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Are student loans getting in the way of your dream to travel the world?

Although there’s no easy way to get rid of your student loans, there is a useful strategy for saving money on them: student loan refinancing. I refinanced my student loans a few years ago, and was able to shave years off my debt and save thousands in interest.

And as someone who loves to travel, having extra money to put toward my adventures was well worth the effort it took to refinance my loans with a new lender. That said, refinancing isn’t for everyone, so you should know all the pros and cons before you make changes to your debt.

This guide will explain what refinancing is, who should refinance, and how to go about the process.

What is student loan refinancing?

When you refinance student loans, you give one or more of your loans to a private lender and take out a new loan in its place. Ideally, this new loan has a lower interest rate than what you had before, so it saves you money on interest.

Plus, you can choose brand new terms on your new student loan. For instance, you can typically choose between a variable interest rate, which can rise over time, and a fixed interest rate, which stays the same over the life of your loan.

You can also choose a new repayment term, typically between five and 15 or 20 years. You might choose a short term to get out of debt faster (as long as you can deal with higher monthly payments).

An alternative approach is to select a longer term, such as 10, 15, or even 20 years, to lower your monthly payments. A long term means you don’t have to pay as much each month, but it will also keep you in debt for longer and cost you more interest in the long run.

Basically, you’ve got to look at your budget and decide what your goals are. If you can swing higher payments, a short term could help you conquer your debt ahead of schedule. But if you’re struggling to meet your bills, a long term would give you some breathing room.

You can refinance federal and/or private student loans

Along with restructuring your debt, refinancing also lets you combine multiple loans into one. If you have a bunch of different loans from different servicers, you might feel confused tracking all your payments every month.

Through refinancing, you can combine several loans into one. As a result, you’ll only have a single payment to make to a single lender month.

Both federal and private student loans are eligible for refinancing. That said, you don’t have to refinance multiple loans; you can choose to refinance just one.

That’s what I did, even though I had three student loans in my name. Two of them already had a low interest rate, so it wouldn’t have made financial sense to refinance them.

But the third had a high rate, so I refinanced with Citizens Banks for a lower one. The reason I mention this is that you won’t always benefit from refinancing all your loans, but instead should cherry-pick the one(s) where you’d derive the most financial benefit.

Who can qualify for student loan refinancing?

So if refinancing saves you money and simplifies your debt, why isn’t everyone doing it? Well, first you have to qualify.

Private lenders offer refinancing, and they have certain requirements. For one, you’ll need a decent credit score, typically of 650 or higher. The higher your credit score, the better rate you could get on a student loan. Second, you’ll need a steady income — or at least show an offer of employment.

Finally, some lenders look for additional factors, like a low debt-to-income ratio or a certain amount in savings. They pose these requirements for a simple reason: They want reassurance you’ll pay back your refinanced loan.

If you can’t meet these credit and income requirements on your own, don’t worry; there is a workaround. You could apply with a creditworthy cosigner, such as a spouse or a parent. Basically, their strong financial credentials will make up for your weak one.

That said, you’ll need to be comfortable sharing debt, as your cosigner will be just as responsible for the debt as you. If you can’t pay, they’ll be expected to cover the bills, or their credit could get dragged down.

So make sure you and your cosigner have discussed expectations about who’s responsible for your loan before anyone signs on the dotted line.

Pros of refinancing student loans

We touched on the advantages of student loan refinancing, but let’s take a closer look at them here. One of the biggest benefits is getting a lower interest rate. With a lower rate, you’ll save money.

Let’s say you owe $30,000 at 7.6% rate. Over 10 years, you’d pay $12,921 in interest. But if you could refinance that rate down to 4.5%, you’d pay just $7,310 in interest over 10 years.

Not only would you save money on interest, but lower monthly payments could mean you speed up repayment and get out of debt even faster.

Second, restructuring your debt is a useful opportunity to check in with your financial goals. As mentioned above, you could choose a short or long term, depending on your budget.

Third, consolidating multiple loans into one makes your debt repayment simpler and easier to track.

