When it comes to refinancing your student loans, you’re probably wondering if you can stay with the same lender. Yes, if you’re happy with your current lender, you can keep using their services. However, there are many other myths surrounding refinancing that need to be reevaluated.
6 Myths About Student Loan Refinancing
Refinancing is often considered a confusing topic, especially for students. Oftentimes, a student will refinance without looking at their other options or considering if certain myths hold weight.
1. Students Have to Refinance With the Same Lender
Say you took out a student loan with a lender, and you were unhappy with their customer service, interest rates, or payment periods. You can absolutely refinance with a new lender. It’s always a great idea to shop around for the best deal, so don’t settle if you don’t have to.
2. You Can’t Refinance Your Student Loans More Than Once
It’s unclear where this myth came from, but you can refinance your student loan more than once from more than one lender. You can even refinance consolidated loans, which is a great strategy if interest rates have fallen. Plus, you may be able to get a variable interest rate.
Most lenders won’t charge you for refinancing, but you have to look for places that void origination, disbursement, application, and prepayment fees to ensure you don’t incur costs.
3. Consolidation and Refinancing Are the Exact Same Thing
Consolidating a loan and refinancing a loan are two different things, even though the terms are often used interchangeably. Consolidation refers to the process of combining multiple student loans. When a loan is consolidated, the interest rate is rounded to the nearest 1/8 of 1%.
Whereas consolidating is a federal process, any lender can refinance a loan. You can refinance one or multiple loans to qualify for a better interest rate or shorter/longer payment period.
4. Refinancing, Especially More Than Once, Impacts Your Credit Score
This myth likely comes from misconceptions about how credit works. Refinancing in itself doesn’t impact your credit score because your credit provider still assumes you’re going to pay the amount back. You also won’t hurt your credit when a lender soft checks your report.
Although refinancing won’t hurt your credit score, missing payments or late payments will. Once you refinance your loans, make sure to keep up with your payments to stay in good standing.
5. Borrowers Can’t Access Debt Relief Programs After Refinancing
This myth is partially true. If you took out a federal student loan, then you’ll lose access to their repayment options and loan forgiveness programs. However, most private student loan services will let you make interest-only payments or pause your repayments altogether, so there’s that.
At the same time, private lenders have stricter eligibility requirements. You’ll only be able to pause payments if you lose your job or can’t work due to disability or severe illness.
6. The Refinancing Process Takes A Really Long Time
The refinancing process sounds like a long, drawn-out marathon, but it isn’t. Many lenders offer an instant prequalifying check online, so you don’t waste your time filling out forms. After you’re pre-approved, you can fill out your application in minutes and get approved in up to a week.
Within a month, you could have your new refinanced loan ready to go. Just make sure you’re honest on your forms and collect your loan statements and pay stubs before you apply.
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