- Should I Refinance My Student Loans?
- When to Refinance Your Student Loans
- Refinancing Private Student Loans Right Now
- How Much Will Refinancing a Student Loan Save You?
- Can I refinance part of my student loan?
- Can I refinance a portion of my student loans?
- How to partially refinance student loans
- When to consider a partial student loan refinance?
- Why you may want to refinance your student loans
- When Should I Refinance My Student Loans?
- When to refinance your student loans
- When you shouldn’t refinance your student loans
- How much will refinancing your student loan save you?
- Are you eligible to refinance?
- Is now the best time for you to refinance?
- Learn more:
- Let’s start with when you shouldn’t refinance
- You should avoid refinancing if:
- You want a repayment plan your income
- You have bad credit
- As soon as you have a stable income (and good credit)
- If you have loans with high interest rates
- You have multiple, expensive loans
- After grace periods
- Check your credit
- Keep a debt-to-income ratio is low
- Where to refinance
- How much could you save by refinancing your student loans?
- Should You Refinance Federal Student Loans?
- Is refinancing federal student loans a bad idea?
- When should you refinance government loans?
- Can you refinance federal student loans?
- How to refinance federal student loans
- How much can refinancing save you?
Should I Refinance My Student Loans?
With millions drowning in debt, it’s no wonder so many Americans are refinancing their loans. Refinancing can be a great way to get a better interest rate and save you money in the long run. And if student loans are cramping your style, maybe you’re wondering, Should I refinance my student loans? Let’s find out!
When to Refinance Your Student Loans
For many people, student loans feel a roadblock that delays their dreams.
We get it. Figuring out how to get student loan debt on your own isn’t easy. It’s they’re designed to be as confusing as possible so you stay stuck and pay more in interest with every payment.
But refinancing could be a great option to accelerate your debt payoff.
Does any of this sound familiar?
- My student loan interest rate is too high.
- My variable interest rate is making it hard for me to budget.
- At this rate, it’s going to take me forever to pay off my student loans.
If any of this rings a bell, then refinancing could be a good option. But we only recommend a refi if all of the following are true for you:
- It’s completely free to make the change.
- You can keep a fixed rate, or you can replace a variable rate with fixed. (The last thing you want to do is give your lender the option to jack your monthly payment way up without notice!)
- You don’t have to sign up for a longer repayment period. (And hey, if the new loan shortens the term of repayment, that’s even better!)
- Your new interest rate would be lower than your current interest rate.
Refinancing Private Student Loans Right Now
Since private student loans were not affected by any relief from the CARES Act or the Student Loan Payment Relief Extension, now is the perfect time to refinance your private student loans.
How Much Will Refinancing a Student Loan Save You?
Imagine you have a student loan of $25,000 with a variable interest rate that’s currently sitting at 7%. You’d probably to get rid of it, but so far you haven’t exactly been attacking the debt. So, you’re only making the minimum monthly payment of $225. At that rate, it’s gonna take you 15 years to pay off. That’s nearly four presidential elections away!
Get a new student loan rate from a Ramsey-trusted company in 10 minutes.
Can I refinance part of my student loan?
Every one in eight Americans has student loans. One popular relief option, especially if you have private student loans, is refinancing. If you’re looking to lower your monthly payments, save money on interest, release a co-signer, or all three, refinancing can certainly help you achieve this.
But what if you don't want to refinance the full amount? Fortunately, there are some options.
Whenever you're considering refinancing student loans — or otherwise — it's a good idea to rely on an online marketplace Credible. Credible can help you compare rates and private lenders with the click of a button. Learn more about the process here.
Can I refinance a portion of my student loans?
You don’t have to refinance your entire loan balance and you may not want to. By doing a partial student loan refinance, you can target any high-interest or high-balance loans you might have. Here’s how it works.
Typically, when you refinance your student loans, you get a new lender who pays off your balance with the old lender. Moving forward, you will make payments to the new lender hopefully at a lower interest rate.
