7 Key Questions to Ask Your Student Loan Refinance Lender

Ben Luthi

American students and their family members carry more than $1.5 trillion in student loan debt, according to June 2018 data from the Federal Reserve. And the amount is showing no signs of reversing.

If you're feeling overwhelmed with your student loans, refinancing them can help you score a lower interest rate, monthly payment or both. But finding the right refinance lender isn't easy. There are several student loan refinance lenders out there, each with different offers and approval requirements, and some scams mixed in.

To make it easier to find the right lender and avoid getting fleeced along the way, here are seven questions you should ask a student loan refinance lender before applying.

How Long Have You Been in Business?

Student loan refinancing is a relatively new concept. Some of the top lenders in the market have been in business for less than a decade.

The longer a company is in business, the more time it has to perfect its offerings and the customer experience. That's not to say companies that have been in business longer are inherently better. But if the company is brand new, it'll be harder to find customer reviews to see what kind of experience you'll have.

Regardless of how long a company has been in business, look for customer reviews and complaints online. "The Consumer Financial Protection Bureau tracks borrower complaints," says Christy Rakoczy, a writer for Student Loan Hero, "so check that a lender you're considering working with doesn't have a history of problems."

More importantly, this question can help you spot a scam. If you can't get a straight answer and you can't find much information online about the company, be wary.

[Read: The Best Student Loan Consolidation Lenders of 2018.]

Fraudsters may reach out to you promising to help you lower your monthly payments or interest rate, or help you get your loans forgiven. But they often charge a fee and either take off with the money or submit an application to the U.S. Department of Education to get you on an income-driven repayment plan or a loan forgiveness program -- both of which you can do on your own for free.

What Kind of Interest Rates Do You Offer?

Some of the top student loan refinance lenders offer interest rates in the 2 to 3 percent range, but these rock-bottom interest rates often come with a caveat.

That is, they're typically variable interest rates, which means that they can increase over time if market interest rates go up. Fixed interest rates, on the other hand, stay the same throughout the life of the loan. So which one is better?

"It really depends on how fast you think you're going to pay off your loans," says Alyssa Schaefer, chief marketing officer for student loan refinancer Laurel Road. "It could make sense to go to a variable rate if you think you're going to pay off the loan quickly. But for a longer-term loan, you probably do want to consider that fixed because it's a more stable rate that's locked in."

What Are Your Eligibility Requirements?

Every lender has its own approval criteria, and it's no different with student loan refinancing. Some student loan refinance lenders publish a minimum credit score requirement on their website, making it easy to know whether you have a chance of getting approved. Others, however, are less transparent.

"Many lenders will refinance with a wide range of credit scores," says Schaefer. "But when you get up into the higher ranges -- the mid to high 700s -- that's when you could get the best pricing possible."

Also, lenders typically won't refinance your student loans if your balance is too low. Earnest, for instance, refinances loans as low as $5,000, but Citizens Bank's cutoff is $10,000. So, even if your total student loan debt exceeds these amounts, you may not be eligible if each loan doesn't meet the minimum requirement.

Check for other eligibility requirements as well. For example, a lender may require that your current loans be in good standing, that you don't have a bankruptcy on your credit report or that you're current on rent or mortgage payments.

Some student loan refinance lenders allow you to get pre-qualified with a soft credit check -- which won't affect your credit score -- to determine whether you have a chance of getting approved. Go through this process with at least three to five lenders to see what offers you could get.

[Read: The Best Private Student Loans of 2018.]

If I Need a Co-Signer, Can I Remove Them Later?

"If your own income is too low to refinance or if your credit score isn't good enough to qualify," says Rakoczy, "you could significantly improve your chances of being approved for a loan by applying with a co-signer."

Even if you can get approved on your own, a co-signer can potentially help you get a lower interest rate.

But convincing someone to co-sign a loan for as long as 20 years is no small feat. Not only does that loan show up on their credit report and affect their debt-to-income ratio, but it can also ruin their credit if you default on the loan.

Fortunately, some student loan refinance lenders offer a co-signer release program that allows you to remove your co-signer from the loan after you've made a predetermined number of consecutive, on-time payments. The number of required payments varies by lender.

As you do your research on co-signer release programs, however, make sure both you and the co-signer understand that it's not easy to get approved. According to a 2015 report by the CFPB, only 10 percent of borrowers who applied for co-signer release were approved.

To improve your chances of getting your co-signer removed, work on improving your credit, paying down other debt and increasing your income to encourage the lender to view you as less of a risk.

What Fees Do You Charge?

Your interest rate isn't the only thing to watch out for when picking a student loan refinance lender. Some lenders charge various fees.

"There are origination fees, early repayment fees, and there are different fees that come with your billing," says Schaefer. "Some lenders charge one of them but not all of them. Some lenders charge all of them."

According to Rakoczy, some of these fees may be a red flag that the lender is actually a scam or at least not worth working with.

"Legitimate refinance lenders don't typically charge application fees, and many also don't charge origination fees," she says. "Don't pay money to a company just to see if you can qualify to refinance." As for the other fees, look for lenders that charge as few as possible.

Do You Offer Discounts?

Some lenders offer discounts on your interest rate if you're a repeat customer or if you set up automatic payments on your account. Citizens Bank, for example, will lower your interest rate by as much as half a percentage point if you or your co-signer has a qualifying account with the bank.

[Read: Getting Student Loans Without a Co-Signer.]

In many cases, these discounts are already baked into the interest rates lenders show on their websites. So, keep that in mind as you're comparing rates.

What Do I Lose if I Refinance?

Depending on the type of student loans you have now and the refinance lender, you could lose a lot of protections and benefits by refinancing.

Federal student loans provide borrowers with access to income-driven repayment plans and loan forgiveness programs. If you can't manage your student loan payments at some point in the future or you qualify for loan forgiveness, refinancing would eliminate those options because most student loan refinance lenders don't offer them.

That said, some of these private lenders do offer some protections. SoFi, for instance, will temporarily pause your payments if you lose your job through no fault of your own. What's more, its career coaching team will try to help you find a new job.

Others may offer forbearance or deferment options if you go back to school or experience financial hardship.

In short, refinancing your federal student loans may be a mistake if you anticipate needing the protections they afford. But if you can manage your payments easily and don't qualify for federal loan forgiveness programs, pick a refinance lender that offers the type of protections you want.

Next Steps

Refinancing student loans isn't for everyone. But if you choose to go that route, you could save money as you work on eliminating your student debt.

Finding the right student loan refinance lender can take time, however. Do your due diligence and shop around to find the best rates and other terms.

"While you can research individual lenders to compare rates," says Rakoczy, "it's often easier to use online tools that aggregate lender information to quickly see what multiple lenders are offering."

Also, keep an eye on fees and check for customer reviews of each lender you consider to ensure you'll have a good experience. Doing this process right can make your life, and student debt repayment plan, a lot easier.

Ben Luthi is an experienced personal finance and travel writer, and has worked in financial planning, banking and auto finance. His work has appeared in several publications, including Time, Success, USA Today and the Deseret News. Follow him on Twitter @benluthi.