Student loan debt is usually a major portion of the graduate’s financial obligations and refinancing can be a smart money saving option.  Unfortunately, many financial institutions are no longer offering student loan refinancing, meaning the student will have to do some research to find a lender. The first step in the research should be answering some basic questions about refinancing.

  • Will I Qualify for a Lower Interest Rate? Most private student loans feature a variable interest rate. The interest rate is usually tied to the student’s credit history. Since most students have little or no credit history, the rate can be relatively high.  Refinancing the loan after graduation when the student has a job and has established good credit may result in significantly lower interest rates resulting in a decent savings.

  • Is the New Loan at a Fixed or Variable APR? Look at more than just the monthly payment. Your new loan may have a lower monthly payment, but cost you a great deal more over the term of loan. (To learn more about the differences in the two types of loans visit the US Office of Consumer Finance.)

  • Is the New Loan Tax Deductible?  Some student loans offer tax benefits. Many of the refinanced loans do not qualify for the tax deduction. If you are currently taking a tax deduction, see if the new loan qualifies. Factor the tax deduction into your research on refinancing.

  • Are You Giving Up Benefits?  Some Federal student loans offer options for borrowers that have problems with repayment. Some also offer income based repayment plans and loan forgiveness for certain occupations. Be sure you know is your loan has any of these benefits (The US Office of Consumer Affairs has more info) before taking out a new loan.

  • Have You Consolidated or Refinanced Before?  Many lenders will not refinance loans that have be consolidated or refinanced in the past. Also make sure that you do not plan to take out any future student loans. Many lenders will not consider new student loans if you have refinanced a student loan.

  • Are There Any Incentives for Taking a New Loan? Some lenders offer new interest rate incentives on new loans with bundled services and even for automatic drafts of payments. These incentives are not huge, but do add up over the period of the loan.

  • Does the Lender Charge an Origination Fee? Many lenders charge an origination fee of up to 1% on the new loan. For a $60,000 loan that equals $600. The origination fee is usually added to the principal amount. The $600 may not sound like a lot, but remember you’re paying interest on that $600 for the life of the loan as well.