With a partial student loan refinance, you can choose to only refinance some of your student loans. If you have five different loans for example but only want to refinance three of them, a partial student loan refinance would help you do this. If you have a single student loan, you could ask the new lender to pay off a portion of the balance during the refinancing process.
Initiating a partial student loan refinance is simple and straightforward. You can partner up with a financial company Credible that lets you compare personalized refinance loan offers from multiple vetted lenders.
SHOULD I REFINANCE MY STUDENT LOANS?
How to partially refinance student loans
Again, you can use a multi-lender marketplace Credible to complete this process. It just takes two minutes to request up to 10 different quotes from eligible private lenders and it won’t affect your credit. From there, you can compare your options and see which lender you’d to complete an application with.
Completing a student loan refinancing application with Credible typically takes less than 10 minutes. If your loan is approved, you can get your offer in as little as one business day.
The lender will wire the money to your bank account or send you a check so you can pay off the old student loan or a portion of it if you’re doing a partial refinance.
Get started on your refinance application via Credible today.
Keep in mind that partially refinancing your student loans may still involve origination fees (cost of underwriting and processing) which will add to the cost of your loan. However, if you go through Credible, you can rest assured that your new lender will not charge prepayment penalties, loan application fees or origination fees.
WHAT ARE STUDENT LOAN REFINANCING RATES?
When to consider a partial student loan refinance?
You may want to consider a partial student loan refinance for a number of reasons. According to Argenis Bouza, who works at the Chief Investment Office at Bank of America, the primary reason why someone will only refinance a portion of their total debt could be due to approval limits, their credit score or a lack of other qualifications.
“In some cases, students who have a lot of outstanding debt quoted at high interest rates and a bad FICO score will not qualify for a full refinance,” Bouza said. “So in this case, they can refinance a portion of their debt at lower interest rates and still find some relief.”
Another reason why you may want to consider a partial student loan refinance is when you have a mix of federal and private student loans. If you have federal student loans, in most cases, it’s best not to give up benefits deferment, forbearance and loan forgiveness options. Plus, interest rates for federal student loans are often fixed and lower than private loans.
Whereas, your private loans can come with fewer protections and a higher interest rate which makes refinancing seem a viable option.
If you don't qualify for federal benefits loan forgiveness or forbearance, then you may want to consider refinancing with private student loan lenders. Credible can help compare rates you find a lender that fits your financial needs.
WHO BENEFITS FROM STUDENT LOAN FORGIVENESS?
Why you may want to refinance your student loans
For some borrowers, refinancing student loans can be an excellent idea. You can save money by lowering your interest rate or even lower your monthly payments while shortening or extending your repayment term. Another benefit is potentially releasing a cosigner especially if your credit score has significantly improved.
On the flip side, refinancing federal student loans can make you lose access to helpful government relief options deferment and forbearance. Private lenders offer less of these protections so consider refinancing your private loans first if you feel burdened by the payment.
To start the refinancing process, it’s important to carefully weigh all the factors and browse through offers from different private lenders. Credible can help you get started through their refinancing comparison tool.
HOW TO HANDLE STUDENT LOAN PAYMENTS DURING COVID
When Should I Refinance My Student Loans?
While refinancing student loans is a good idea for some people, it’s not always the best option for everyone. In general, refinancing your student loans could make sense if you have the credit and income to secure a lower interest rate and pay less over the life of your loans. Here’s how to decide when it’s right for you.
When to refinance your student loans
If you’re considering refinancing your student loans, take a close look at your finances, your existing loan benefits and any potential savings. Refinancing could make sense in the following scenarios.
- You have a solid credit score. Your credit score is one of the biggest determiners in whether you should consider refinancing. The higher your credit score, the more ly you are to qualify for the lowest interest rate available. If you don’t have great credit and can’t secure a lower interest rate than what you’re currently paying, you may want to look into alternative plans. Check your credit history through AnnualCreditReport.com to see if you have any errors or bad marks that can get removed before applying for refinancing.
