What To Know About Student Loan Refinancing
Refinancing your federal and/or private student loans can be a great way to consolidate payments and potentially save money on interest over time. There are numerous advantages to student loan refinancing when you know it’s the right time.
Best Times to Refinance Student Loans
To refinance, you generally need to be in a grace period or repayment period on one or more student loans after graduation or separation from school. Once you’ve reached that point, here are a few opportunities to consider before you begin the process of refinancing your student loans.
1. When interest rates are lower than your existing rate(s), or before they are expected to increase.
- Check the rates on your current loans, as well as whether you have a fixed or variable rate. Then view current refinance rates and compare. Many sites offer calculators to help determine what your savings could be long term.
- Student loans, auto loans and mortgages are long-term financial commitments; the longer the repayment term of your loan, the more you will generally pay in interest over the years. If your current loan has a variable rate that goes up and down, this may be a good time to examine your options for refinancing. You could move to a fixed rate to lock in current rates, or refinance at a lower rate than your current one.
2. When you want to shorten or extend the length of time you’ll be making payments.
- Extending your repayment terms can lower your monthly required payment (though you’ll still be paying interest for the life of the loan and could pay more out of pocket in the long run).
Alternatively, you could choose a shorter repayment term to pay off your loans sooner, though this may also be possible if you make more than your minimum monthly payment on a current loan (assuming there are no prepayment penalties).
3. When you want all your student loans under your own name.
- Students often do not have the credit history necessary to qualify for a loan on their own. A co-borrower may sign for the loan, or a parent may take out a federal Parent PLUS loan in their own name. If your current loan doesn’t have a co-borrower release option, refinancing and consolidating your loans is one way to get all your student loans under your name and credit history.
Debunking Student Loan Refinancing Myths
There is endless information available about student loan refinance , but some borrowers may still be confused about the process and their options. Here are some popular student loan refinance myths.
“I have to refinance all of my student loans.”
- While you typically can refinance and consolidate all your student loans into one new loan, you do not have to. There may be reasons to exclude some of your loans from a student loan refinance. For example, federal student loans* come with certain benefits such as income-based repayment or student loan forgiveness, and you may wish to keep those loans separate. You can choose which loans to roll into your refinance and continue making regular payments on any you exclude.
“I can only consolidate/refinance my federal student loans with the federal government.”
- The U.S. Department of Education offers a consolidation program for federal student loans, which combines multiple federal student loans into a single payment. The Direct Consolidation Loan has a fixed interest rate for the life of the loan. The fixed rate is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest one-eighth of one percent.
“Once I have refinanced my student loans, I cannot refinance again.”
- You can refinance your student loans multiple times. If you have previously refinanced or consolidated your student loans, you may wish to refinance again later to take advantage of lower interest rates or to change your repayment terms. Plus, your credit score may improve over time, presenting an opportunity for a lower rate.
Deciding whether to refinance student loans involves careful consideration of personal financial goals, market conditions, and individual loan specifics. It’s crucial to weigh the potential benefits against the drawbacks to make an informed decision.
