If you have student loans, you may be wondering whether you should refinance or not and if you should, when the time is right to look into it. The general rule that applies is the quicker you refinance your loans the better.In the refinancing process, your lender will pay off your existing student loans, issuing you with a new loan at a lower rate of interest. The benefit of this is that you’ll begin saving money from the first payment.
However, the nitty-gritty of when you should refinance your loans will depend on whether you can find an interest rate that’s impressive enough to make a difference. For example, a private student loan worth $30,000 with an interest rate of 8% will cost you around $364 per month over a 10-year period. If you can refinance that loan to another 10-year term but with an interest rate of just 5%, you’ll save around $46 each month on your payments, and around $5,494 in total over the life of the loan. That’s sufficient to make a serious difference in your life.
Will I Qualify For Refinance?
One issue to address is whether or not you can qualify for refinancing student loans. Not everyone meets the criteria. Typically you will need to have good credit, a college degree, and sufficient income to cover both your debt payments and general household expenses. If you do meet these requirements, there are several circumstances in which you should consider looking into refinancing options. These include:
- When the savings are worth it to make a financial difference. You don’t need to wait until your credit is perfect as long as you’re able to qualify for a better rate of interest than the one you currently have.
- When you can find a lender offering you a student loan refinance bonus that boosts your savings further.
- When your student loans are private rather than federal since they aren’t eligible for any federal loan programs such as Public Service Loan Forgiveness or income-driven repayment.
- Your student loans have a high variable rate.
- The interest rate environment is currently strong.
Is Refinancing A Good Idea For Me?
Although refinancing could offer you a host of benefits, there are some situations in which you either shouldn’t or can’t refinance. These include:
- If your loans are federal and you may experience a reduced income in the near future or are considering a career change. If you refinance you’ll lose out on the loan relief options available on federal student loans not to mention government programs such as income-driven repayment.
- You’re pursuing a federal loan program like student loan forgiveness.
- You have recently been declared bankrupt. Although it isn’t impossible to obtain refinancing for your loans if you’ve been declared bankrupt it will be more difficult. Most lenders won’t consider you for refinancing until a period of 4 – 10 years have elapsed after your bankruptcy.
- You have defaulted recently on your student debt. You may need to wait for a period of around 7 years until the default has been wiped from your credit history.
- It will take you longer to pay off your loans. If you refinance to a lower monthly payment it may mean you’re taking on a longer term and, therefore, paying more in interest.
At the end of the day, the decision to try refinancing your student loans is yours, and yours alone. As long as you meet the eligibility criteria, you may be able to benefit from making the change so long as you don’t come under the categories above.