{"id":31853,"date":"2019-03-08T13:34:09","date_gmt":"2019-03-08T21:34:09","guid":{"rendered":"https:\/\/www.credible.com\/blog\/?p=31853"},"modified":"2024-09-09T10:08:20","modified_gmt":"2024-09-09T17:08:20","slug":"how-to-tell-if-you-should-refinance-your-student-loans","status":"publish","type":"post","link":"https:\/\/www.credible.com\/blog\/refinance-student-loans\/good-idea\/","title":{"rendered":"When Student Loan Refi Is a Good Idea and When to Reconsider"},"content":{"rendered":"

With student loan refinancing, your student loans are paid off with one new loan \u2014 which might get you a lower interest rate<\/a> or reduced monthly payment. But if you\u2019re looking into refinancing, you might be asking yourself if refinancing student loans is a good idea.<\/p>\n

While refinancing could help streamline your repayment, whether it\u2019s worth it or not depends on your situation.<\/p>\n

Here are some common scenarios that could make refinancing a good choice or a bad idea:<\/b><\/p>\n\n\n\n\n\t\n\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t\n\t
Scenario<\/strong><\/th>Should you refinance student loans?<\/strong><\/th>\n<\/tr>\n<\/thead>\n
You have high-interest student loan debt<\/td>Yes, you should refinance<\/td>\n<\/tr>\n
You want to pay off your debt early<\/td>Yes, you should refinance<\/td>\n<\/tr>\n
You want to switch interest rate types<\/td>Yes, you should refinance<\/td>\n<\/tr>\n
You have multiple loans and want to simplify your payments<\/td>Student loan refinancing probably makes sense<\/td>\n<\/tr>\n
You have reliable income and good credit<\/td>Student loan refinancing probably makes sense<\/td>\n<\/tr>\n
You\u2019re eligible for student loan forgiveness<\/td>No, you shouldn't refinance<\/td>\n<\/tr>\n
You have low or unsteady income<\/td>No, you shouldn't refinance<\/td>\n<\/tr>\n
You have poor credit and no access to a creditworthy cosigner<\/td>No, you shouldn't refinance<\/td>\n<\/tr>\n
Your loan already has a low interest rate<\/td>No, you shouldn't refinance<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n

When you should refinance your student loans<\/h2>\n

Student loan refinancing could be helpful in some situations.<\/p>\n

Here are a few scenarios where refinancing could be a good idea:<\/b><\/p>\n

<\/a><\/p>\n

1. You have high-interest student loan debt<\/h3>\n

Student loan refinancing could be a good move if you have high-interest student loan debt<\/a>.<\/p>\n

For example, borrowers who took out PLUS Loans between July 1, 2019, and June 30, 2020, have an interest rate of 7.08%. With such a high rate, your loan balance could rack up thousands in interest charges.<\/p>\n

If you have good credit, you might qualify for a lower rate with refinancing, which could save you a significant amount of money over time.<\/p>\n

Keep in mind:<\/b> If you refinance federal student loans, you\u2019ll lose federal benefits and protections, such as access to income-driven repayment plans and student loan forgiveness programs.<\/div><\/div>\n

If you\u2019re wondering how competitive your loan is, the loan score tool below can help. Just enter your APR, credit score, monthly payment, and remaining balance (estimates are fine) to see how your loan stacks up.<\/p>\n

\n Loading widget - loan-score-tool\n<\/div>\n\n

Learn More: <\/i><\/b>Borrowers Get 6-Month Break on Federal Student Loan Payments and Interest<\/i><\/b><\/a><\/p>\n

<\/a><\/p>\n

2. You want to pay off your debt early<\/h3>\n

If you want to pay off your student loans faster<\/a>, refinancing could help. When you refinance, you could qualify for a lower interest rate or even shorten your loan term.<\/p>\n

This means you could pay off your loan months or even years ahead of schedule.<\/p>\n

<\/a><\/p>\n

3. You want to switch interest rate types<\/h3>\n

If you have federal student loans, your loans have fixed interest rates. If you have private student loans, you might have variable or fixed interest rates<\/a>. Depending on your situation, you might want to switch your interest rate type.<\/p>\n

For example, maybe you\u2019d like to get a fixed interest rate that won\u2019t change over time \u2014 meaning your payment will also stay steady. Or maybe you\u2019re planning to pay your loans off quickly and want a lower variable rate, even though your rate could fluctuate.<\/p>\n

When you refinance your student loans, you can choose the interest rate type that works for you.<\/p>\n

Learn More: <\/i><\/b>Fixed or Variable Rate Student Loan: Which Is Right for You?<\/i><\/b><\/a><\/p>\n

