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Should I Refinance My Student Loans?


Should I refinance my student loans? Refinancing and consolidating student loans can help lower monthly payments and help you save money. Learn more here.

Refinancing student loans could lower your interest rate—but could also mean the loss of some important financial benefits, in some cases. Here are some important questions you should ask yourself before deciding if refinancing your student loans could help you tackle student loan debt.

What's Your Reason to Refinance?

Refinancing student loans could theoretically help you lower the amount of your monthly payment, lower your interest rate and/or pay less money (in the form of interest rate charges and fees) for the amount of time you have student loan debt. Depending on the type of student loan refinancing you choose, it could also help you get out of debt sooner. But not all student loan refinancing options are created equally, and refinancing isn't the right option for every borrower. For this reason, it's important to first identify what it is that you're trying to accomplish with a refinance. Start by considering which of these describes the most important outcome to you:

  • A lower monthly payment
  • To pay less interest over the life of the loan
  • To pay off student loan debt as soon as possible

Once you hone in on your top priority, use it as your “guiding light” to help you decide whether refinancing student loans will make sense for your life.

Are You a Candidate for Refinancing Student Loans?

Refinancing your student loans is essentially moving your debt from one lender or lenders, to a new one. Different student loan refinance providers require different criterion of potential loan applicants, but many consider at least these factors when deciding if you'll be approved to refinance:

Your credit history. Many credit card issuers and banks now provide free access to your credit scores. Check yours before you apply to refinance a student loan so you have a sense of where you stand. NerdWallet says most private student lenders require that you have a credit score of 670 of higher, without requiring a co-signer.

  • Your employment status, income and cash flow. Because student loan refinancing involves a new loan, a lender may require that you have proof of employment, income, and/or meet a certain debt to income ratio.
  • Your citizenship status. Some lenders may require that you be a U.S. citizen or permanent resident, while others may accept a valid visa or green card that spans the life of the loan.
  • The university or program that your loans are associated with and degree obtained. Some lenders may require that applicants hold at least an associate's degree from an accredited school to apply for student loan refinancing.
  • Amount of your student loan debt. Some student loan refinance companies require a minimum loan amount, while some will only refinance up to a maximum amount.

Are You Eligible for Federal Student Loan Benefits You Don’t Want to Lose?

Federal student loans offer important benefits like periods of forbearance or deferment, income-based repayment plans and even potential student loan forgiveness based on your occupation and amount of time you’ve been paying the loan. Refinancing these loans could mean losing access to these important benefits. Make sure you identify which loans you want to refinance and which may be more financially beneficial to leave "as is" before you decide to refinance all your loans.

Assuming you do still want to look into student loan refinancing after you've considered the questions above, use these tips to start looking for the refinancing opportunity that will help you save money.

If you want a lower monthly payment:

If you have Federal student loans, research programs like a Graduated Repayment Program or Income-Sensitive Repayment Plan to see if you qualify. If you have private student loans or don’t qualify for the above, consider these options:

  • Look for a lower interest rate than you currently pay. A variable interest rate may be lower than a fixed interest rate, but a variable interest rate could go up at any time; this could increase your monthly payment unexpectedly. As importantly, understand whether there are any fees or penalties that could negate your savings if you were to refinance.
  • Understand the importance of loan duration. A longer loan term can significantly reduce your required monthly payment, but could also mean you may have the debt for longer. In turn, you could end up paying more interest over the life of the loan than if you hadn't refinanced.
  • Ask the lender about other discounts for which you may qualify. For example, some lenders may allow you to reduce your interest rate by 0.25% to 0.50% for enrolling in automatic monthly payment.

If you want to pay less money in interest over the life of the loan:

If your primary goal is to pay as little money as possible on your student loans in the form of interest, look for a lower interest rate than you currently pay along with a shorter loan term. This may mean higher monthly payments, but you may ultimately pay less money in interest over the life of the loan because the debt is paid off sooner.

A student loan repayment calculator can make it easy to see the impact that your monthly payment amount, loan term and interest rate charges have on what it costs you to carry your student loan debt. Run the numbers so you know exactly what you could potentially save.

If you want to pay off your debt as soon as possible:

Securing a lower interest rate than you currently pay, on the same loan term or shorter, could help you pay off your debt more quickly. But unless you can find a significantly lower interest rate by refinancing, remember that you may not actually need to refinance to pay off your debt. Instead, paying a lump sum or adding to your monthly payment amount, prioritizing the highest interest rate loan first and moving down the list, could be just as advantageous.

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