Student loans: When should you refinance your student loan?
Sstudent loans in the United States generally need to be refinanced as soon as possible. A lender replaces your old loans with a new one that has a reduced interest rate when you refinance. This can help you save money over time, right from your first payment.
If you can acquire a life-changing rate, it will determine when you need to refinance your student loans.
For example, a private student loan of $30,000 with an interest rate of 8% would require monthly payments of $364 over a total of ten years.
You can save $46 per month by refinancing a 10-year loan at 5% interest, which will save you a total of $5,494 – enough to invest in your phone, cable, electricity or other invoices.
When to Refinance Student Loans
Student debt refinancing is not available to everyone. A college degree, decent credit, and an income that allows you to comfortably manage your costs and debt repayments are often requirements.
In the following situations, consider refinancing if you meet these criteria:
- The savings will be significant. As long as you can qualify for a higher rate than you currently have, you don’t have to wait until you have perfect credit to refinance. To increase your savings even more, ask the lender if they offer a bonus for refinancing student loans.
- You are in debt for your studies. Since private student loans are not covered by federal loan programs such as income-contingent repayment and civil service loan forgiveness, refinancing them is essentially risk-free.
- Your student loans have high variable interest rates. With an adjustable rate loan, it can be difficult to predict payments, and even modest variable rate loans can become more expensive to repay. Consider refinancing to get a fixed rate before it goes up.
- Pricing conditions are favorable. Private loan refinance rates, both fixed and variable, may change in response to economic developments such as rate increases or decreases by the Federal Reserve. You may want to refinance if rates are pushed down to take advantage of the situation.
- You are doing better financially. If refinancing doesn’t make sense after you graduate, think about it later when your finances are more secure.
When not to refinance your student loans
- Your income may decrease and you have federal loans.
- You are trying to get a school loan forgiveness.
- You have just filed for bankruptcy.