Should You Refinance Your Student Loan?

Student loan refinancing simply means taking out a new loan to repay your existing loans. You’ll start making payments on this new debt. Many individuals refinance to access lower interest rates or monthly payments.

Student loan refinancing can be advantageous for you if you have the right qualifications. However, it’s not always ideal. As a borrower, you need to know when to refinance student loans and when you should not.

Researching your options and knowing the pros and cons can help you make an informed decision.

Student loan refinancing comes with benefits and drawbacks. Weighing the pros and cons can help you make the best decision based on your situation.

The table below gives a quick overview of the good and bad sides of student loan refinancing.

There are various potential benefits to student loan refinancing. These can include lower interest rates or lower monthly payments. However, you may need to meet specific qualifications to get a deal.

Below are some instances in which student loan refinancing is a good idea.

In some cases, it makes more sense not to refinance your student loans. For example, you may not be eligible for refinancing if you have a poor credit score. You also may not get competitive interest rates if you have a lower credit rating.

Knowing the different instances in which student loan refinancing is a bad idea can help you determine if it’s the solution for you.

Student loans are great tools to help you finance your higher education. However, paying down student loan debt can be difficult. For some individuals, student loan refinancing is a great option.

But before you proceed with an application, make sure you know when you should and shouldn’t refinance student loans.

If you’re in the following circumstances, you should refinance your student loans:

• You have excellent credit: Lenders check credit scores. Excellent credit makes it easier to get approved for refinancing and helps you access competitive interest rates. If you have poor credit, improve your score first to qualify for lower rates. You can start by making on-time payments. Be wise in choosing loan applications, as too many may further hurt your score.
• You want to pay off your student loan faster: Refinancing can consolidate multiple student loans, making it easier to manage payments. You can choose a shorter repayment term, but remember that this can lead to higher monthly payments.
• You want to release a co-signer: You can release a co-signer by refinancing your student loans. Lenders may have requirements you should meet, such as a minimum credit score and making on-time payments. Clarify with the lender to see if you qualify.
• You want to switch to a fixed rate: If your existing student loans have variable interest rates, you may make higher payments due to changing market conditions. You can refinance your student loans using a new loan with fixed interest rates. Check your current rates; refinancing may not be ideal if they’re lower than the refinance rates.

These are only some instances when refinancing might be a good idea. Evaluating your needs and financial situation can help you reach a decision for your unique circumstances.

In certain cases, student loan refinancing isn’t a wise decision. Here are some instances when you shouldn’t refinance:

• You have a poor credit score: Having a poor credit score may make you ineligible for student loan refinancing. Some lenders may approve your application, but you’re not likely to get competitive interest rates.
• You’re working on loan forgiveness: If you have federal student loans, you may be eligible for loan forgiveness programs. You’ll no longer qualify if you refinance your student loans through a private lender.
• You don’t have a steady income: Lenders may have minimum income requirements. Having a steady income can help ensure on-time payments.
• You’ll need federal student loan benefits: If you have federal student loans, you may qualify for repayment plans that could lower your monthly costs. Federal student loans also have a grace period, which allows you to begin repayment six months after graduation.

Although some individuals may benefit from student loan refinancing, others won’t. If the cons outweigh the pros for you, you may want to find other solutions.

Understanding how to refinance student loans can be challenging, especially for first-timers. MoneyGeek answers some frequently asked questions to give you more information on student loan refinancing and help you decide whether to do it.