Tens of millions of Americans have student loan debt to the tune of more than one trillion dollars. If you’re one of them, you might be considering applying for the Public Service Loan Forgiveness Program, a student loan forgiveness program offered by the federal government.

The program allows those who work full time in public service for a qualifying employer and who have made ten years of loan payments under a qualifying plan to have the remainder of their student loan debt forgiven.

Qualifying employers include federal, state, local or tribal government organizations, non-profit organizations, and full-time AmeriCorps or Peace Corps volunteers. Qualifying repayment plans include Income-Based Repayment, Pay As You Earn Repayment, Revised Pay As You Earn Repayment, Revised PAYE, Income Contingent, and Standard Repayment.

Sounds great, doesn’t it? You’re going to submit the application and required documentation (a ponderous process) right now. I hate to disappoint you but don’t bother. You’re wasting your time. A staggering 99% of applications are rejected. If you want to reduce your student debt, student loan refinancing will actually save you money.

Forget Student Loan Forgiveness – How About Refinancing?

Student loan refinancing means taking out a loan to pay off all or some of your student loans. These loans are typically unsecured meaning you don’t need collateral to be approved. The loans are not that different from personal loans which you can also use to pay off your student loan debt, but the new lender will pay off a borrower’s student loans directly. The loaned money never actually comes to the borrower.

The interest rate a borrower is offered depends on factors including their credit score, credit report, and debt-to-income ratio. Borrowers considered low risk based on those factors would be eligible for better interest rates than those deemed a credit risk.

Refinancing your student loan debt for a better interest rate from a trusted lender can be done right from your computer in just a few minutes.

• Credible shows you rates from up to 8 lenders in just two minutes. If you find a better rate elsewhere, Credible will give you $200.
• PenFed offers student loan refinancing for amounts from $7,500 to $150,000 and there are no application or origination fees and no penalty for early repayment.
• Lendkey connects borrowers with credit unions and community banks which can sometimes offer better rates than traditional lenders.

Who is Eligible for Student Loan Refinancing?

The student loan forgiveness program is only open to a narrow group of borrowers so even if it worked, many people wouldn’t meet the requirements. Further, only those with federal student loans are eligible, so if your loans are private, you can’t participate. And private student loans often have higher interest rates than federal loans so some borrowers who are paying through the nose for their loans would be left out in the cold.

Anyone with federal or private student loans is a candidate for student loan refinancing although each lender will have their own set of criteria they use to determine who they will approve.

Generally, to be approved for student loan refinancing, you’ll need a Fair to Excellent credit score,  a debt-to-income ratio below 45%, steady history of employment, and a college degree. If you can’t qualify on your own, applying with a creditworthy cosigner can improve your chances.

Save and Simplify with Student Loan Refinancing

Interest is a powerful thing. It’s the cost of borrowing money whether it’s for student loan refinancing, a home, or a car. The higher your interest rate and the longer the life of the loan, the more expensive it is to borrow that money.

Some borrowers may have more than one student loan. If you maxed out the amount you could borrow for a federal loan, you might have had to take out private loans as well. This means you have various interest rates and payments spread out among different lenders.

When you refinance your student loans, there are a few benefits. The most recognized is lowering your interest rate because it saves you money. Consider this, you refinance a balance of $15,000 with an interest rate of 6.8% to 3.5%. Over the life of the loan, you’ll save nearly $3,000 in interest.

Not only can you lower your interest rate when you refinance, you can change the terms, or length, of the loan. Most lenders off terms of 5, 7, 10, 15, or 20 years. The faster you repay the loan, the less interest you’ll pay.

If you refinance $30,000 at 5.0% interest and a 15-year term, you’ll end up paying a staggering $12,703 in interest. If you choose a 5-year term, you’d pay just $3,968 in interest.

If you have loans spread across multiple lenders, it makes your finances more complicated than they need to be. You have to keep track of multiple due dates, interest rates, and terms. When you refinance, you’ll have one monthly payment, one interest rate, and one term.

Some Student Loan Refinancing Cautions

Refinancing student loans will be beneficial for most people but there are a few things you need to know before making the decision.

When you refinance federal student loans, you lose repayment options meant to help those struggling to make their payments. While student loan forgiveness is a sham, these programs actually do what they’re intended to do.

When you’re window shopping for refinancing terms and you start running possible numbers through student loan calculators, it’s easy to be swayed into choosing a variable APR because those rates are lower than fixed APR rates.

Variable rates will increase if the Fed raises interest rates. If this happens, you could end up with a rate higher than the one you refinanced from. The same caution should be applied to choosing the length of the loan. It’s tempting to choose a shorter term because it saves money over time but it typically increases the amount of your monthly payment.

If you are a relatively high earner with a secure job, it can be worth the gamble to refinance to a variable rate and shorter term loan. If you don’t meet those criteria, it’s better to choose a fixed rate (the rate remains the same over the entire life of the loan) and a longer term.

Where to Refinance Your Student Loans

Refinancing your student loans is quick and easy. You can do everything online and the process from start (applying) to finish (your old loans are paid off and you have the new loan) typically takes just a few business days.

Credible lets you window shop for the best student loan refinance rates and terms for both federal and personal loans. Enter in a few basic pieces of information and Credible will show you up to 8 customized offers based on your financial history with no impact on your credit score. This allows borrowers to play around with the numbers to see what rates and terms make the most sense for them without committing to anything first.

Let Credible find you the best student loan refinance rates.

PenFed offers refinancing for both federal and personal student loans. There are 5, 8, 12, and 15-year terms. Parents with Parent Plus or private student loans are eligible for refinancing with PenFed. They also offer a great deal for married couples who want to refinance their loans together. PenFed will refinance based on the highest credit score and combined incomes which can mean a better interest rate than each spouse would get separately.

Check your PenFed student loan refinance rate.

LendKey lets borrowers see rates from several different lenders and charges no application or origination fees. While LendKey doesn’t loan the money, they do handle the entire loan process including payments and have one of the highest customer service ratings n the industry. LendKey also has programs in place to help borrowers struggling to meet payments.

Let LendKey match you with the best lender for you.

Sorry to Disappoint You

Federal student loan forgiveness is great in theory. Not only does it help ease the burden of debt but it rewards people for going into jobs that are vital but don’t pay particularly well. And because student loans are no longer dischargeable in bankruptcy (except in a very narrow set of circumstances), student loan forgiveness would give many people the clean slate they can no longer get through bankruptcy.

That’s in theory. In practice, student loan forgiveness is basically as mythical as the unicorn. I guess it could exist but if you believe in it, people will think you’re a little crazy.

So don’t bother with a student forgiveness program that exists only on paper. Go for student loan refinancing, which actually exists and will potentially save you thousands of dollars. Unicorns are for kids.