Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
If repayment of your student loans has started or interest is accruing, it might be high time to school yourself on managing your school debt. Refinancing is one option.
Sure, it’s not the most fun way to occupy a weekend, but taking a close look at your student loans and understanding the ways to repay them may save you money and angst.
When Might It Be a Good Idea to Refinance Student Loans?
When It Would Save You Money
The main goal of refinancing with a private lender is to lower the interest rate on your student loans — federal and/or private — with one new loan with a new rate that pays off the existing loans.
When rates are low, refinancing student loans could make a lot of sense. How much could you save? This student loan refi calculator can be enlightening.
Refinancing could be a great choice for working graduates who have higher-interest Direct Unsubsidized Loans, graduate PLUS loans, and/or private loans.
It could be smart to refinance law school debt and MBA loans.
Given that the average dental school graduate enters the profession with nearly $300,000 in student loans, refinancing could be a good idea.
The average debt load to get through medical school is also high. Medical residents and fellows may be able to refinance and make low monthly payments until becoming attending physicians.
In fact, all medical professionals, including nurses, may want to see if they could save money by refinancing.
Parent PLUS loans may also be good candidates for refinancing.
Perhaps you’ve heard of student loan consolidation. Federal student loan consolidation would combine all your federal student loans into one, but the rate is the average of those loans’ interest rates rounded up to the next one-eighth of one percentage point.
You Qualify for Refinancing
Your eligibility to refinance student loans depends on your financial history, employment, and monthly income vs. expenses.
You can usually refinance student loans right after graduating, and as often as you want after that. Most lenders charge no fees to refinance.
Can Your Loans Be Refinanced?
Graduates of Title IV accredited undergraduate and graduate programs who have federal and/or private student loans may be able to refinance them into one new loan.
You Want to Remove a Cosigner
Some lenders allow a cosigner to be released from any repayment obligation when student loans are refinanced.
Principal borrowers applying for cosigner release typically have to demonstrate that they are able to handle the loan on their own by meeting certain minimum requirements.
You Want to Switch to Fixed Interest
If you have student loans with variable rates, before rates rise you may want to consider refinancing to lock in a fixed rate.
Then again, if you’re willing to take on a risk to potentially save on interest — and will be able to pay off your student loans quickly — you might consider a variable rate. A variable-rate loan typically starts with a rate that’s 1% to 2% lower than a comparable fixed-rate loan.
But what if variable rates rise? Variable rates often will still save you money over the long term.
You Are Willing to Give Up Federal Benefits
If you have federal student loans, refinancing them into a private student loan will eliminate the ability to participate in income-driven repayment plans, the Public Service Loan Forgiveness program, and federal deferment and forbearance.
Want to see if refinancing could be right for you? We’ve created a quick quiz that might help.
IMPORTANT: The projections or other information generated by this quiz regarding the likelihood of various outcomes are hypothetical in nature, do not reflect actual results, and are not guarantees of offers.
The Takeaway
If you’re asking yourself: Should I refinance my student loans? it might pay to look at the interest rates on your loans, the monthly payment amount, and whether you have any need to enroll in something like a federal income-driven plan.
SoFi refinances both federal and private student loans with no fees, and offers fixed and variable rates.
FAQ
When is it a good time to refinance student loans?
It’s a good time to refinance student debt when rates remain low and you can better the rate on your current student loans, and when you’d like to add or remove a cosigner.
Can refinancing student loans reduce the total cost of your student debt?
Absolutely, for borrowers who are able to reduce their fixed loan rate and keep the same loan term or shorten it, and for some borrowers who opt for a variable rate. Total interest paid could be significantly lower.
The rate for federal Direct Unsubsidized Loans for graduate or professional students isn’t all that low, and the rate for Direct PLUS loans (for parents and for graduate or professional students) has averaged over 7% in the past 15 years.
Also, student loans begin accruing interest when they’re disbursed, which can add up.
What credit score do you need to refinance student loans?
Experian says 670 and up, but each lender will have its own threshold. What’s clear is that the higher the score, the better the chance of getting a lower interest rate.
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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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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.
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.
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