If you have student loans, you saw ads in your mailbox, on social media, on TV commercials. Refinance student loans, they scream, and you can save thousands. Can I refinance student loans to a lower rate?
When to refinance student loans
Not everyone can be eligible for refinancing student loans. Usually you need a university diploma, good credit and income that will allow you to conveniently afford expenses and pay off debts. If you meet these requirements, consider refinancing in the following circumstances:
- Savings will matter. You don’t have to wait until you get the perfect refinancing loan as long as you can get a better rate than today. Check to see if the lender is offering a student loan refinancing premium to further increase your savings.
- You have private student loans. By refinancing private student loans, you have almost nothing to lose because they are not covered by federal loan programs such as income-based repayment and Public Loan Forgiveness.
- You have student loans with high variable rates. Forecasting payments with a floating rate loan can be difficult, and even loans with a low interest rate can be more expensive to pay back. Before increasing, consider refinancing to get a fixed interest rate.
- The rate environment is strong. Both fixed and variable refinancing rates for private loans may change depending on economic factors, such as interest rate increases or lowering interest rates in the Federal Reserve. When rates are reduced, you can take advantage of this situation by refinancing.
- Your finances have improved. If refinancing makes no sense after graduation, think about it when you’re on a more solid financial foundation.
If you have federal student loans
When you refinance student loans, you leave the federal wallet and get a new private loan. It is not a decision to take lightly. The federal system – which accounts for about 90% of the national student loan amount – offers more collateral than the private market.
Federal borrowers have access to several types of repayment plans, including those that set monthly payments based on earnings. You may also be eligible for redemption on federal loans, either by working in the public sector for a decade or by paying an income-based plan for at least two decades. There are also more options for postponement and forbearance.
If you have private student loans
Here the decision is much easier: just do it.
“If you have private loans, you have no excuse not to check interest rates this week,” says Hornsby.
You don’t lose any special collateral, so you should just find the best loan terms you can get. Also remember that you can refinance many times. For example, if you refinanced private loans a few years ago, you should check what rates you can qualify today, especially if you have improved your creditworthiness or got a raise at work.