<\/a><\/p>\n

4. You have multiple loans and want to simplify your payments<\/h3>\n

If you\u2019re making the minimum payments on your loans but are having trouble keeping track of all the different loans, lenders, and interest rates, student loan refinancing could help.<\/p>\n

When you refinance, your loans are combined into one new loan \u2014 so you only have a single monthly payment with one lender to remember.<\/p>\n

You can refinance federal student loans, private loans, or a mix of both types. You can also choose to refinance only part of your balance if you\u2019d prefer.<\/p>\n

What about consolidation? <\/b>If you only have federal student loans, another option is federal loan consolidation.<\/p>\n

A Direct Consolidation Loan<\/a> combines your loans into one new federal loan. Your new interest rate is the weighted average of all your interest rates, rounded up to the nearest one-eighth of one percent.<\/p>\n

Also, unlike private student loan refinancing, federal consolidation doesn\u2019t require a credit check.<\/div><\/div>\n

Learn More: <\/i><\/b>Private Student Loan Consolidation<\/i><\/b><\/a><\/p>\n

<\/a><\/p>\n

5. You have reliable income and good credit<\/h3>\n

To be eligible for refinancing, you\u2019ll need to have reliable income and good credit. With both of these in place, you\u2019ll be more likely to qualify for a competitive interest rate \u2014 and you should be able to afford the monthly payments afterward.<\/p>\n

Keep in mind that if you have poor or no credit, having a creditworthy cosigner<\/a> could help you qualify for refinancing \u2014 and might also get you a lower interest rate.<\/p>\n

Learn More: <\/i><\/b>Private Student Loan Repayment Options<\/i><\/b><\/a><\/p>\n

When you shouldn\u2019t refinance your student loans<\/h2>\n

While student loan refinancing might be a good idea if you want to pay off your student loan debt faster, it\u2019s not right for everyone.<\/p>\n

Here are some scenarios when refinancing probably isn\u2019t worth it:<\/b><\/p>\n

<\/a><\/p>\n

1. You\u2019re eligible for student loan forgiveness<\/h3>\n

When you refinance, your federal loans are merged into one private loan. This means you\u2019ll no longer be eligible for federal student loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF). And unfortunately, private student loan forgiveness<\/a> isn\u2019t an option.<\/p>\n

If you meet the qualifications for PSLF or another forgiveness program, refinancing might not be the best idea.<\/p>\n

How does PSLF work?<\/b> If you work for a nonprofit organization or government agency and have federal student loans, you might qualify for Public Service Loan Forgiveness<\/a>.<\/p>\n

Under PSLF, your loans could be forgiven tax-free after you work for an eligible employer for 10 years and make 120 qualifying monthly payments.<\/p>\n

But if you refinance, you\u2019ll lose your eligibility for PSLF, as well as other federal student loan forgiveness programs.<\/div><\/div>\n

See: Student Loan Refinancing Risks<\/a><\/strong><\/em><\/p>\n

<\/a><\/p>\n

2. You have low or unsteady income<\/h3>\n

If you have federal student loans and your income is low<\/a> or unstable, refinancing might not be a good idea. With federal student loans, you can take advantage of federal student loan repayment options<\/a>.<\/p>\n

For example, if you sign up for an income-driven repayment plan, your monthly payment will be based on your income. Depending on your situation, an income-driven repayment plan might significantly lower your student loan payments.<\/p>\n

If you refinance, you\u2019ll no longer be eligible for income-driven repayment plans.<\/p>\n

Learn More: <\/i><\/b>11 Ways to Lower Your Student Loan Payments<\/i><\/b><\/a><\/p>\n

<\/a><\/p>\n

3. You have poor credit and no access to a creditworthy cosigner<\/h3>\n

When you refinance your student loans, the lender will look at your income, credit score, and credit history to decide if you\u2019re eligible for a loan. They\u2019ll also use this information to determine your interest rate.<\/p>\n

If you have poor credit and don\u2019t have access to a creditworthy cosigner, you might not qualify for refinancing. Or you could end up with a higher interest rate than you hoped for, which would negate the benefits of refinancing.<\/p>\n

Check Out: <\/i><\/b>How to Refinance Student Loans With Bad Credit<\/i><\/b><\/a><\/p>\n

<\/a><\/p>\n

4. Your loan already has a low interest rate<\/h3>\n

If you have a low interest rate on your student loan, you might not be able to lower it more through refinancing.<\/p>\n

However, it\u2019s still a good idea to check your refinancing rates to make sure. With Credible, you can compare your rates from multiple lenders in two minutes.<\/p>\n

Find out if refinancing is right for you<\/strong><\/span><\/p>\n