- You have private student loans. If you already have private student loans, you won’t lose any benefits through refinancing as you would with federal loans. Because of this, it’s usually best to start by refinancing private loans.
- You have a variable rate. While variable interest rates can be beneficial in low-rate environments, it may not be the right option for you; after all, if interest rates rise, you’ll be stuck paying more on your loan. If interest rates are extremely low, it could make sense to refinance your variable-rate loan into a fixed-rate loan in order to lock in a good interest rate.
- You have many loans. Having many loans with different interest rates and due dates is hard to manage. Refinancing will pay off all of your existing loans, and then you’ll make one payment every month to your new loan. With most lenders, you can also set up autopay, so you never have to worry about being late again.
- You have enough to refinance. A few lenders require a minimum loan balance to refinance, which could be as high as $10,000. It’s important to look for lenders that meet your qualifications just as much as you meet theirs. If you still have a large loan balance, your loans will ly qualify for refinancing.
- You have a degree. For many lenders, you’ll need to have a degree to be eligible to refinance. Some require an AA degree, while others require a bachelor’s or higher. Some specify that a degree isn’t required. Before deciding to refinance with a certain lender, check that you meet the eligibility requirements.
When you shouldn’t refinance your student loans
Refinancing is great if you can save money and time, but it’s not always the right move for everyone. In these instances, you should avoid refinancing.
- You have low-interest loans. If you can’t guarantee a lower interest rate on your student loans than what you’re currently paying, you could end up paying more overall. At this point, refinancing isn’t worth it. Stick with your current loans until you can find a lower interest with a lender you .
- You have federal loans. If you have federal student loans, refinancing means that you’ll lose out on a few benefits, your track to Public Service Loan Forgiveness or federal student loan deferment. If you’re struggling to make payments on your federal student loans right now, you could move to an income-driven repayment plan, which bases your payments on your income and household. Private student loans, including refinanced ones, aren’t eligible for this.
- You’ve defaulted on your loans or declared bankruptcy. Many lenders require your loans to be in good standing before refinancing. If you’ve defaulted on your loans or have recently declared bankruptcy, you won’t qualify for refinancing. Instead, you’ll need to focus on getting your loans back on track with your lenders.
- The fees outweigh the savings. In some cases, you may be charged origination fees or application fees when you refinance, which are usually a percentage of your total loan amount, plus a prepayment fee for paying off your existing loan early. If you have relatively little left to pay on your student loans, those fees could end up being more than what you’d save in interest.
How much will refinancing your student loan save you?
Refinancing your student loans could save you a few dollars every month or hundreds of dollars a year. How much you save depends on what you’re currently paying and what you could be paying when you refinance.
For example, let’s say you have a $20,000 balance remaining with a 5 percent interest rate and a five-year repayment term. In this scenario, you’ll have a $377.42 monthly payment.
If you refinance into a new loan with the same repayment term but a 4 percent interest rate, your monthly payment will be $368.33. That’s a monthly savings of $9.09 a month but an overall savings of $545.
37 over the life of the loan.
And that’s just a drop of a single percentage point; if you can get a significantly lower rate, you could see savings of thousands of dollars. To find out more, try using a student loan refinancing calculator.
Are you eligible to refinance?
There’s no set eligibility standard that all lenders use for refinancing. To see if you’re eligible to refinance, prequalify with a few lenders and consider things :
- Your credit score. A high credit score means that you’re ly to be eligible to refinance with many lenders and choose the best one for you. Some lenders allow good or poor credit, but you could end up paying a higher interest rate. This could cost you more in the long run, and refinancing might not be worth it.
- Your debt-to-income ratio. Your DTI is what you owe in debt compared to your overall income. The lower your DTI, the more enticing you are to lenders. It means that if you ever have an emergency, you’re still able to make payments on your loan every month. The higher your DTI, the riskier you look to lenders.
