You’ve already refinanced your student loans once, and now you’re wondering if a second time would be overkill. The fact is that, if you qualify, you can refinance your student loans as many times as you want to.
But before you get too refinance happy, it’s important to learn what the advantages and disadvantages of this strategy can be.
How is Student Loan Refinancing Different Than Consolidation?
It’s important to make a distinction here between refinancing and consolidation. The terminology can be a bit confusing, so let’s talk it out.
When you refinance your loans with a private lender, you are combining all your loans into one loan with new terms and a new (hopefully lower) interest rate. When you consolidate your federal loans through a Direct Consolidation Loan , you are not refinancing your loan, though you’ll still get a new interest rate.
However, that interest rate is calculated as a weighted average of your original loans’ interest rates, rounded up to the nearest eighth of a percent. Because of that, your new rate may actually be higher than the rate on your previous lowest interest loan.
What Are Some Advantages of Refinancing Multiple Times?
As with a first refinance, the biggest advantage of refinancing multiple times is that you may be able to find a lower interest rate. Lowering the interest rate on your loans may help you pay off your student debt faster, depending on your term, which could save you money in the long run.
Or you might find it handy to refinance your loan for a longer term and lower monthly payments to free up some of your cash flow. That will likely mean paying more in interest over the life of the loans, but lower monthly payments may put you in a better position to accomplish your short-term financial goals.
Things to Look for When Refinancing
Whether you’re refinancing your student loans for the first or third time, it would be wise to check that your new rate and term make sense for you.
Generally, there are two types of loans you’ll encounter: fixed rate and variable rate loans. Fixed rate loans have one interest rate over the life of the loan. These rates are typically higher than the initial rates offered by variable rate loans. However, because they don’t change, they can be easier to plan around.
Variable rate loans have interest rates that change based on either the prime rate or another index such as the London Interbank Offered Rate (also known as LIBOR). Be aware that rates for variable loans can climb if the rate or index they are tied to goes up (and vice versa, of course).
If this is the case, you could end up with more in interest than you might have planned. As a result, variable rate loans might be a good choice for a short-term loan, but the longer the loan’s term, the bigger chance of a rate hike.
Also, beware of qualifying for a lower interest rate that’s attached to a longer-term loan. Though this can be advantageous, a longer term might mean you’d end up paying more over the life of the loan. If you can afford the higher monthly payment, loans with shorter terms can be a good cost-saving option.
When looking for a lender, consider looking for one that offers competitive rates and flexibility when it comes to choosing rate and term length. Not all lenders will refinance both federal and private student loans—some lenders will only refinance private loans, and the federal government only consolidates federal loans.
So if you have federal loans you want to include in your private loan refinancing, look for a lender that accepts both. Some lenders do charge a fee for disbursing a new loan. Lenders must disclose all fees, so ask about them when inquiring about refinancing. Ask yourself if the costs of any additional feels don’t outweigh the benefits of refinancing.
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What Are Some Disadvantages of Refinancing Multiple Times?
The main disadvantage of refinancing your student loans is that your credit score could take a hit, because any time a hard credit inquiry is made, it can affect your credit score.
The other factor to consider is your time. Though you can refinance as many times as you want, it helps to do your due diligence to make sure it’s worth the effort.
This means researching reputable lenders and the rates and terms they offer with their loans. That takes some time, so you’ll likely only want to consider refinancing when there is a strong reason to do so—and only you will know what’s right for you.
Refinancing Your Student Loans
You may wish to consider refinancing your loans after a major life event, like getting a new job with a higher salary, because having a more stable financial picture may help you qualify for better rates or loan terms.
Having a solid debt-to-income ratio can also help make you more attractive to lenders or more likely to qualify for a lower interest rate. So if you have a higher salary, get a big bonus, or even if you pay off some other debts, your debt-to-income ratio might improve.
Similarly, if your credit score increases, you typically become more attractive to lenders. For example, this could happen if you are using a small amount of your available credit, or if you find (and are able to correct) a mistake on your credit report.
Married couples may want to consider refinancing loans together to put the power of two earners to use.
Also, if you’re thinking about a refinance, it could help to keep an eye on the federal interest rate.
When the Federal Reserve lowers short-term interest rates , it may become cheaper to borrow money from private lenders, who often respond to this by offering consumers lower interest rates as well. (However, this does not apply to recent federal loans which have had their interest rates set by Congress once a year since 2006.).
The Bottom Line
Refinancing your student loans can be a great tool to have at your disposal. Even if you’re not ready to refinance now, it can be useful to keep the option in mind as a possibility down the road. That way, if you’re in a situation when refinancing might make sense, you’ll be ready.
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SoFi Student Loan Refinance
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.