average recent graduate is holding a whopping $33,000 in student loan debt!
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There is no easy way out of student loan debt. That being said, student loan refinance may be one way in which student loan borrowers can lighten their load. Newly originated student loans carry interest rates from 2% all the way up to 14%. If you are stuck paying 12% interest rates on your old student loans you should know that you can refinance.
Student loan refinance has become a hot topic in recent months and yet we are still surprised to find so many borrowers misinformed by student loan refinance myths. I would like to set the record straight on a few student loan refinance myths.
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Myth #1: You can’t refinance federal student loans
False. Virtually every large student loan lender these days allows you to refinance federal student loans. When you refinance, you are able to select only the federal and private student loans you would like to refinance. You may have seen Senator Elizabeth Warren’s failed attempts at passing a student loan refinance bill in 2014. Know that this bill was aimed to allow borrowers to refinance federal student loans through the federal government, not private student loan lenders. The media didn’t do a great job conveying the actual facts behind Sen. Warren’s failed bill.
Myth #2: You can only refinance your student loans once
False. You can refinance as many times as you would like. Over the last few years interest rates have fallen dramatically. So if you refinanced a few years ago, it might be worth looking into refinancing again with lower interest rates. Moreover, if you have improved your credit profile you may be offered better rates the second time around.
Myth #3: Every lender has the same rates
False. Each lender has unique underwriting criteria used to price loans. We promise that you will be evaluated differently with each lender. Depending on your income, credit score, and debt balance you will be offered a unique rate. Depending on the lender, interest rates on student loan refinance range from 1.92% up to over 9%.
Myth #4: Lenders don’t negotiate
False. If you are approved for student loan refinance at multiple lenders you can bet that lenders are willing to negotiate. While I can’t promise that every lender is willing to budge, I know a few are willing to win your business.
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Myth #5: An extended term length will always result in you paying more interest
False. You may extend your term length when you refinance. Most lenders offer borrowers a choice of many term lengths. Term lengths generally range from 3 years all the way up to 25 years. That being said, if you are able to lower your interest rate when your refinance you may be able to extend out your term length and still pay the same amount in interest over the life of the loan.
Myth #6: You have to refinance all of your loans
False. You have the option to refinance any or all of your loans. At LendEDU we talk with graduates who are only looking to refinance their high interest rate private student loans. Feel free to keep those low interest rate federal loans if you’ve got them!
Myth #7: Federal loans have the lowest interest rates
False. Federal student loans do have borrower benefits included, but that doesn’t mean the interest rates are the lowest. Today, Graduate PLUS loans have interest rates over 7%! And if you find yourself paying over 6% on a Stafford Loan you are not alone. Some student loan refinance lenders offer rates as low as 1.92%!
Myth #8: Refinancing and consolidation are the same thing
False. Consolidation is the process of combining multiple loans into one new loan. The Department of Education has federal student loan consolidation programs available. When you consolidate through the Department of Education you are given a weighted average interest rate. When you refinance through a private lender, your new lender literally pays off your old loans in exchange for a new loan from that lender. You can refinance and consolidate with private lenders, where as you can only consolidate with the Department of Education.
Nate Matherson is the Co-Founder and CEO of LendEDU, an independent marketplace for student loans and student loan refinancing. LendEDU allows borrowers to compare personalized student loan quotes from multiple lenders with just one application.
LendEDU was built by student loan borrowers for student loan borrowers. We want to help student loan borrowers find the best rates and terms available.