When to Refinance Student Loans

when to refinance student loans

Refinancing only makes sense when it benefits you in some way. This may mean an extended loan term with more manageable monthly payments or a reduced interest rate to save money. If you’re eligible and your loans are eligible, it’s best to refinance your student loans whenever you can achieve your desired benefit.

Read on to learn when to refinance student loans, the eligibility requirements associated with refinancing, and when not to refinance student loans.

When is the Best Time To Refinance Student Loans

When You Can Get a Better Interest Rate

Student loans are expensive. You should refinance whenever you can get a better rate on your loan. Just make sure there aren’t any pesky closing costs—all the lenders we work with have zero origination fees. A one or two percent interest rate deduction could save you thousands of dollars depending on your loan balance. The trick is making sure the refinanced rate is better.

Use our refinance calculator to evaluate how much money you can save by refinancing to a lower interest rate. Consider what you’ll save each month and over the life of the loan.

When You Can Make Your Monthly Payments More Manageable

If you’re on a tight budget, you may want to refinance to lower your monthly payments. If that’s the case, refinance whenever you’re able to do that. Extending your loan term from say 10 to 20 years would reduce your monthly payment by $118 on a $20,000 loan with a 6% interest rate. Plus, you could still pay more each month if you have extra money; this would help you pay off the loan faster.

Keep in mind that extending the loan term typically results in you having to pay more interest over the life of the loan. Use the refinance calculator above to see how much more you’d have to pay in interest.

When You’re Unhappy with Your Current Lender

Are you tired of poor customer service or a confusing online portal? Is your cosigner eager to get off the hook? Aside from paying the balance in full, refinancing is the only way to get away from your current lender. Refinance once you find a company that can give you what your current lender is lacking. This may mean a refinance company that offers cosigner release, an easy-to-use website, an autopay discount, and/or a personal loan advisor.

When You Want to Remove a Co-Signer

If someone originally co-signed your student loans, you may want to refinance to take them off the hook.  Once you have a stable job and income, refinancing your student loans without a co-signer is possible.

Eligibility Requirements for Student Loan Refinancing

Not everyone is eligible to refinance their student loans. Each lender has specific requirements, but there are a lot of commonalities. In general, you need to have:

  • At least $5,000 of student loans to refinance
  • Proof of income
  • A good credit score or a cosigner with a good credit score

Of course, there are exceptions to the above criteria. Read through the following scenarios for more specifics about refinancing eligibility. The following questions are in reference to private refinancing only.

I’m Still a Student, Can I Refinance?

Students aren’t eligible to refinance their student loans. The only exception is students who are in their last semester before graduation and graduate students who are refinancing student loans from a completed degree.

I’m Unemployed, Can I Refinance?

It depends. Some lenders require employment while others only require proof of sufficient income. If you have other means of affording monthly payments like a cosigner, an inheritance, etc., you can still refinance.

I Never Graduated, Can I Refinance?

Yes, but it’s going to be more difficult. Most student loan refinancing companies only work with college graduates.

Citizen’s Bank is one of the few large institutions that refinance loans of non-graduates. To be eligible, you need to have at least $10,000 in student loans to refinance and have proof of income. You also need to have made a minimum of 12 qualifying payments on your loans after leaving school.

I Have an Associate Degree, Can I Refinance?

It depends on the lender. Most lenders only work with students who have graduated with at least a bachelor’s degree. A few of the lenders we work with, Earnest, SoFi, and College Ave, accept associate degree holders.

I Have Bad Credit, Can I Refinance?

Possibly, but it’s probably not in your best interest. In general, the higher your credit score, the better your rate. Several of the lenders we work with have minimum credit score requirements starting at 660-700. Some lenders let you refinance with a cosigner who has strong credit. To make your cosigner feel more comfortable, go with a company that offers cosigner release after a set period of on-time payments.

Earnest is another potential option for those with poor credit. This lender bases rates on more than just your credit score. If you can show that you have sufficient income and are financially responsible, you might just get approved.

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When Not to Refinance

Refinancing isn’t always the right move. This is especially true for borrowers looking to refinance their federal student loans. Here are few of the common scenarios where refinancing just doesn’t make sense.

You’re Not Financially Stable

When you refinance your federal student loans, you lose out on protections like repayment plans and loan forgiveness. It’s important to take a hard look at your financial situation before green-lighting a refinance offer. Refinancing might not be the right move if you have trouble holding down a job, are in an industry or at a company that’s notorious for layoffs, or primarily just do seasonal work. Not only will you have a hard time getting a good refinancing rate, but you’ll also have trouble making payments if your income fluctuates.

You’re in Poor Health

You can’t predict a medical emergency. But, if you know that your health is poor, you may not want to risk losing out on the total and permanent disability student loan discharge. The federal government and a few private lenders, like Wells Fargo, will discharge your loans if you become permanently and totally disabled. This is a very valuable benefit, especially because discharged income is no longer viewed as taxable.

A select few private refinance companies do offer discharge in cases of death or permanent disability. These include College Ave and Earnest. If you’re in poor health and set on refinancing, consider those companies first.

It Doesn’t Benefit You

Don’t refinance “just because.” Only do it if it’s going to benefit you in some way. If you can’t get the lower interest rate or the term length you want, hold off. You can always try through another lender or wait until you can build credit and/or improve your credit score.

You’re Almost Done Paying Off Your Debt

Refinanced loans come with loan terms ranging from 5 to 20 years. If you only have a couple years left until repayment, refinancing to a longer loan term may not make sense. You’ll end up paying a lot more in interest, so it’s better to stick it out with your current loan company if you can manage the payments.

You’re Working Toward or are Close to Forgiveness

The federal government offers several student loan forgiveness programs for eligible borrowers. If you’re close to earning forgiveness through an income-based repayment plan or the Public Service Loan Forgiveness program, refinancing isn’t a great idea. The second a private refinancing company takes over your federal loan, you’re no longer eligible for forgiveness.

If this scenario resonates with you, you could still consider only refinancing your private student loans. Private student loans aren’t eligible for federal student loan forgiveness programs, so you aren’t missing out on anything.

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