When should I refinance my student loans?
Updated on September 30, 2020
Student loan debt in the U.S. is now higher than credit card or auto loan debts. Those wanting relief from high student loan payments often consider refinancing their student loans. There are some pros and cons to doing so, which we will discuss below.
Advantages of refinancing
By refinancing, you can take advantage of lower interest rates. In turn, this can save you a great deal of money on your monthly payments and free up cash that you could use elsewhere.
Refinancing could also lower your debt-to-income ratio. This might make it easier for you to qualify for a home or auto loan.
When refinancing, you can consolidate several loans into one. This allows you to make only one payment each month rather than multiple ones.
Disadvantages of refinancing
Student loans come with certain protections. For example, you could be eligible for a forbearance or deferred payments due to COVID-19. Those protections generally do not apply to other types of loans, so you could waive them if you refinance.
Certain occupations might also be eligible for repayment plans. If you fall under a government program for student loan repayment, refinancing would mean you no longer qualify. The same would be true if your employer offers student loan repayment benefits.
You must generally have a credit score of at least 600 in order to refinance. If you cannot qualify for a loan on your own, you would then need to secure a cosigner.
Should I refinance my student loans?
Refinancing your student loan may make sense if:
• You have multiple loans you would like to consolidate
• Interest rates have dropped significantly since you took out your student loans
• You are not eligible for student loan forgiveness or any other type of relief
• Your employer does not offer student loan reimbursement
Choosing the best option
The decision to refinance your student loans should not be taken lightly. Here at Studentloanify, we recommend carefully weighing all your options before making a move. If you do decide to refinance, research lenders and review current interest rates to ensure you are getting the best deal possible.