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Why Refinance Student Loans

May 17, 2019

Lately, we have covered the issue of student loan debt from a variety of angles. See, e.g., Should the Government Forgive Student Loan Debt, January 31, 2019; and Strategies For Paying Off Student Loan Debt, December 21, 2018, and Can Student Loan Debt Ever Be Discharged, December 5, 2018. This is not surprising: millennials are currently saddled with heavy amounts of this type of debt.

In fact, millennials are having trouble meeting many financial milestones as a consequence of student loan debt. Given the important role millennials will play in shaping our nation’s future, it makes sense for us to focus on this topic.

Serving Society’s Best Interest

It’s in our society’s best interest to see that millennials be able to service their student loan debt obligations. A nation of overly-indebted adults with little chance of becoming financially successful is not a healthy nation. Student debtors need to get creative in their attempt to make themselves debt free. As we’ve discussed, discharging student loan debt in bankruptcy is extremely difficult. Student debtors should not rely on bankruptcy as the exit option for their situation. One option for improving their situation, however, may be student loan refinancing. 

In this post, we will discuss the benefits of student debt refinancing. We will also go over the general process of obtaining this type of refinancing. Student debt refinancing allows debtors to consolidate multiple loans into a single loan. Refinancing will bring a lower interest rate and also avoid the hassle of multiple payment schedules. Depending on the debt load, refinancing can save student debtors many thousands of dollars. As we will see, however, obtaining this kind of refinancing is not always easy. Student debtors will need to ensure that they have solid financial characteristics before applying for refinancing. Let’s explore this topic in-depth. 

The Basics of Student Debt Refinancing 

Essentially, student loan refinancing enables student debtors to gain better interest rates and consolidate multiple loans. This strategy provides both a financial benefit and a time management benefit. Student debtors who successfully refinance their debt will only have to deal with a single monthly payment as opposed to many. Given the hectic schedules many graduates grapple with, the value of this time management benefit can scarcely be exaggerated. The financial benefit of refinancing can be very considerable as well.

The specific financial benefit will always depend on the facts of a given situation. But, in many cases, refinancers can save literally tens of thousands of dollars. Consider the debt loads facing many professionals with advanced degrees, for instance. It’s quite common for medical doctors, dentists, pharmacists, lawyers and other highly educated professionals to have 6 figure debt loads. If a person in this type of situation refinances, he or she may save upwards of $20,000. That’s quite a benefit! 

Factors of the Student Debt Refinancing Application Process 

Due to the risk to lenders, those trying to procure refinancing can expect a somewhat strenuous application process. Lenders will look a wide assortment of factors when making a decision to refinance a given debtor. For one, lenders will look at a student debtor’s credit score or rating. This shouldn’t be surprising. Lenders need to have a sense of the debtor’s track record of making payments and keeping up with financial obligations. A low credit score will lessen the probability of acceptance, but there are other factors at play as well. Income is another big factor. Suppose a debtor has a mediocre credit score, but recently acquired a high-income job. This may be sufficient to qualify for refinancing, because the lender may see the income as something which outweighs the credit score.  

Other Relevant Factors

Other relevant factors include other debts, one’s debt-to-income ratio, and type of employment. Obviously, if a person has other sources of debt which are sizable, this will affect the applicant’s probability of success. The type of employment is something that lenders will also scrutinize carefully. Lenders will review employment status – i.e. employee, owner, 1099, etc. – and also the industry. If an applicant happens to work in a particularly volatile industry, this can also impact his or her success probability. To maximize one’s chances, a debtor should have stable employment in an established industry. A student debtor working for a CPA firm will likely be viewed differently than a person working in energy trading, for instance. In making a decision, lenders view a person’s situation in its entirety. At the end of the day, lenders are trying to increase their own profits and so they will make their lending decisions accordingly.  

As this summary shows, the application procedure for student debt refinancing is a bit involved. Acquiring student debt refinancing can be challenging, but this should be expected. Private student debt refinancers have to have supreme confidence that debtors will fulfill their obligations. If refinancers become unable to keep up, then these private lenders will suffer big financial hits. Lenders may place themselves in jeopardy if too many refinancers fall behind. This situation is not analogous to the one facing the federal government. Given its immense size and resources, default by student debtors doesn’t affect our central government in quite the same way. To sum it up: if you apply for refinancing, be prepared for intense scrutiny of your financial condition. 

We’re Here to Help

Here at Mackay, Caswell & Callahan, P.C., we are intimately familiar with both federal and private debt issues. We help people resolve debt issues of various kinds on a regular basis. Along with student loan debt, we’re interested in other debt related topics, such as back tax debt and debt resolution. Our top New York City tax attorneys have considerable experience with these and other debt related areas. If you have a debt resolution matter, don’t hesitate to contact us and we will examine your issue right away.  

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