Despite the growing popularity of student loan refinancing, there are many misconceptions.

One of the biggest misconceptions is that your current student loan company can impact or limit your refinance options. The truth is that your current student loan company has minimal impact on the refinance process.

Today we will discuss the steps to refinance for borrowers with Discover student loans.

Can you Refinance a Discover Student Loan?

All borrowers are eligible to refinance their Discover student loans, provided that they can pass a credit check.

In a refinance, a refi lender will pay off a borrower’s existing student loans. With the old loan(s) eliminated, the borrower repays on a new loan with the refi lender. Essentially, you are borrowing money to pay off your old loans. You repay the refi lender according to the terms of the refinance deal. Ideally, borrowers can get a lower interest rate or smaller monthly payments.

Discover does not charge any prepayment penalties on its private student loans. Thus, borrowers can refinance without any transaction costs.

Why would I want to Refinance my Student Loans?

As a student, you probably didn’t have a job or a degree. Most students also have limited or non-existent credit histories. Lending to people who fit this description is risky for lenders. When lending is risky, lenders will charge a higher interest rate.

As a graduate with a job, degree, and positive credit history, you are lower risk. People who fit this description qualify for better loan terms.

Most borrowers refinance to accomplish one or both of the following:

Lower Interest Rates – Getting a new loan with a lower interest rate means the total repayment cost will be less. The downside to loans with ultra-low rates is that borrowers must repay the loan in five years. This approach is the quickest and most efficient way to eliminate student loans, but the short repayment period may challenge some borrowers.

Lower Monthly Payments – Some borrowers choose to stretch out the repayment length to 20 or even 25 years. The interest rates on these loans tend to be a little higher, but payments are smaller because they are spread over a long period of time. Borrowers often choose this approach if they are trying to improve their Debt-to-Income ratio to buy a house or because they want to free up some extra cash each month.

Occasionally, borrowers will try to find a middle ground where they pick a 10 or 15-year loan. Selecting a loan with an identical repayment length but a lower interest rate will mean the loan costs less in the long run AND lower monthly payments.

Do I have to Refinance with Discover?

Having student loans with Discover does not obligate the borrower to refinance with Discover.

In fact, taking your business elsewhere could be the best option to find the lowest possible interest rate.

Discover might offer a better refinance rate because they want to keep your business, but an outside lender may offer a better rate because they want a new customer.

Most financial services companies tend to be more aggressive in attracting new customers than keeping their current customers. There could be exceptions, but I would bet that most borrowers will find better refinance rates by shopping around than what they get if they stay with Discover.

Is there a Downside to Refinancing Discover Student Loans?

In the case of refinancing federal student loans, there are significant risks. By refinancing, borrowers lose out on critical federal perks like student loan forgiveness and income-driven repayment plans.

However, Discover only handles private student loans. Thus, the risks are significantly reduced.

For most borrowers, the process is a major benefit. However, changes to the Debt-to-Income ratio could be a downside for the borrowers that choose a shorter repayment length.

How Soon Can I Refinance?

Because there are no prepayment penalties on Discover student loans, borrowers can refinance as soon as they please.

The borrower’s credit profile is the primary factor in determining when refinancing is an option.

It is probably too soon to refinance for the borrowers still in school or who haven’t found a job.

Getting the Lowest Monthly Payment

The interest rates that most lenders advertise tend to be the 5-year refinance loans.

I find the longer loans can be a better option in many circumstances.

On a shorter loan, borrowers are required to make larger payments; on a longer loan, borrowers have the option of making larger payments. The lower monthly payment gives them the flexibility to choose. A lower monthly payment can make it easier to buy a house and free up money to save for retirement.

The downside to the longer loans is that interest rates tend to start a bit higher. At present, the following lenders offer the best interest rates on 20-year, fixed-rate loans:

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

Borrowers looking for other options or a more comprehensive list of lenders should check out our refinance lender rankings and reviews.

The post How to Refinance Discover Student Loans appeared first on The Student Loan Sherpa.

