Should I refinance my private student loans?

[Anonymous]

Hey everyone,

I currently am still enrolled in college in a graduate program, but I have become eligible for some financial aid as I am now considered independent for the purposes of financial aid, so I can afford my tuition as an out of pocket expense (sub $1,000 a semester).

I was wondering if I should refinance the student loans that I had taken out through Sallie Mae. I currently have $20,000 in undergraduate loans financed at 5.5% and $5,000 in graduate loans financed at 8.8% (pretty high). Is there a reasonable way to refinance these at a solid rate without damaging my credit too much? I plan to still be applying for new credit cards throughout the next few years.

Thank you for your help!

[ccquest]

You can go rate finding without it impacting your credit usually. I had mine done through Citizen's Bank which I found using Credible. Credible will run your numbers and match you to a lender and they (including lender) basically confirm everything up to rate and term before a hard pull is done.

I definitely recommend it for anyone with private loans, but if you don't have any income, you might have issues getting approved. Not sure what sort of restrictions your program has, but I know some say you can't have employment at the same time.

[Anonymous]

Income sits at about $38,000 individual income. Hopefully that will be enough to get decent rates. Do you have any advice on how that might impact me since I'll be killing 4 credit lines in the loans and be consolidating into one?

[ccquest]

I don't know if you'll be able to beat the 5.5%, but probably able to bring the 8.8% down at least. You don't have to bring them all together either, you can keep the lower ones where they are and just bring down the grad loans.

I'm not 100% sure on the implications in full, but you'll:
- have a new hard inquiry which lowers your score
- have a new installment loan with a balance at 100% which lowers your score
- have a new installment loan which is a new account which lowers your score (and lowers average age of accounts I think, not sure if that matters on installments)
- have a lower interest rate which saves you money and enables you to pay it down faster or slower depending on how you refinance
- the old loans *should* stay on your account for now, and fall off after 10 years so I don't think you'll lose that history quite yet but it could bring it down eventually

[Anonymous]

Thanks for your response. I checked credible and could refinance all loans at around 4% together, but I'd have to start paying them right now I believe (I currently am on interest repayment since I am still a student). I could likely get a bit lower with asking my dad to co-sign, which he would gladly do.

I didn't know the installments stayed on the report for 10 years. That was my biggest fear, since my SLs are more or less the backbone of my credit at the moment.

[ccquest]

Yeah if you refinance now, you'd have to start paying within a month on the full balance. If the loans are all federal, I would be saving your money now and not pay a penny while they are frozen at 0% interest. There's a chance that could be extended past September, so you could save up a good amount. Then, when the 0% period is going to end, do the refinance, and start paying down as fast as you can. Either do a big lump sum at the start to bring down the balance right away and re-amortize, or just keep the money in savings as an emergency fund or invest elsewhere if you can beat the 4% interest rate.

[Anonymous]

Hey CCquest,

They are all private loans fro Sallie Mae, so I'm getting railed on monthly interest repayment still, not benefitting from the frozen fed loans.

[ccquest]

Make that move then! Once you make your next payment to Sallie Mae, start finalizing the refi. You may end up at a point where the refi loan will have to be paid a bit sooner, but I'd rather be safe and know you won't have to pay both again, just the new one.

For my new one, I got approved on the 10th, finalized on the 11th or 12th I think it was, then the 22nd the funds were sent. Citizens has a 10 day lag between finalizing and disbursing funds so if you want to cancel, you do it in that period. Then the previous servicer takes 7-10 days to post payment and your payments begin at X point after that. Mine were scheduled to begin 8/19 but I actually asked to push that forward to maintain my original schedule of 8/4.