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Refinancing your student loans is a good way to minimize the financial burden your student loans have on you. And although student loan refinancing is a great option for most people, it isn’t always the best option for everyone.

Find out how to determine if you should refinance your student loans and when you should.

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Should I refinance my student loans? 7 questions to ask

Student loan debt continues to overwhelm Americans, as nearly 43 million student loan borrowers are suffering from it. When you’re buried with student debt, it’s natural to look for ways to lower your stress levels. Here are a few questions you should ask yourself before you consider refinancing:

  1. Why would I want to refinance my student loans?
  2. What will my interest rate be if I refinance?
  3. Can I get a lower monthly payment if I refinance?
  4. Can I pay off my loans faster if I refinance?
  5. Should I refinance if I have multiple loans?
  6. Is my credit good enough to refinance my student loans?
  7. Do I need a cosigner to refinance?

1. Why would I want to refinance my student loans?

Before you decide to refinance, you should first determine your “why.” There are many reasons why student loan refinancing might be a good idea for your situation, here are a few:

  • You want to lower your interest rate: If your student loan interest rates are out of control, refinancing can typically help you get a lower rate.
  • Your monthly payments are too high: If you’re struggling to make monthly payments, refinancing can sometimes give you a lower monthly payment, making payments more manageable. If you get a lower interest rate, as well, this will save you money over the life of your loan.
  • You want to pay off your loans sooner: If you refinance at a lower interest rate or shorter loan term (and pay more per month), you’ll be able to pay your loans off even faster — and also save money.
  • You want to combine your loans: If you’re having trouble keeping up with all your different loans, interest rates, and due dates, combining them into one loan and a single payment via refinancing can help.

Learn More: Average Student Loan Debt Statistics in the U.S.

2. What will my interest rate be if I refinance?

Paying the money back is painful enough. Interest can add even more hurt. But it’s a necessary factor — you wouldn’t have been able to borrow money without a student loan and its added interest rate comes with the territory.

Refinancing might give you a lower interest rate on your loans, depending on your creditworthiness. But it’s not guaranteed. If you can secure a lower interest rate, refinancing might be worth it.

Find Out: What Are Average Student Loan Interest Rates?

3. Can I get a lower monthly payment if I refinance?

If you’re having trouble making ends meet with your current loan payments — or can’t afford to pay them at all — refinancing to a lower payment can save you thousands.

If you qualify for refinancing, you might find that payments are much lower than what you pay now. There might be many different lenders offering you lower monthly payments, so it’s important to compare a few of them before applying.

Refinancing isn’t guaranteed to lower your payments. In some cases, you might see higher monthly payments. So if your goal is to lower your payments, but refinancing won’t end up lowering them, it might not make sense to refinance for your situation.

See: The Best Companies to Refinance or Consolidate Student Loans

4. Can I pay off my loans faster if I refinance?

If you have the means to pay off your student loans sooner and your current payments will take forever to get through, refinancing can speed it up.

Many lenders offer a plan with a faster repayment term. While your monthly payments might be much more than what you’re paying now, your new terms will be much shorter. A faster repayment period means paying off your student loans much sooner than projected — and saving money in interest over the life of the loan. Plus, you’ll have more money in your pocket after the loan gets paid off.

How To: Pay Off Your Student Loans Faster

5. Should I refinance if I have multiple loans?

If you have a mix of federal loans and private loans from private lenders or you want to combine all your loans and get a lower interest rate, you should explore refinancing. This keeps all your loans under one umbrella with one easy monthly payment. If it’s hard to keep track of all your loans and payments every month, this is a great option.

Remember that refinancing won’t promise a lower interest rate. If you browse through your options and find that your interest rate doesn’t change or is higher than what you’re paying now, you might want to skip refinancing or try federal consolidation.

If you have only federal student loans, a Direct Consolidation Loan merges all your loans into one new loan, with your new fixed interest rate being the weighted average rounded up to the nearest one-eighth percent. But remember, this is only for federal loans — not private student loans.

And if you choose to consolidate your federal loans or refinance into a private loan, you could lose some federal benefits; so keep that in mind before making your decision.

Learn More: Student Loan Consolidation vs. Student Loan Refinancing

6. Is my credit good enough to refinance my student loans?

Refinancing is a major step in controlling your student loans, but your credit will be pulled by lenders. Having a hard credit check means lenders will see your entire credit history.

If your credit score is low and your credit report is sparse, you might not be able to prove to lenders that you’re responsible with credit. Consider delaying refinancing until you’ve been able to build up your credit score or consider a cosigner.

How To: Build Credit and Raise Your Score

7. Do I need a cosigner to refinance?

Having a cosigner isn’t required, but they could be the determining factor in qualifying for refinancing. A parent or good friend who has solid credit with a good credit history can sign onto your loan with you to prove you’re going to pay it back.

Keep in mind that having a cosigner is a great way to get a loan you couldn’t otherwise qualify for or a lower interest rate on your loan than what you would qualify on your own. But if you fail to make payments, your credit score will go down — and so will your cosigner’s. It’s a major commitment and both parties should understand that.

See More: The Complete Guide to Cosigning a Loan

When to refinance your student loans

If you’ve made the decision to refinance, you’re only a few short steps from doing so. Here are a few times refinancing makes sense.

  • You’ve got stable income. Having a steady job with consistent income shows lenders you’re responsible enough to pay your loans back.
  • Your interest rates are too high. High interest rates can crush your repayment plan by giving you larger monthly payments and paying more over the life of the loan. Refinancing can lower your interest rates.
  • It’s hard to keep track of all your loans. Many loans with many different interest rates and monthly payments can be hard to manage. Refinancing will consolidate your loans with one manageable payment and interest rate with one monthly due date.
Find out if refinancing is right for you

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When not to refinance your student loans

Although refinancing can help, it might not be best for everyone. Here are a few signs you should hold off on refinancing.

  • You qualify for loan forgiveness programs. If you are on the road to student loan forgiveness, whether through Public Service Loan Forgiveness or have an income-driven repayment plan like income-based repayment (IBR) or other repayment options, refinancing might not be the best idea. Refinancing wipes out your old plan.
  • You have bad credit. Having low or no credit might limit your chances for refinancing. While there’s no harm in comparing lenders who work with those low credit, take caution before applying.
  • Your payments or interest rate will increase. You might want to avoid refinancing if you’re going to pay more than you do now — whether that means it won’t lower your interest rate or won’t lower your monthly payment.

Deciding to refinance your student loans

While refinancing works for a lot of people, it doesn’t work for everyone. If you can’t secure lower student loan payments or interest rates, or you qualify for forgiveness programs, refinancing might not be your best option. It’s OK if you need to find alternative options to pay your student loans.

If you’ve determined if refinancing is a good match for you, and you know the timing is right, make sure to do your research. Credible lets you compare rates from multiple refinancing companies to find the one that’s best for your situation.

About the author
Dori Zinn
Dori Zinn

Dori Zinn is a student loan authority and a contributor to Credible. Her work has appeared in Huffington Post, Bankate, Inc, Quartz, and more.

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