Entrepreneurs are known for their ability to scrimp, save, and build successful businesses. Yet, as the outstanding student debt continues to grow, it has become increasingly difficult for entrepreneurs to set money aside to open up a new business venture without the risk of defaulting on a student loan.
The growth of financial technology, however, has opened up a door of opportunity for entrepreneurs and graduates alike to save on their student loans through refinancing. There are currently over twelve lenders on the market now that are willing to refinance your private or federal and private student loans with rates at all-time historic lows.
We have borrowers everyday save on their student loan interest rate that may normally have neglected refinancing as an option. If you are trying to start a business and are looking for ways to unlock great savings, here are some tips on how to get the most out of your student loans.
Pick a goal: to maximize long term or short-term savings
If your goal is to lower your monthly payment as much as possible, opting for a longer term (15-25 year) refinancing option is a good option. Selecting the shortest possible term (or even prepaying your loans) will get you a lower possible rate and save you interest payments.
It can’t hurt to look into extending your payments with a longer-term option as you can always refinance again back to a shorter-term option after you’re on more sound financial footing.
Refinance when your income is high
If you have a relatively high income at the moment as the result or your job or some other income source, it’s worth looking into refinancing ASAP. Your debt to income ratio is one of the key factors lenders consider, so the more you can minimize what percentage of your income goes to expenses the increased likelihood of a better offer.
Refinance when interest rates are low
The rates offered by lenders directly correspond to market interest rates so you’ll usually get better offers when interest rates are low. As a reference point, some lenders currently offer refinancing rates under 2%.
Comparison shop
Rates and terms offered by different lenders in the student loan refinancing space vary significantly from lender to lender. Some lenders only refinance private loans and others refinance both federal and private loans. Also, lenders have different underwriting models so if you don’t receive an offer from one lender that does mean you won’t from the next. Credible allows you to view refinancing rates from multiple lenders, side by side.
Consider adding a cosigner
If you’ve just taken a massive pay cut to start a company, consider adding a cosigner with strong credit and income as you can increase your chances of getting a low interest rate or reducing your monthly repayment. You can always have that cosigner removed later when your income is higher.
Don’t try to refinance without a salary
If you just quit your job or have little or no income, wait until you have an income again as most lenders won’t refinance anyone making less than $20,000 (If you have a cosigner with a strong financial profile, some might consider you.) Most lenders require at least six months of work history to insure that you have stable income and are worth the risk of a new loan.
If you are an entrepreneur or a graduate, exploring refinancing will likely better your finances and start your early career in the best way possible.
Visit Credible to see what refinancing options may be available to you.