Can You Refinance Student Loans? [Pros, Cons, FAQ]

A student loan is designed to help students pay for their education at affordable costs. Refinancing is the replacement of existing debt with a new one under different terms. So the question is, can you refinance student loans?

If you are part of the 54% of college students that have a student loan you may want to read today’s article to find out if you can refinance student loans.

Which Student Loans Can You Refinance?

There are ways to refinance both federal student loans and private student loans. Find out what the benefits and limitations are for refinancing them in the next section. And if you’re wondering which one to get in the first place, this guide might help.

Can You Refinance Federal Student Loans?

Federal student loans have plenty of built-in benefits such as forbearance options, death and disability discharge, and more. But you may give up your benefits if you refinance. Additionally, refinancing a federal student loan can’t be reversed.

However, there are companies that offer some of the best federal student loans refinance options. So if you want to save on costs opt for a company that can assist you in the best way possible.

Can You Refinance Private Student Loans?

If you want to change the way you repay your student loan then you may benefit from private student loan refinancing. If you have more than one private student loan you can combine them into one refinanced loan for a single payment each month.

On the other hand, there are some drawbacks. Similar to federal student loans you may lose some benefits on your private student loan when you refinance. If you refinance student loans the rate may increase depending on the repayment schedule you choose and the interest rate you qualify for.

When Should You Consider Refinancing a Student Loan?

Now that you know what refinancing student loans pros and cons are how do you know when it’s best to refinance your loan? Take a look at the key points below to help you decide.

• When your interest rate is high it can cause financial shortage. So if the new interest rate is lower than the current one then you should opt for refinancing.
• If you have a variable APR rate on your current loan a fixed APR rate could save you money.
• You should consider student loan consolidation if it will help pay off your debt earlier. You don’t want to be stuck in debt for too long because it can have an impact on your financial stability.
• Federal student loans offer some benefits. But they will fall away if you opt for refinancing. If you have a federal student loan but are not planning to use its perks in the future you should choose to refinance your loan.
• You can refinance your student loan if you have a steady income because you know you’ll be able to make payments every month.

How Can You Refinance Student Loans?

Firstly, decide whether refinancing your student loan is for you based on the advantages you’ll get. Consolidation will make sense if it can save you money every month. To get student loan refinance options you’ll need a strong credit score if you want to qualify for a low-interest rate.

Most lenders won’t refinance student loans with bad credit so make sure your score is good enough before deciding to refinance.

If you refinance government student loans you won’t be eligible for programs such as student loan relief or income-driven repayments. 

On the other hand, refinancing private student loans, such as the one Discover offers, has minimal drawbacks. 

You need to find a lender who is willing to assist you. If you still have graduation ahead you may want to find a company that doesn’t require a degree in order to refinance your loan.

It’s also important to research companies based on the rates they offer. You want to opt for a refinance company that offers the lowest rates. Compare quotes from multiple companies to find one that has the lowest refinance rates to save money.

You may have to pre-qualify with some companies. Some lenders will only give you a rate after you’ve sent through a full application.

The best way to refinance student loans is to find a suitable lender and choose your terms. Now you have to decide whether you want a variable or fixed. Variable rates may start off low but may change monthly. Fixed rates are your best option because the rate won’t change.

You should also choose the shortest repayment period but this option may have higher repayments. If you want a more affordable option pick the longest repayment period. Then all you have to do is complete your application with the necessary documents and wait for the loan payoff.

Can You Refinance Student Loans With the Same Company?

You can refinance your student loans with the same company you have your student loan with or you can choose a different lender. As long as you meet the requirements for refinancing such as a steady source of income and a high credit score you’ll be able to refinance with the same company.

How Often Can You Refinance Student Loans

So how many times can you refinance student loans? The advantage of refinancing your student loan is that you can do it multiple times. Many students do this to improve their finances or if a private lender offers lower rates. It’s not a bad idea to refinance your student loans many times if it means saving on interest and repayments.

When Can You Refinance Student Loans?

You can apply for student refinancing at any time. You don’t have to wait for your credit score to improve. As long as you qualify for an improved rate you can refinance at any time. Another tip is to see if the lender offers a refinance bonus.

When You Shouldn’t Consider Refinancing a Student Loan

Although it can be a good idea to refinance your student loan when you want to optimize your existing debt, there are some drawbacks to it. In this section, we’ll discuss the following situations when you should avoid refinancing your student loans:

• If it will pose a greater debt than your current one. The purpose of refinancing your student loan is to manage your finances. It wouldn’t make sense to refinance if you’ll get into more debt.
• If the repayment period is longer. Another reason for refinancing is to pay the loan amount as quickly as possible. You want shorter loan terms with low interest.
• If you do not have a good credit score and credit history. It can be difficult to qualify if you want to refinance student loans with bad credit. So if you do have a bad credit score it may be best to try and fix that first before refinancing.
• If you do not have a steady income. You need a steady income to make monthly repayments. If you don’t have a steady income you’ll fall deeper into debt.
• If it will not help you save money. You want to refinance so you can save on your monthly expenses. You should avoid refinancing if it won’t save you money.

Standard Requirements for Student Loan Refinancing

Before you can refinance your student loan there are standard requirements so you can qualify. This will also apply if you want to refinance federal student loans into private. Take a look at the below requirements so you know what to expect when refinancing.

When Refinancing Both Federal and Private Student Loans with a Private Lender

• Good to excellent credit score: Most lenders require students to have either a good or excellent credit score for them to qualify for refinancing. 670 is the base credit score that lenders want for you to qualify for refinancing.
• Good to excellent credit history: You must have a good to excellent credit history so lenders can see that you are responsible with your finances and make payments on time.
• Steady income: You must have a steady income so that you can make payments every month. 
• Positive debt-to-income ratio (DIT): Your DIT compares how much you owe each month to how much you earn. Some lenders will allow a higher ratio but you may also pay a higher interest rate.
• Co-signer (sometimes): If you refinance student loans with a cosigner he or she must also have the proper requirements before you can qualify.

When Consolidating a Federal Loan You Will Need To

• Graduate
• Leave school
• Drop below the half-time enrollment

Refinancing vs Student Loan Consolidation

Refinancing your student loan is ideal when you want to save money. This allows you to replace an existing federal or private loan with a new one ideally with lower interest. 

Consolidation is when you’re in debt and you want to combine all your federal loans into a new one so you can make one repayment every month.

So is it worth refinancing student loans? Find out the pros and cons below.

Pros

• You can alter your payment plan
• You can apply with a co-signer
• Gives you lower monthly payments
• Payments are grouped together

Cons

• You’ll need an excellent credit score and history
• May lengthen your loan timeline

Alternatives to Student Loan Refinancing

• Student loan forgiveness
• Income-based repayment
• Service member benefits
• Deferring student loans
• Forbearance of the student loans
• Student loan repayment relief extension

Conclusion

Is it smart to refinance student loans? Based on our guide it would be a good idea to refinance if you want to streamline your payments and manage your finances better. To qualify for the lowest rates and excellent savings you must meet all the requirements otherwise it won’t be worth refinancing.

To get around getting qualified for refinancing with bad credit you can opt for a co-signer but make sure the person also meets all the requirements to qualify. The advantage of refinancing your student loans is that you can do it multiple times and with the same lender you took your loan out with.

We hope this guide helped you with your decision on whether you should refinance your student loan. Take a look at the requirements in this article so you can see for yourself if you’ll be eligible for student loan refinancing.