Should You Refinance Your Student Loan?

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Edited byAmy Wilder

Updated: August 31, 2023

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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.


Pros & Cons of Student Loan Refinancing

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.


When Student Loan Refinancing Is a Good Idea

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.


When Student Loan Refinancing Is a Bad 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.


Summary: Should You Refinance?

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.

You Should Refinance If:

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.

You Should Not Refinance If:

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.

Frequently Asked Questions About Student Loan Refinancing

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.

Technically, it’s possible to refinance a student loan more than once. If you think refinancing will lower your interest rates or monthly payments, you may consider this option.

However, there are various factors you should consider. For example, if you only have a few payments remaining, you may not need to refinance. Check for extra costs because you might also end up paying more over time.

Yes, it’s possible to refinance a student loan even if you didn’t graduate. However, it may be more difficult to find lenders and good loan offers. If you don’t have a degree, check lenders’ eligibility requirements. Clarify if a degree is necessary for refinancing.

A one-day late payment may cause delinquent status until you pay the balance and related fees. Being delinquent for 90 days will affect your credit ratings. Depending on the lender, your debt will default if your payment is between 120 to 270 days late.

Refinancing student loans is a bit similar to getting a student loan. You need to check if your credit score meets lender requirements. Some lenders may also have a minimum income requirement. Compare loan offers and terms from various lenders. Choose the option with the best interest rate, repayment term and monthly payment.

Yes, you can refinance federal student loans. However, it’s not always a great idea. Refinancing could make you lose eligibility for various federal student loan benefits and forgiveness programs.

It’s possible to refinance a student loan without income, but it may be harder to qualify for a loan. Lenders want to ensure that you can make your payments on time. Some may also have a minimum income requirement. Additionally, if your income isn’t steady, you may be charged penalty fees for late payments, causing higher payments.

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