Can you refinance student loans?

Federal and private student loans can be refinanced, as long as you meet the credit and income requirements established by the lender. That being said, there are pros and cons on every front when determining if refinancing is the right decision for you. Here’s what you need to know.

Types of student loans you can refinance

You can refinance federal and private student loans, as long as you meet the lender’s requirements. Although these vary from lender to lender, there are two basic things you will need to be approved for the loan:

  • A good credit score (680+).
  • A stable source of income.

Your credit score will also be a key factor in determining the terms and interest rates you will be offered, so the higher the better. If you don’t have a long credit history or have a less than stellar credit score, but are good in the employment department, there are things you can do to improve your chances of getting the best. conditions and the best interest rates.

First, you can apply for the loan using a co-signer. When you apply for a loan using a co-signer, the lender will consider that person’s credit score and finances to approve you for the loan.

A co-signer can be any consenting adult – your parents, spouse, partner, family friend, etc. – who is ready to lend you his solvency. However, by using a co-signer, that person will become responsible for your debt in the event of default, so this is something to keep in mind before asking anyone to sign your loan.

If you don’t feel comfortable asking someone to apply for a loan with you, your other option is to wait and work on your credit score. This is especially true if you’ve just graduated from college and don’t have a long credit history to vouch for. However, this does not mean that you will have to wait years before refinancing your loans. Making timely payments on your debts, declaring things like your rent and utilities, and getting a secured credit card can all boost your credit within months.

When can you refinance your student loans?

Your student loans must be in repayment for you to refinance them. For this reason, most lenders won’t allow you to refinance your loans until six months after you graduate, which is usually the end of the grace period.

How many times can you refinance student loans?

There is no limit to the number of times you can refinance your student loans. The only factor that matters is whether or not you meet the lender’s eligibility criteria. Also, you will have to wait at least a month before refinancing again.

“A lot of people think, ‘If I refinanced once, why do I have to do it again? “Say you refinanced four years ago and went from 8% to 6% APR – that’s great. But if you could go from 6% to 5% or less today, you could save thousands more, depending on your loan balance and term,” he adds.

Should you refinance your student loans?

When you refinance your student loans, you are essentially replacing your old loans with a new one. This new loan will have different terms and interest rates, which can make your debt more manageable by saving you money on interest, speeding up repayment, or lowering your monthly bill. But despite these advantages, refinancing is not the right option for everyone.

Refinancing your student loans may be a good idea if:

  • You have private student loans. Private student loans tend to have higher interest rates than federal loans. Private lenders also do not offer income-based repayment options or rebate programs. If you qualify for a better term, a better interest rate — or both — refinancing your private loans is definitely a good idea, as you could potentially save thousands of dollars down the road.
  • You are not eligible for federal student loan forgiveness programs. If you have federal student loans and don’t qualify for the Public Service Loan Forgiveness Program (PSLF) or Biden’s one-time student loan forgiveness, refinancing may be a good choice.
  • Your income and credit score have improved since you took out your student loans. If your credit and salary have improved significantly since you took out your loans, you may be able to get better terms and interest rates than you currently have.
  • You have variable rate loans. If you have variable interest rate private student loans, chances are your rates – as well as your payment – ​​will continue to rise, especially now with the current inflationary environment. Refinancing your loans can protect you against this, as you could lock in a fixed rate, which remains unchanged for the duration of your loan.

Refinancing may not be a good idea if:

  • You only have federal student loans. If you have federal student loans, refinancing your loans would automatically turn them into private loans. This means you would lose access to income-driven repayment plans, forgiveness programs, and other protections, which is not advised.
  • You have a credit score below 680. If your credit score is not in good shape, it is better to wait to refinance your loans, because you will not be able to obtain the best conditions and the best interest rates and could damage your credit score even more. by applying.
  • You have less than five years left on your student loans. Most private lenders offer student loan repayment terms ranging from five to 20 years. If you have less than five years left on your loan, refinancing might not make much sense because you’d be extending your repayment period and paying more interest, even if your payment goes down.
  • You won’t save any money. The purpose of refinancing is to save money on interest or on your monthly bill. If none of this is true for you, it’s best to leave things as they are. If you’re not sure about saving money, you can use a student loan refinance calculator to help you figure it out.

The bottom line

When it comes to refinancing, federal and private student loans are fair game. But whether or not it’s in your best interest to refinance will depend on your particular situation and your long-term goals.

About Judith J. George

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