Discover is pretty transparent about its policies. The US-based customer support is a huge plus, and Discover doesn’t charge any fees on the loan — not even a late fee for borrowers who miss a payment.

Unfortunately, Discover falls short where most other bar study loans fall short: the interest rates offered are pretty lousy.

As a result, going to Discover for a bar study loan is a viable option, but borrowers should also be shopping around.

Discover Bar Study Loan Basics

In order to be eligible for a Discover Bar Study Loan, law students must either be in their final year of school or have graduated within the past 6 months.

Loan amounts range from $1,000 on the low-end to a maximum of $16,000.

Once the loan is issued, the borrower is either issued a check directly or the money is deposited into the borrower’s account.

Discover advertises zero fees. Like most bar study loan companies, that means no loan origination fees or late fees. Where discover is a little different is that they don’t charge late fees. This feature will come in handy to borrowers who have issues setting up an automatic withdrawal or who miss a deadline by a few days.

Loans are all on a 20-year repayment term and interest rates range from 3.87% to 10.87% on the variable-rate loans. Fixed-rate loans start at 5.49% and can be as high as 11.99%.

Discover also has an “aggregate loan limit” for their bar study loans. This loan limit is a cap on the total amount of existing student debt that a borrow can have. However, this isn’t one single limit. The aggregate loan limit is adjusted according to application factors such as the borrower’s credit score.

Finally, Discover does not have a cosigner release policy. That means cosigners are attached to the loan until it is paid in full. Not being able to be released from the loan is definitely a negative, but the cosigner release policies are often more myth than reality with other lenders, so Discover gets points for being upfront with borrowers.

Comparing Discover to Other Bar Study Lenders

All bar study loans seem to suffer from high interest rates, and Discover is no exception.

The rates with Discover start slightly higher than the rates with PNC and Sallie Mae, but they are better than the rates offered by Wells Fargo.

PNC has slightly better advertised interest rates than Discover, but the PNC repayment period is 15 years compared to the 20 with Discover. This means monthly payments could be lower with Discover, even if PNC has a better rate.

Sallie Mae also advertises slightly better rates than Discover, but again, for shorter loans. We also think Discover has a much better customer service reputation than Discover.

However, it is important for law students and recent graduates not to limit themselves to bar study loans.

Personal Loans vs. Bar Study Loans vs. Student Loans

In reality, a bar study loan is just a personal loan with a couple of extra requirements.

A bar study loan is not a student loan and the rules that apply to student loans do not apply to bar study loans. For example, student loans get special treatment in bankruptcy, but bar study loans and personal loans are treated like all other forms of debt.

Many future lawyers limit themselves exclusively to bar study loans, and it could be to their detriment. Just because a loan is designed for a single purpose does not mean it is the best choice.

A traditional personal loan could be the best option for paying for bar prep.  Some personal loan lenders have rates starting below 6%. Because the personal loan marketplace has more lenders, it is also more competitive. This could explain why some borrowers are able to find better rates with a traditional personal loan over a bar study loan.

Discover Bar Study Repayment Strategy

On the very low end of the Discover interest rate spectrum, the rates are pretty good for a 20-year loan.

However, even on the low end, the rates are still too high to carry long-term. Borrowers should have a plan to quickly repay the debt after taking the bar. Odds are pretty good that the bar study loan interest rates will be higher than the interest rates on existing student loans. The options to refinance are bar student loans are also very limited.

Borrowers who are offered rates on the high end of the Discover spectrum should only use the loan as a last resort. Repayment of high-interest bar study debt should be a priority.

Final Thoughts

Despite the name, a bar study loan isn’t always the best option to pay for bar study.

That being said, Discover is one of the best bar study lenders available.

Ultimately, the best choice will depend upon the actual interest rates offered. Law students and recent grads may be busy, but shopping around to find the lowest possible interest rates for their bar study needs is time well spent. We think Discover merits consideration, but it should only be part of the investigation.

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