Five Things to Consider When Refinancing a Student Loan
If you borrowed student loans to attend college in the United States, you might be stuck with expensive interest rates and high monthly payments. Fortunately, there is a way to reduce your rates and make your student loan payments more affordable — through student loan refinancing.
Student loan refinancing involves exchanging one or more of your loans for a new one with restructured rates and terms. Depending on the lender you choose, you could qualify for better rates and terms than you have now.
Here are five things to consider when refinancing a student loan so you can decide if this process makes financial sense for you.
1. Each lender has its own requirements
As an international graduate, it can be tricky to borrow or refinance student loans from U.S. lenders. Many lenders require that you have good credit and apply with a U.S.-based cosigner, two criteria that are difficult for many international students to meet.
MPOWER Financing, on the other hand, has more flexibility and realistic refinancing eligibility requirements. To qualify for student loan refinance with MPOWER, you must:
- Live in the U.S.
- Have worked full-time in the U.S. for a minimum of three months after graduation
- Have two or more years of work authorization
- Have a valid visa (such as H1-B or F-1 while on OPT) or be a U.S. citizen, refugee, or asylum seeker
Unlike many other lenders, MPOWER Financing offers no cosigner loans to international graduates who live and work in the U.S.
4. You might get to release your cosigner and collateral
If you borrowed student loans from a bank in your home country, you may have applied with your parents as cosigners or put up collateral to back the loan. A cosigned or secured loan can be risky. If you fall behind on your student loan bills, your cosigner will be expected to make payments. If the loan is secured with collateral, you risk losing that asset.
Through student loan refinancing, you can get rid of your cosigned or collateral-backed loan and potentially replace it with an unsecured loan in your own name. You’ll let your parents off the hook for your debt and assume full responsibility for your education loans.
3. You could lower your interest rate
One of the biggest benefits of student loan refinancing is the opportunity to reduce your interest rate. Lowering your interest rate can lower your monthly payments and save you money on interest charges. These savings could add up to hundreds or even thousands of dollars over the life of your loan.
MPOWER Financing offers a refinancing loan interest rate of 11.74% (12.69% APR), which includes a 0.25% discount for setting up automatic payments. This interest rate is fixed, meaning you don’t have to worry about the rate increasing over the life of your loan (an appealing feature in today’s volatile environment).
You’ll also switch to a 10-year repayment term if you refinance with MPOWER. If you can afford to pay back your student loans faster, MPOWER lets you make extra payments with no prepayment penalty.
4. You could become eligible for employer assistance
An increasing number of employees are offering student loan assistance benefits to employees to help them pay off their student debt. In fact, a 2021 survey by the Employee Benefit Research Institute found that 17% of employers offered student debt assistance and another 31% planned to do so.
Legislation in 2020 also made it possible for employers to offer up to US$5,250 in student loan benefits tax-free through 2025. If you’re an international student borrower, however, your international loans from your home country may not be eligible for employer assistance.
Student loan refinancing offers a solution to this problem. By refinancing your loans with a U.S.-based lender, you’ll potentially make them eligible for employer assistance. If your employer offers this helpful benefit, refinancing your student loan could help you qualify for it.
5. Repayment may get simpler
Finally, refinancing along with consolidating your loans gives you the opportunity to combine multiple student loans into one new one. If you borrowed more than one student loan to pay for college or graduate school, you may be juggling multiple balances with different monthly payments and due dates.
Keeping track of all those bills can feel overwhelming, and you might get stressed about accidentally missing a payment. Some companies that refinance also allow you to consolidate your loans, this is something you can confirm with the companies you explore.
Instead of having to track multiple due dates, you can pay your loan back on the same date each month. You may even be able to choose your payment due date so that it lines up with your paycheck schedule.
Is student loan refinancing right for you?
Refinancing student loans has several potential benefits. Depending on the lender and program, these may include:
- Reducing your interest rate
- Reducing the amount of money you pay in interest every month
- Releasing any cosigner or collateral
- Simplifying repayment
- Making your educational loan eligible for employer repayment assistance
At the same time, refinancing student loans doesn’t make sense for every borrower in every situation. For more insight on the potential benefits of refinancing, check out these reasons to refinance your international student loans.
