Student loan falsehoods can be costly. For example, myths related to student loan refinancing could cause borrowers to overlook a simple way to lower monthly payments or save money over the life of the loan. But with so much information circulating about student loans, it’s difficult to tell myth from fact.
Here are three common student loan refinancing myths.
Myth #1: Student loan refinancing is the same as federal student loan consolidation.
Refinancing and loan consolidation share similar features, but they do not result in the same outcome. They both use a new loan to pay off one or multiple loans. Both options have the potential to lower the total monthly student loan payment. However, their key differences make them a good choice for some borrowers and not others.
Refinancing and consolidation key differences.
Student loan refinancing is offered by private lenders. Refinancing allows borrowers the opportunity to obtain more favorable rates and terms. Additionally, you can refinance private student loans more than once. This allows the borrower to benefit from declining interest rates.
Federal student loan consolidation applies only to loans taken out under the Federal Student Aid Program. You can not include private student loans in a federal loan consolidation. Unlike student loan refinancing, which can extend repayment terms for up to 20 years, a federal student loan consolidation could have a repayment term of up to 30 years. Only under special circumstances are borrowers allowed to reconsolidate loans under the federal program.
Including federal student loans in a private student loan refinance could result in a loss of specific federal benefits, such as Public Student Loan Forgiveness. Even a federal student loan consolidation could cause borrowers to lose certain benefits, such as principal rebates or interest rate discounts.
Myth #2: You do not need excellent credit to refinance private student loans.
You do not need a credit score of 800 or above to refinance private student loans. While excellent credit could open the doors to the best available rates and terms, a good credit score and stable source of income might be all a borrower needs to benefit from a refinance.
Lenders set their own standards for minimum credit score and income requirements. If a borrower has fair or very poor credit, a refinance might not be an option unless they can secure a creditworthy cosigner or improve their credit before submitting the refinance application.
Myth #3: Student loan refinancing will cause me to lose all of my debt relief benefits and repayment perks.
Similar to federal student loan programs, private student loan lenders offer hardship protections. Some programs include temporary interest-only payments or forbearance periods where no payments are required. Lenders have different hardship eligibility requirements. Still, most lenders will work with borrowers to ensure they repay the loan in full. Interest rate reductions for setting up auto-payment from a bank account are common repayment perks that can help save even more money when refinancing student loans.
While student loan refinancing isn’t for everyone, eligible borrowers can improve their financial situation starting with one phone call. Speak with a LendKey representative today at (888) 547-9050, or check your rate online and discover how much you can save!