How much does it cost to refinance a student loan?

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You may want to refinance your student loans if you are looking for a lower interest rate or lower monthly payments. With reputable lenders, you likely won’t pay any fees to refinance, but you risk losing key protections if you refinance federal loans.

What fees will I pay to refinance a student loan?

Unlike mortgage refinancing, which can cost thousands of dollars in fees, student loan refinancing is usually free. Reputable banks, credit unions, and online lenders will not charge you for prescreening or refinancing with them, and no amount is owed to get your loan from most lenders.

Here’s what the different types of student loan fees mean:

  • Original fees. The origination fee is a percentage taken from your loan proceeds to cover the cost of processing your loan. Federal student loans have origination fees.
  • Application fees. This is a lump sum that lenders charge to cover the costs of processing your application and is usually due when you submit your application.
  • Late fee. If you miss a payment, many lenders will hit you with a flat fee or a percentage-based penalty. Some lenders may give you a bit more time to complete your payment before they charge you a fee.
  • Prepayment penalties. Federal law prohibits private and federal lenders from imposing prepayment penalties, so if you see a lender doing so, that’s an immediate red flag.

Typically, private lenders won’t charge you a origination fee to refinance your student loans, but you can pay them with less reputable lenders. If possible, avoid companies that charge you these fees, as many lenders do not charge you this penalty. Apart from the set-up fees, some lenders may charge you late payment fees or administration fees.

The best private student loan lenders have no fees, but you or a co-signer needs a strong credit rating to qualify.

What Happens When You Refinance a Federal Student Loan?

You can only refinance federal student loans with a private lender because the government does not have a refinance program.

Keep in mind that federal student loans come with certain benefits that are not available with private lenders. Federal student loans are currently on hold until September 30, 2021, and the Biden administration has promised to write off student loan debt during the election campaign – although nothing is guaranteed. You’ll also miss the income-driven replay plans, which take your specific income and family size into account when determining monthly payments.

So while you may want to refinance to take advantage of lower rates or lower monthly payments, you will be leaving those benefits behind.

Refinancing is different from consolidating, which you can do through the government. When you consolidate your federal loans, you’ll combine multiple student loans into one, then make a single monthly payment at a fixed interest rate. It won’t cost you anything to consolidate your debt, but you won’t get a better rate or save money.

You probably won’t pay money to refinance your student loan, but be careful about the fees that are taken and be aware of the protections you could lose from the federal government.

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