Refinancing your student loan debt at a lower interest rate can be a great way to save money. But if you have significant education debt — say, $100,000 in student loans — you might wonder if it’s even an option.
“Refinancing your student loans is definitely possible, even if you owe a large amount,” says Dennis Shirshikov, an adjunct professor of finance and economics at the City University of New York. “However, you’ll want to make sure that you have a solid credit score and a steady income.”
Also keep in mind that refinancing federal student loans would mean giving up federal protections, like access to repayment plans, pauses, and forgiveness programs. If you’re curious about whether you can refinance $100,000 in student loans from private lenders, however, that’s a simpler matter.
Follow these four steps to begin learning about student loan refinancing for six-figure balances.
Although banks and credit unions may offer refinancing for education debt, online companies as well as digital marketplaces make comparing lenders and finding the best deal even easier.
The key is to understand your requirements for a lender and what you consider to be a “nice to have,” especially when it comes to the interest rates and terms they offer. For example, if you’re looking to maximize your savings, a lender that offers shorter terms with low rates would be most appealing. But if you’re seeking a lower monthly payment instead, you might look for a lender with longer terms and competitive rates.
Either way, there’s good news if you’re considering refinancing $100,000 in student loans.
“When considering applications, lenders will weigh the loan amount along with other factors such as credit score, income, and employment history,” says Shirshikov. “There are lenders that specialize in refinancing six figures of student debt, but it’s important to shop around to find the best fit for your financial situation.”
Other considerations of refinancing $100,000 or more in education debt include:
Related: Learn more about refinancing your student loans on Credible.com
Once you’ve narrowed down your selection of lenders, it’s time to get prequalified. This is a free option offered by many lenders.
Prequalifying gives you an idea of whether or not you qualify and, if so, what your rates and terms would look like. Plus, it doesn’t impact your credit. You just need to provide lenders with information about yourself and your current student loans.
Ideally, you would prequalify with multiple lenders so that (after following the additional steps below) you can choose the best loan for your situation. If you find a loan and lender you like, you could proceed with a formal application that will ask you to verify the information you previously provided.
Related: Learn more about refinancing your student loans on Credible.com
Once you have potential loan annual percentage rates (APRs) from various lenders via prequalification, you can start to dig in and figure out which ones might offer the best mix overall.
You’ll also need to consider factors like the repayment terms offered — a lower interest rate with a longer term, for example, might cost more money over time, thanks to accruing interest. That’s not ideal if you want to save the most money, but it may work well if you want lower loan payments.
Using a student loan refinancing calculator can help you get a handle on the costs — and potential savings — of consolidating with a private lender. Just keep in mind that if you go with a variable rate, your APR could go up or down during repayment, so it’s a bit trickier to compare long-term costs.
If you don’t qualify for refinancing on your own, adding a qualified cosigner to your application can be extremely helpful. In that case, the lender allows your cosigner’s good credit and income to do some of the heavy lifting for you.
For example, if your credit score isn’t high enough, a cosigner who meets the lender’s requirements can allow you to qualify for refinancing. Or, if you can qualify on your own, an especially creditworthy cosigner can help you get a lower interest rate or more favorable terms.
You should note, however, that the cosigner is on the hook for any payments if you stop paying. So asking someone to cosign is a big request and shouldn’t be posed lightly.
Before refinancing, which is irreversible, it’s wise to consider other potentially helpful options for handling high amounts of education debt.
The higher your rate, the more you’ll pay over time. So targeting your highest-rate loans with any extra money first can help you save money long-term. This is known as the debt avalanche method.
Depending on how much you owe, and how much you can afford to fork over to your lender each month, it may take a while to pay off that first loan. But if you can cut a few years off of your term, you’ll save a good chunk on your way to becoming debt-free. This holds true whether you have loans from the federal government or from private lenders.
If you have federal student loans, many income-driven repayment (IDR) plans are available. You should note, however, that if you have Federal Family Education Loans (rather than Direct Loans), you may have to consolidate to qualify for IDR plans. IDR plans can let you lower your payments, and you may even qualify for forgiveness on your remaining balance after a certain number of payments.
You can log into your Federal Student Aid account (or your federal loan servicer account) to see what kind of loans you have and whether or not you’re eligible for IDR.
The Public Service Loan Forgiveness program is another option for some federal loan borrowers. It would wipe out your federal loan balance after 10 years of making payments while being a full-time qualifying employee. This includes public service professions, like federal or state government employees, as well as those who work at non-profits.
If you don’t work for a government or nonprofit entity, consider other student loan forgiveness opportunities.