Finally, some refinancing providers offer extra benefits to their customers. Online lender SoFi, for example, offers career coaching to its clients.

Plus, it holds networking events, where you can meet other young professionals and gain industry contacts.

Chances are, your current loan servicer doesn’t do anything like that. So these extra perks could be a great way to save money on your student loans and meet inspiring people.

Cons of refinancing student loans

Although you might want to jump at the chance to save money on interest, remember that refinancing also has potential downsides.

The main one is this: If you refinance federal student loans, you turn them into a private one.

Private loans are not eligible for federal programs and protections. In other words, you can’t put a private loan on a federal income-driven plan, such as Income-Based Repayment or Pay As You Earn.

Nor can you pause payments through deferment or forbearance (some private lenders offer forbearance, but this can vary from lender to lender).

What’s more, private student loans don’t qualify for federal loan forgiveness programs, such as Public Service Loan Forgiveness or Teacher Loan Forgiveness. So if you’re counting on either, you shouldn’t refinance, or you’ll lose eligibility.

Overall, these federal protections can be useful if you’re struggling to repay your loans or working toward loan forgiveness. Private lenders aren’t always so flexible if you lose your job or run into financial hardship.

But if you don’t need these federal protections — and are reasonably confident you can keep up with payments each month — turning your loan(s) private probably isn’t a big deal.

How to refinance your student loans, step by step

So let’s say you’re interested in refinancing, or at least want to see what kind of offers you could get. How do you go about the process?

Well, my biggest piece of advice is to shop around and compare several different offers. You don’t have to go with the first lender you see, but rather can connect with a few to try to get a loan with the lowest rate.

You have a few options for refinancing providers: private banks (whether big national banks or smaller community banks), credit unions (as long as you’re a member), or online lenders, such as SoFi, CommonBond, or Earnest.

Online lenders tend to have the best online user experience, and several of them let you do an instant rate quote to see if you prequalify. This rate quote isn’t an official offer yet, but it does give you a sense of your rates without hurting your credit score.

Some companies, such as Credible, LendKey, and Student Loan Hero, make it easy to check offers with multiple refinancing providers at once. I’ll show you how this process goes, starting with Credible.

Comparing student loan refinancing offers through Credible

Credible will show you up to 12 offers at once after you enter a few basic pieces of information. You’ll start by providing your email address and a password.

Next, you’ll indicate your level of education and where you went to school. You’ll also state what your goals are for refinancing, whether to lower monthly payments or pay off your debt faster. No worries if you’re not sure; you’ll still see the best offers either way.

Next you’ll provide info on your income, including how much you make each month, along with the amount you spend on housing.

Finally, you’ll finish up by providing your name, citizenship status, phone number, and mailing address.

At this point, Credible will show you refinancing offers from a variety of providers. You’ll see what your rates could be, as well as your monthly payment on different payment plans.

Note that none of these offers are final until you submit a full application, which might require proof of income and will involve a hard credit inquiry.

Also remember that you’re under no obligation to accept any of these offers; it’s just a quick and easy way to compare options from multiple lenders at once.

Comparing student loan refinancing offers through LendKey

LendKey is another useful tool for comparing offers, since it connects you with community banks and credit unions in your area. Often, smaller institutions such as these can bring you competitive rates and personalized customer service.

As with Credible, you can check your rates from multiple providers at once after entering a few basic pieces of information, such as your name, address, loan amount, and education level.

Although shopping around for loans might not the most fun way to spend an afternoon, putting in the legwork is worth it to find the best deal. By comparing several options, you can feel confident you found the best one.

Don’t let student loans get in the way of your travel dreams

Student loans can be a huge drag, but they don’t have to stand in the way of your life goals. By finding strategies to lower monthly payments or pay off your debt faster, you could soon be saving more of your hard-earned paycheck.

And if you’re feeling really stressed by student loans, talk to friends and family about your struggles. More than 44 million borrowers are dealing with student debt, so you’re not alone.

If you’re really looking for an out-of-the-box solution, consider working abroad for a number of years to get your loans forgiven. This guide details how living out of the country could help you say goodbye to your student debt once and for all!