With interest rates at record lows and the Federal Reserve confirming expectations of rising interest rates before the end of 2015, now may be an ideal time for college graduates wondering whether they should refinance their student loan to make their move.
At Credible, we help support student loan borrowers who are looking to refinance, through either lowering the interest rate on their student loans or finding more favorable repayment terms. It’s important to note that if you’re interested in refinancing, the timing of your application could have a significant influence on the offers you receive.
What does it mean to refinance your student loans?
Student loan refinancing is when a new student loan lender buys out your loans, allowing you to have a single new loan at a potentially lower interest rate. Refinancing is when you pay off your old loan, or loans, by taking out a new loan, typically at a lower interest rate. While a lower rate is good news, your new loan may not come with all the borrower benefits associated with government loans
A key question for many students looking to pursue graduate studies is – when is the best time to refinance my student loans: before or after graduate school? This article looks at the key factors that you may want to consider in making this important decision.
Fresh out of college, only a select few graduates get the opportunity to start their professional careers on high salaries. If you are one of these fortunate graduates, while a high salary could lead you to believe it may be best to refinance straight away, it may actually be better for you to refinance once you obtain a history of stable employment. Being able to prove a steady and stable income is vital when lenders are assessing your creditworthiness as a borrower.
If your credit history is limited, you may also seek to add a cosigner to help you get the best refinance offers available for you. Several student loan refinancing lenders offer a cosigner release after a certain number of years of scheduled monthly payments by the borrower.
For students interested in a career in public service, it may also be wise to wait to refinance your student loans. The Public Service Loan Forgiveness Program is very specific in its eligibility requirements, with only loans received under the William D. Ford Federal Direct Loan (Direct Loan) Program being eligible.
If you have other loans, such as Perkins Loans or Federal Family Education Loans, consider consolidating your student loans with a Direct Consolidation Loan. This loan is eligible for loan forgiveness after 10 years of making the scheduled monthly payments.
For those of you wondering whether you can consolidate federal and private student loans together, the short answer is that you cannot. If you chose to refinance federal and private loans together, you would lose certain benefits that come only with federal loans, such as certain federal repayment programs like Revised Pay As Your Earn (REPAYE).
Upon enrolling in graduate studies, most students are required to take on more student debt to fund their education. The type of graduate school degree you choose to pursue, such as medical, legal, dental, MBA, or doctorate, may also impact the interest rate and repayment terms of your student loans.
While attending graduate school, many students decide not to pursue full-time employment, and therefore don’t make repayments toward their existing undergraduate student loans. For students with unsubsidized undergraduate loans, interest continues to accrue while you’re in school, which will increase the total amount of repayments on your student loans.
Depending on your graduate program, your debt-to-income ratio may also have an impact on a lender’s assessment of your creditworthiness. A high debt-to-income ratio typically signifies that you have accumulated a large amount of debt relative to your current income.
Refinancing your student loans at a time when your debt-to-income ratio is unfavorable, could make you appear a riskier refinancing applicant. However, if your income has substantially grown a year or two post-graduation, you could be in a position to receive more favorable refinancing offers.
Depending on the path you choose following graduation, it may be beneficial to refinance your student loans immediately, or wait to see where your career and credit worthiness takes you.
Credible is a multi-lender marketplace that allows borrowers to get personalized rates and compare loans from vetted lenders, without affecting their credit scores.