- Your monthly income. Even if they don’t advertise it, many lenders have a minimum income threshold. You will ly have to submit pay stubs or otherwise prove that you hold a steady job in order for lenders to consider you.
Is now the best time for you to refinance?
Refinancing might be good for many borrowers, but take a step back before making this move. If you have federal student loans, the COVID-19 crisis has caused a temporary pause to payments through Sept. 30, 2021. Because of this, refinancing federal student loans is doubly risky now — if you refinance, you’ll need to start making payments immediately.
If you have private student loans and excellent credit, however, you might qualify for a much lower interest rate than what you’re currently paying, since the coronavirus has caused refinancing rates to plummet to record lows. In these instances, look into lenders that offer few fees, flexible repayment terms and interest rates lower than what you’re paying now.
Let’s start with when you shouldn’t refinance
While student loan refinancing can help organize multiple student loans, refinancing can cancel out a lot of important programs that federal loans offer.
You should avoid refinancing if:
You want to qualify for federal forgiveness programs
Federal loans offer federal forgiveness programs that’ll help you pay off your student loan debt.
Refinancing your loans means paying off your old loans with a new loan, given by a private company rather than the federal government. This means that the federal repayment opportunity will disappear.
If you work in the public service sector (government or nonprofit work) and plan to continue to do so for a while, you could qualify for loan forgiveness after you’ve made 120 payments towards your loan. This also applies to teachers that work at low-income schools, some doctors (and nurses) in certain states, and those who are or were in the military.
You want a repayment plan your income
Income-based repayment plans or pay-as-you-earn plans are essential for some borrowers. If your income is an issue, you could qualify for very low payments, or even put off payments until you’re in a more financially stable place.
the loan forgiveness program, if you refinance your loans through a private company, this payment plan is no longer an option.
You have bad credit
If you have bad or no credit so many younger adults do, qualifying for refinancing can be difficult. You’re taking out another loan, and loans require good credit.
Of course, there’s always the one way around the bad credit situation—finding a co-signer. With student loans, however, finding a co-signer might be more difficult because that person is agreeing to pay the mass amount of student debt you owe if you fail to make payments. That can be a big responsibility.
Even with poor credit, if you can show that you’ve at least been paying off your student loans regularly (even if you haven’t been paying off some other things), refinancers might take that into consideration. Here’s what to do if your refinancing application is rejected.
As soon as you have a stable income (and good credit)
The sooner you refinance the more you save on the interest of your loans. And a higher credit score means a better interest rate.
If you can get a lower interest rate immediately you can save thousands of dollars in interest payments and pay off the loan quicker.
This probably means you won’t be able to finance right after you graduate. Jobs most people take right after graduation are ly not permanent and, depending on the job, don’t pay a whole lot.
Right after graduation is also when most people take advantage of the income-based plans—so take that into consideration before you think of refinancing.
If you have loans with high interest rates
As I’ve said, refinancing student loans sooner rather than later is important because you’ll save on interest. This is especially important in the current economic world because the Federal Reserve has just raised variable interest rates.
What does that mean for your student loans?
It means that the rate banks charge each other when they exchange money overnight is going up, therefore the interest on your loans is also going up.
Luckily, this variable rate mostly applies to private loans. Federal student loans no longer offer a variable rate (if you have loans that originated before 2006, you might still have a variable rate), but rather a fixed rate that isn’t subject to change.
You have multiple, expensive loans
If you less than $10,000 in loans, refinancing probably isn’t worth it. Since most borrowers have much more debt than this, lenders offer lengthy plans that allow you to pay smaller amounts over time with an interest rate that won’t force you to pay tens of thousands of dollars more than you borrowed.
Related: Should You Pay Off Student Loan Debt Early?
After grace periods
Federal student loans offer a six-month grace period right after you graduate from your undergraduate program. You can also defer paying your student loans if you go to grad school (this should not be the only reason you go to grad school).
