Refinance your student loan if you want a lower interest rate and smaller monthly payments. You won’t have to pay any refinance fees if you work with reputable lenders. However, you could lose important protections if your federal loans are refinanced.
Refinance student loans: What fees are involved?
Student loan refinance is often free, unlike mortgage refinancing that can cost thousands of dollar in fees. Reputable online and credit union lenders group will not charge for your prescreening or refinance. There is no minimum amount required to receive your loan from most lenders.
These are the various types of student loan fees:
- Original feesTo cover the cost of processing your loan, an origination fee is a percentage taken out of your loan proceeds. Federal student loans are subject to origination fees.
- Application fees.This is a lump sum charged by lenders to cover the processing costs of your application. It is usually due when your application is submitted.
- Late fee.Lenders will often charge a flat fee or percentage-based penalty for late payments. Some lenders may allow you to finish your payment a little longer before charging you a fee.
- Prepayment penalties.Federal law prohibits lenders, federal or private, from imposing prepayment penalty penalties. This is why you should immediately report a lender who does so.
Private lenders typically won’t charge an origination fee for student loan refinances. But, they can be paid by less reputable lenders. Avoid paying these fees to companies, as most lenders don’t charge such a penalty. Other than the set-up fee, some lenders may also charge late payment fees or administration costs.
The best private student loan lenders don’t charge fees. However, you must have strong credit to be approved.
What happens when you refinance your Federal Student Loan?
Federal student loans cannot be refinanced with a private lender, as the government doesn’t offer a refinance programme.
You should remember that federal student loans have certain benefits that are not offered by private lenders. Federal student loans will be on hold until September 30, 2020. However, the Biden administration promises to forgive student loan debt during the election campaign. Income-driven replays plans are also unavailable. These take your family’s income into consideration when determining monthly payment.
You may refinance to enjoy lower rates or lower monthly payment, but you’ll be losing those benefits.
You can consolidate your loans through the government. Refinancing, however, is another option. You can consolidate federal loans by combining multiple student loans into one and then making a single monthly payment at a fixed rate. Consolidating your debt will not cost you anything but you will not get a better rate of interest or save any money.
Although you won’t have to pay any money to refinance a student loan, be mindful of the fees that may be charged and the protections offered by the federal government.