We often get questions on the topic of student loan refinancing. Whether it is in our student loan workshops for graduate programs throughout the country or from existing FitBUX members who use our MyFIT Student Loan Refinance Solution, we get confused looks and questions confirming the inaccuracies and proverbial myths “out there” on the topic.
This article highlights 8 myths when it comes to student loan refinancing and provides clarification for those looking to refinance their student loans or may have already refinanced their student loans and want to understand if they can further improve their situation, either by refinancing again and/or identifying ways to make their repayment plans more flexible.
As always, it's important to make sure refinancing is right for you. We highly recommend reaching out to your FitBUX Coach to discuss what makes sense for your situation. For those of you not familiar with FitBUX (yet!), this is a free service.
Myth #1: I Have to Refinance All My Loans
The average person using FitBUX’s free student loan solution has between 10 and 20 loans. Many times on our FitBUX Coaching calls, we will ask if the person has looked into refinancing. The response we often hear is something like, “Yes, but they offered me a 5.0% rate and I have loans at a lower interest rate than that so I didn’t refinance.”
The confusion stems from a misunderstanding that refinancing is an “all or nothing” type of deal. That is simply not the case. Using our example above. If you have loans at 6.5% or 7.0%, you could decide to only refinance these specific loans and leave loans with a current interest rate of less than 5% “as is”.
Refinancing only specific loans may require additional steps with your loan servicer, but it will be well worth it when it’s all said and done.
If you’re considering refinancing specific loans, our MyFIT Student Loan Refinance Solution will help you gather the required information and that everything is done correctly, both from your existing servicer and your new lander’s perspective.
Myth #2: I Can Only Refinance One Time
Nope. This actually applies not only to student loans but also mortgages for instance. You may refinance as many times as you’d like and often times there are strategic reasons to do so such as:
- Interest rates dropped so you can save more money
- You now have a deeper/longer credit history and a higher credit score, so you can get a lower interest rate, all else being equal
- When refinancing, you may be able to reduce your required monthly payment, which may not save you money, but provide you with a more flexible repayment plan since a larger portion of your payment would become voluntary. This would give you more flexibility if you wanted to save for a down payment on a home for instance.
And the best thing about student loan refinancing is Myth #3…
Myth #3: It Costs Money To Refinance
The number one question we get asked at FitBUX is how much does refinancing cost. REFINANCING STUDENT LOANS IS FREE. Unlike most loans, such as mortgages, there are no fees associated with refinancing student loans. If someone tells you otherwise, walk away and contact us instead. Our refinancing service is free to the borrower.
There is one small caveat to this. If you refinance via a credit union, some of them may require you to become a Member of that credit union to be eligible. A small percentage of them have a one-time membership fee of $20…this is still worth it of course because you can potentially save thousands by refinancing.
Myth #4: I Should Wait Until My Credit Score Goes Up Before I Refinance
No. If you qualify to refinance your student loans now and it fits into your overall repayment strategy, DO IT NOW. This goes back to Myth #2…refinance today and if your credit score increases then possibly refinance again.
There are many reasons not to wait such as:
- Interest rates may increase and refinancing rates would move up accordingly
- Lenders may modify their approval methodologies at any given time. Because you’re getting a refinancing offer today doesn't guarantee that you’ll get one in the future. The financial crisis of 2008/2009 is a perfect example of what could happen.
- Every day that goes by, you are paying extra interest thus costing yourself money
Myth #5: I Got Denied By A Lender And All Lenders Are The Same
Nope. Just because you were denied by one lender does not mean you can’t get approved by another. Each company has different criteria they use to see if you qualify. This is one of the major reasons young professionals use our MyFIT Student Loan Refinance Solution.
Your FitBUX Coach can look at your profile and figure out which one of our lending partners would you qualify for and which would give you the best rate. Also, s/he will help you look into other items and see if adding a cosigner improves your situation for instance. In addition, if you do get denied, your Coach can help you develop a plan which may help you get refinanced in a couple of months as your overall financial situation improves.
Bottom line, not all lenders are created equal.
Myth #6: If I Use A Co-signer They Are Liable For The Entire Life Of The Loan
First things first, a co-signer will be liable for your loan, i.e. if you don’t make payments on your loans, they’re on the proverbial hook for said loans. The primary purpose of adding a co-signer is to either 1) qualify for a loan if you’re not able to qualify on your own or 2) to get a lower interest rate.
This is another area where working with your FitBUX Coach further helps. Some lenders have co-signer release policies. For instance, if you make payments for let's say 12 months, you may be able to remove the co-signer and keep your same interest rate and overall terms.
Different companies have different policies, i.e. some have a co-signor release after 1 year, some 3 years, and some don’t have one at all.
Myth #7: I Can’t Make Prepayments
Many people think once they refinance the only payment they can make is the monthly required payment. Not true. If you are trying to pay off your loans as fast as possible, you can make prepayments and there is no penalty for doing so. Nothing changes.
Myth #8: I Can’t Refinance Because I Can’t Afford To Pay Two Lenders
When you refinance (partially or fully), your new lender pays off your previous loan. Thus, your required monthly payment is reduced at the old lender.
The FitBUX Difference: MyFit Student Loan Refinance Solution
When you become a FitBUX member, you'll get personalized coaching and see whether refinancing fits into your overall strategy thanks to our MyFIT Student Loan Refinance Solution. If it doe, your FitBUX Coach will work with you and our 6 approved refinance partners to identify the optimal fit, above and beyond a lower rate.
We will then work with you and the lender to make the process seamless from A to Z.
This is a free service from FitBUX. Always.