When is the best time to refinance student loans?

The best time to refinance student loans depends on your credit score, income, and other factors. (shutter stock)

Refinancing student loans gives you the opportunity to secure a new loan at a better interest rate. This can save you money when paying off your student loan debt.

There is no right time student loan refinancing, which may make more sense in certain situations. Read on to find out when it’s best to refinance student loans, when it doesn’t make sense to refinance, and how to refinance student loans.

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When is the best time to refinance student loans?

When you refinance your student loan, you take out a new loan to pay off your original loan. After that, there will be one monthly payment to track, and a new loan, ideally with a lower interest rate or more favorable loan terms.

It’s easy to see why refinancing is attractive. Every borrower has their own financial situation, but refinancing student loans may be beneficial in the following situations:

When you can get better interest rates

Refinancing student loans may not guarantee low interest rates, but if you can achieve low interest rates, could save you a considerable amount of money Interest accrues over the entire term of the loan.

If you have a variable rate loan, you may be able to refinance it with a fixed rate loan. This will give you the same interest rate for the life of the loan. This may be easier to budget for than a variable rate loan that can fluctuate over time. You may end up paying more for a variable rate loan than for a fixed rate loan, as variable rate loans typically start at a lower rate and rise to higher rates over time.

Refinancing student loans could save borrowers $5,000 even at lower fixed rates

When you want a lower monthly fee

If you can get a lower interest rate or longer repayment period on your refinancing loan, you may be able to reduce your monthly payments. Therefore, the stress of household management is greatly reduced. You can also speed up the repayment process by continuing to pay your original monthly payments. You can also keep your payouts lower if you have other expenses you need to focus on.

when you have a steady income

If you’ve graduated and have a steady income, or if you recently got a raise at work, it might be a good time to refinance your student loans. When refinancing a private student loan to a private lender, they will want to see proof of income. Lenders will also look at your debt-to-income ratio, or DTI (the amount of your monthly income that goes towards paying off your debt), to make sure you can pay off your new loan.

Remember that when you refinance a federal loan for a private student loan, you lose access to important federal benefits, such as the Student Loan Forgiveness Program and Income-Based Repayment Plan. If your employment situation is still precarious, it’s a good idea to keep your federal student loans so you can continue to take advantage of these benefits.

when trust is restored

If your credit score has improved since you first took out a private student loan, or if you currently have a co-signer with a high credit score, refinancing may be beneficial. The higher your credit score, the more likely you are to qualify for lower interest rates. If your credit score is significantly higher than when you first took out a private student loan, you are eligible for much better interest rates and can save a lot of money.

You can do it Compare student loan refinancing rates Using Credible does not affect your credit score.

When you want to simplify monthly payments

One of the main benefits of refinancing is that you can: Integrate Combine multiple loan payments into one convenient monthly payment.

if you want to consolidate federal student loans You can combine them into federal direct consolidation loans through the Department of Education without refinancing them with private loans. The interest rate will be the weighted average of all existing loans, so the new interest rate will never be lower. But with only one monthly payment to track, managing your debt is much easier.

Please note that individual student loans cannot be consolidated into federal direct consolidation loans.

When grace period ends

Federal student loans may be subject to deferment or deferment if you experience financial difficulties. This allows you to temporarily stop your student loan payments. The U.S. Department of Education typically offers more deferment options than private lenders. But once the grace period is over, it may be a good time to refinance because you won’t have to worry about missing out on that federal benefit.

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When you don’t go to school

Federal student loans usually have a grace period of six months after or after graduation. quit school If you don’t need to make a payment (although it’s worth checking the lender’s specific repayment terms). Federal student loan borrowers typically don’t have to make payments until they’ve graduated from school, so it usually doesn’t make sense to refinance before graduation. Doing so will initiate the repayment process.

However, if you have a private student loan, chances are you will start paying it off as soon as you graduate. We recommend checking with your personal lender to see if there is a grace period for student loan repayments.

When not to refinance student loans

Now that we know that student loan refinancing can help, let’s take a look at when student loan refinancing is not lucrative or impossible.

• You recently filed for bankruptcy. Filing for bankruptcy can negatively affect your credit report for up to 10 years. A damaged credit score will impair your ability to secure new loans, so if you’ve recently filed for bankruptcy, it’s a good idea to postpone refinancing.
• There is a loan by default. Defaulting on a student loan lowers your credit rating and makes it less likely that you’ll be able to get a better interest rate by refinancing. If your current loan defaults, you may not even find a lender to approve your refinance.
• You are still working on credit and do not have a co-signer. If your credit score doesn’t improve If you are the first to take out a loan and cannot find a good-quality co-guarantor, refinancing may not save you money and is not always worth the effort (especially federal (if you lose access to government protection). ).
• Your loan is deferred or in reprieve. If you have a federal loan that is deferred or in reprieve and you refinance it to a private lender, you will lose your suspension of payments. This is not profitable as you will have to start repaying your rights on the refinancing loan. over there. If you currently have a loan deferral or moratorium, we recommend skipping refinancing.
• You have a federal student loan and are making payments towards the student loan forgiveness. If you refinance a federal loan for a private loan, you lose federal interest. If you are currently working toward student loan forgiveness under the Public Service Loan Forgiveness Program (PSLF) or an income-driven repayment plan, refinancing private his loan will pay off all the payments you made toward the loan forgiveness. trust is lost. .
• Your loan is almost paid off. Applying for a private student loan refinance typically triggers a hard credit pull that can temporarily lower your credit score by a few points. Many private lenders also charge a fee for processing new loans. This will be deducted from the new loan amount. If you’re nearing the end of your student loan, refinancing likely won’t save you much in interest, and the savings aren’t worth the fees and extra hard pulls on your credit report. prize.

What you need to know about student loan consolidation

How to refinance student loans

If refinancing is deemed appropriate, Generally, you follow these steps to refinance your student loans::

• Take a look around and compare prices. When researching refinancing options, you should compare the interest rates and terms offered by 3-5 different lenders to see which loan will save you the most money. Not only should you compare new offers, but you should also compare all these offers to your existing student loans. This is because you don’t want to refinance with interest rates and terms that are worse than your current rates and terms.
• Apply with your chosen moneylender. Once you have selected a lender to partner with, create a refinance application. Each lender has their own eligibility requirements and process for applying for a refinancing loan, but they have support staff who can help if needed.
• Continue making payments on the original loan. Unless your current student loan is on grace, deferment, or is on hold, you’ll need to continue making payments on your original loan until your new lender notifies you that you’ve paid off your existing loan. At that point, start making new loan payments.
• Set up automatic payments for new loans. Refinancing multiple loans into one loan makes it easier to manage your student loan debt. To make it even easier, you can set up automatic payments for new loans. Many private lenders also offer autopay discounts for setting up automatic payments. Make sure you have enough money in your bank account for automatic payments to occur. Don’t worry about accidentally missing a payment.

When you’re ready to refinance, instantly with Credible Compare student loan refinancing rates From various lenders, all in one place.