These grace periods exist for a reason—chances are you will need them. Many people take on extra loans when they go to graduate school, so avoiding payments from previous loans as long as you can will be helpful. And the six-month period is about how long it takes most recent graduates to find a job.
Check your credit
You can check your credit through sites Credit Karma or Credit Sesame where checking your score won’t affect it. If you’ve got 700 or better, your score is ly good enough to qualify for the refinancing loan.
Keep a debt-to-income ratio is low
If you’re making more than you have in debt, that is obviously a good thing.
Your debt doesn’t just include student loans, it also includes credit card debt, car loan payments, and mortgage payments, among others.
Say you have recurring monthly debt payments of $2,000 and your monthly income is $5,0000—your debt-to-income ratio is 40%. The lower this percentage, the better.
Where to refinance
Now that you think you might be ready to refinance your loans, who do you refinance with? Read more about student loan refinance options or check out these recommended lenders:
Credible to say they are the “Kayak” of student loans. Credible’s free and easy-to-use website lets you pre-qualify for student loan refinancing in a few easy steps. If you qualify, you can compare actual interest rates and monthly payments from dozens of leading student loan lenders. Compare student loan refi rates at Credible now.
Plus, Money Under 30 readers who refinance their student loans with Credible can get a $100 bonus!
SoFi offers variable loan rates as low as 2.31% (with autopay)—a rate that’s hard to beat. With 5-20 year plans, you’ll be able to pay off your debt at a fraction of the cost than if you stuck with your 7% interest rate.
If you have a good job and a history of reliable student loan payments, you can refinance with SoFi at a very competitive rate. See if you qualify for a SoFi refinance loan now without affecting your credit score.
All rates, member figures, estimates, terms, state availability, and savings calculations are current at the time this article was written. All of the above may update in the future. For the most up-to-date information, visit SoFi.com.
Earnest offers APRs on both fixed and variable student loans
- Fixed APR – 2.98% – 5.79% (includes 0.25% autopay discount)
- Variable APR – 1.99% – 5.64% (includes 0.25% autopay discount)
Earnest also offers the closest to an income-based repayment plan as you’re going to get if you refinance. You can set your monthly payment—meaning you can pay off your loan as fast (or as slow) as you want.
With other features such as built-in employment protection if you lose your job and the ability to skip one payment a year, Earnest is one of the best student loan refinancing options available now. Check your refi rates with Earnest now.
Knowing when it’s time to refinance your student loans is an important step towards saving money and making the whole payment process less of a headache.
The bottom line is—if you have multiple student loans, a good paying job, and decent credit (or a cosigner), refinancing your loans is probably the right answer. However, if you rely on one of the federal programs, such as income-based repayment, it’s best to stick with that until you’re in a stable financial place.
How much could you save by refinancing your student loans?
Check your rate and payment with Credible—it’s fast, free, and won’t affect your credit score:
Should You Refinance Federal Student Loans?
COVID-19 relief may affect information on this page. Know your options before making any decision.
Student loan refinancing rates are low right now. But you probably shouldn’t take advantage of them if you have federal student loans.
Refinancing with a private lender costs you access to government programs. That includes student loan relief already being offered due to the coronavirus pandemic, as well as any future programs that might be introduced.
Some refinance lenders are currently instructing borrowers to think hard before refinancing federal loans. You should ly consider that a giant, blinking “caution” sign to hold off on refinancing these loans for now.
If you have private student loans, refinancing remains a good option if you can lower your interest rate.
For federal loans, we recommend that you use the time that student loan relief programs buy you to get your financial house in the best shape possible. Build an emergency fund. Pay off higher-rate debts. Improve your credit score.
That way, when the smoke clears, you'll be primed to get the best refinancing rate possible — if refinancing makes sense for you at that point.
Is refinancing federal student loans a bad idea?
