When to consider refinancing student loans

Here’s When to Consider Refinancing Your Student Loans



When was the last time you took a close look at your student debt? If you’re like most borrowers, particularly those with six figures of student loan debt from graduate school or MBA programs, you probably shudder at the thought. Chances are, you set up a loan repayment plan after graduation and figured you’d revisit it “later”—say, when you’re making more money, when your career is more secure, when you have more time.

This approach is understandable, since after receiving your undergraduate or graduate degree your focus is on other things (like building a career that will help you pay off your loan balance). But if you let that nebulous “later” date turn into “never,” the repercussions can be costly. At some point, refinancing your student loans could save you a significant amount of money. You just need to figure out if you’ve reached that point.

So how do you know when it’s time for a student loan debt check-in? Here are four factors that should prompt a second look:

1. Your current student loans have high interest rates.

The first thing you should look at is the interest rate that you’re paying on your student loans, particularly federal (direct) unsubsidized loans, federal Graduate PLUS loans and/or private loans. These loans tend to have higher interest rates than federal subsidized student loans, and you may be able to find a lower interest rate private loan option.

Depending on how high your loan balance is and how much you can cut that interest rate, your cost savings can be significant. For example, the average SoFi borrower saves $22,359.*

2. Your financial situation has improved since you took out the loans.

You were likely a starving student when you first applied for your student loans, but ideally your financial situation has improved with time. This is great news for your bottom line, because a higher credit score and income level are key to helping you qualify for a lower interest rate.

And if you expect to stay on an upward financial trajectory, you might even consider refinancing with a variable rate student loan. Variable rate student loans typically offer lower interest rates than fixed rate loans; however, the rate is tied to prevailing interest rates, which are very low today but should go up over time. The upshot is that these loans are usually best suited for qualified borrowers who intend to pay off their loans at a relatively fast pace.

3. You don’t get any advantages from federal student loan benefits.

Certain types of federal student loans offer perks that should not be overlooked before considering refinancing. If you’re a borrower who is a teacher, enters the military, or goes to work in the public sector, you’ll want to read the fine print on your federal loans to see if you qualify for federal student loan benefits (such as potential loan forgiveness) before you consider refinancing.

Some federal loans can also offer relief for borrowers that experience financial hardships (such as loan deferment and graduated/income-driven repayment plans). If you expect your income to be unpredictable, it’s usually a safer bet not to refinance federal student loans that are eligible for these benefits. But if you aren’t able to take advantage of any of these federal student loan benefits listed above, refinancing could be a good option.

4. You’re about to take out a loan for a mortgage or other large purchase.

For loans like mortgages, lenders will take a look at your FICO score/general credit rating before moving forward with your application. To get the best interest rate on a mortgage, you’ll want to improve this score as much as possible before proceeding. Buying a new home or taking out another loan for a large purchase could be a good time to refinance your student loans for a lower interest rate, because it could help you get into better financial standing to get a good rate on loans like a mortgage, too.

If you’ve answered yes to these four questions, you may be a good candidate for student loan refinancing. The next step is to do a little research by checking out several private loan providers to compare interest rates and other features.

SoFi, for example, offers a competitive interest rate, and borrowers save an average of $288 a month** when they refinance. You can also consolidate federal and private loans with SoFi, whereas many lenders do not. On top of that, refinancing your student loans with SoFi is easy. Simply go to the refinancing student loans page. Give a little information about yourself to find out your new rate. Finally, upload loan statements and income documentation, and SoFi will be in touch.

Additionally, SoFi also offers personalized career planning and job search assistance, entrepreneurship support, and access to our extensive member network through free community events like happy hours and dinners. Which means you could gain more than cost savings when you refinance student loans.

Editor’s Note: This is an updated version of a post we originally published in November 2013. We welcome new comments and questions below.

* Average member lifetime savings calculation of $22,359 is based on all SoFi members who refinanced their student loans between 8/16/2012 and 6/30/2016. The savings calculation is derived by taking the estimated lifetime cost of existing student loans minus the lifetime cost of SoFi loans upon refinancing for SoFi members who refinanced their student loans. SoFi’s lifetime savings methodology for student loan refinancing assumes 1) members’ interest rates do not change over time 2) members make all payments on time 3) members make monthly payments for the full duration of their loan 4) members take advantage of AutoPay, which enables them to lower the APR of their loan by 0.25%. SoFi’s average savings methodology for student loan refinancing excludes refinancings in which 1) members elect SoFi loans with longer maturity than their existing student loans 2) the term length of the member’s original student loan(s) is greater is than 30 years 3) the member did not provide correct or complete information regarding his or her outstanding balance, loan type, APR, or current monthly payment. SoFi excludes the above refinancings in an effort to maximize transparency on how we calculate our average lifetime savings amount and to minimize the risk of member data error skewing the average lifetime savings amount.

