3 tips for refinancing student loans


Do you have a student loan, or maybe more than one? With interest rates dropping, you may have thought about refinancing in order to pay lower interest on the life of the loans. Here are some good pieces of advice to consider before plunging into the refinancing process.

1. Consider whether to refinance all or some of your loans

With more than one student loan, you may choose to refinance one, more, or all of them. If you have a mix of private and federal loans, perhaps refinancing just the private loans would work out better financially in the long run — especially if these carry higher percentage rates. Rates that are under 3.5% may not be worth the effort or long-term savings.

2. Review your credit score before applying to refinance or consolidate loans

Qualifying to refinance or re-consolidate is much like applying for a new loan. Financial groups review credit scores, income, job histories, and bank activity before deciding whether to approve the process. If you are not happy with your current scores and want to make them better, you can take some steps to do so:

– Ensure current regular payments are always sent on time
– Decrease the total balance on open accounts
– Lower the debt-to-income ratio
– Close unused open accounts (such as retail store credit cards)
– Ensure there are no errors on your credit reports

3. Examine the big picture to make sure it’s worth it

If you’ve prepared to refinance and know which lender you’d like to work with, do one more thing before making the next step — run those long-term numbers to make sure it’s in your best financial interest. You should only refinance student loans if you will save sufficient money in the long term. The cost of the refinance must be absorbed in the final tally, as well. Refinancing student loans is worth the effort if you obtain a lower rate and perhaps also consolidate multiple loans into one simpler payment. The end cost of these payments should be substantially lower than if you had stayed with your original loan(s). Avoid refinancing for now if your credit score is below 630 or an income-based repayment plan is part of the discussion. 

Discuss your options and goals with a student loan expert to get any questions answered. It helps to calculate the figures with someone who has done this type of financial process many times before.