The federal government is offering unprecedented help to borrowers because of the pandemic. As a result, refinancing government student loans would ly be a bad idea in the following situations:
Your job might be at risk in the coming months.
You wouldn't be able to afford all your financial obligations if your employment did change.
You need the current payment suspension to afford other bills.
You'll qualify for existing federal loan forgiveness programs.
Some legislators continue to push for additional forgiveness programs. You may not qualify if you refinance federal loans with a private lender.
The most common proposal — cancellation of $10,000 — would ly save you more money than refinancing. But there's no guarantee forgiveness will happen, and it's impossible to say whether you'd benefit without knowing a program's details.
When should you refinance government loans?
Only refinance government loans if you're comfortable with the risks involved. If you're OK giving up federal loan benefits, refinancing student loans could offer long-term savings on high-interest federal loans.
For example, say you owed $30,000 with a 7% interest rate and 10 years on your repayment term. Refinancing at a 3% interest rate — roughly the best you could expect — would save you close to $7,000.
To qualify, you’ll typically need good credit (a FICO score in at least the high 600s) and a debt-to-income ratio less than 50%. If you wait to refinance, work to exceed those benchmarks to get the best deal possible when you do apply.
Can you refinance federal student loans?
You can refinance student loans, but only with a private lender. You can’t refinance student loans through the federal government. You can consolidate federal student loans, but federal consolidation won’t lower your interest rate or save you money.
» MORE: Learn the differences between consolidation and refinancing
When you refinance loans, a private lender pays off your existing loans and issues you a new private loan with new terms. Once you refinance government loans, you can’t return them to the federal student loan program. By making this trade, you give up certain benefits.
The risks of refinancing federal loans include losing the following benefits:
The current interest and payment waiver
Due to the current pandemic, the government is automatically suspending payments and waiving interest on federally held loans for six months, retroactive to March 13, 2020. This student loan relief won't lower your payments, but it will make options postponing repayment via forbearance less expensive. Private lenders have not offered a similar benefit to date.
Access to potential loan forgiveness
If you teach or work in public service or for a nonprofit, you would lose access to the federal Public Service Loan Forgiveness and Teacher Loan Forgiveness programs, which forgive your loans, tax-free.
These include income-driven repayment plans, which can make your monthly payments more manageable if you don’t earn a lot of money. These plans base payments on your income and family size and forgive your remaining debt after 20 or 25 years of repayment. Some refinance lenders offer plans that decrease your payments temporarily. Those that offer income-driven programs are incredibly rare.
Interest-free payment postponements
If you lose your job or run into financial issues, you may be able to temporarily pause repayment via deferment and forbearance. During deferment, interest does not accrue on subsidized federal student loans. Interest usually accrues on unsubsidized loans, as well as on all loans during forbearance; the government is currently waiving this interest, though.
Some refinance lenders offer postponement options, but you are always responsible for the interest.
Remaining federal debt may be eliminated in instances such as school fraud or if you, or the borrower benefiting from the loan, die or become totally and permanently disabled. Discharge options vary by refinance lender. If your private loan requires a co-signer, that person may still have to pay the debt if you die or become disabled, depending on the new loan terms.
In some instances, it may make sense to refinance only some of your federal loans. For example, you could refinance your higher-interest PLUS loans from graduate school, but not your undergraduate direct loans. This would keep part of your federal protections in place, should the unexpected happen in the future. You can never transfer private loans to the federal government.
» MORE: Best student loan refinance companies
How to refinance federal student loans
If you've decided to refinance your federal loans, review offers from multiple lenders to find the best deal. Most private lenders will prequalify you via a soft credit check so you can see your new interest rate.
» MORE: How to refinance student loans in 7 steps
Other potential benefits of refinancing federal loans include the following:
Make a single loan payment each month. If you also have private student loans, you can refinance them together with federal loans.
A single monthly payment or a different loan servicer ly isn’t worth giving up the peace of mind that comes with government loans. Keep your eye on the savings instead.
How much can refinancing save you?