** Average monthly savings calculation of $288 is based on all SoFi members who refinanced their student loans between 8/16/2012 and 6/30/2016. The calculation is derived by averaging the monthly savings of SoFi members, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing with SoFi. SoFi’s monthly savings methodology for student loan refinancing assumes 1) members’ interest rates do not change over time 2) members make all payments on time. SoFi’s monthly savings methodology for student loan refinancing excludes refinancings in which 1) members elect a SoFi loan with a shorter term than their prior student loan term(s) 2) the term length of the SoFi member’s prior student loan(s) was shorter than 5 years or longer than 30 years 3) the SoFi member did not provide correct or complete information regarding his or her outstanding balance, loan type, APR, or current monthly payment. SoFi excludes the above refinancings in an effort to maximize transparency on how we calculate our monthly savings amount and to minimize the risk of member data error skewing the monthly savings amount.


ABOUT Dan Macklin Twitter: @macklindan Dan Macklin is a co-founder of SoFi and former VP of Community & Member Success. Dan holds an M.S., Management degree from the Stanford Graduate School of Business where he was a Sloan Fellow. He also holds a B.A. in Business Economics from University of Durham in England.


10 thoughts on “Here’s When to Consider Refinancing Your Student Loans

  1. Question: Are there any refinancing options available for consolidated loans?

    • Yes Christy – we can refinance loans that have already been consolidated for borrowers who graduated from one of our 100 schools.

  2. I have been working in the student loan industry for many many years and here are some things I know for sure: One is that Federal student loan consolidation is not tied to your financial situation or your credit. If you happen to have a variable rate loan which currently is rare your credit score has no barring on the fixed rate you achieve from consolidating the loan through the Dept. of Education. Secondly, you mention “cutting interest rates” but federal loan rates can not be changed through consolidation or any other avenue so what are you proposing? Thirdly, there are no federal loan providers on student loans other than the Dept. of Education. I truly hope you are not suggesting people take federal loans that have government guarantees and take out private loans to pay them off. This would be the worst mistake the borrower could make.

    • Genevieve,

      We appreciate your comments. However, we respectfully disagree with your assessment of private loans for refinancing.

      For employed recent grads paying Grad Plus loan rates, private loan providers like SoFi offer an attractive alternative.

      First, our loan rates are lower. Our fixed rates are as low as 4.99%, versus 7.9% Grad Plus rates. Our average borrower saves about $6,000 by refinancing.

      Second, while at our discretion, we have always extended similar grace programs that the government offers to borrowers in need. For example, if you lose your job, we’ve given economic hardship forbearance. Then we reach out to our community and help you get re-employed – we’ve done this over and over again, and have great referenceable success stories that have helped us build a member base of nearly 3,000 and growing.

      Third, we offer unique community benefits that the your Grad Plus loan doesn’t give you. Do you want to start a business? Join our entrepreneur program, and we’ll give you forbearance while we help you with your business plan and get your idea funded. Want to network with alumni to help your career? We hold monthly dinners to connect alumni-investors with alumni-borrowers.

      Fourth, we care about financial literacy. The fact that schools don’t educate borrowers about what they can reasonable borrow given their career opportunities is the reason we have $1 trillion in student loan debt outstanding. We support programs like “know before you owe” where we show you what a reasonable debt load is for your school and major.

      We are very clear that refinancing a federal loan isn’t for everyone. If you are pursuing public service and eligible for loan forgiveness, or if you are currently utilizing one of the grace programs, refinancing probably isn’t for you.

      We aren’t the only ones who feel this way. The Consumer Financial Protection Bureau has been pushing for greater involvement of private lenders to consolidate and refinance loans – and we’ve been active with them in this movement.

      Respectfully,
      Arden

  3. Mark Parsons says:

    If one were to refinance their government loans with SoFi but then decide in a few years that they would like a career change and go back to school, are there deferment/forbearance options for in-school borrowers (full-time students)?

  4. Though I do work for the federal government, under the loan forgiveness program, with the interest rate I currently have at 7.75%, my payments are all over 700 per month. I have excellent credit and want to buy a house. With that kind of monthly payment, I’m hindered in what I can afford. With better terms, I might be able to do that, among other things.

  5. Thank you!

  6. I have a student loan and it’s already in default and I have met with the institution and signed a repayment plan based on 150.00/month. But the interest rate is killing me. Would I qualify to get a refinance loan with your company?
    Rob

    • Hi Rob – You can see our Eligibility Criteria here or give us a call at 855-456-SOFI to discuss your circumstances and see if you qualify. Thanks for your interest!

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