How to Decide If Refinancing Your Student Loans Makes Sense

refinance checklist

For many student loan borrowers, refinancing can feel like a godsend.

Instead of having multiple student loan servicers, refinancing lets you deal with just one. If you get a good offer, you can lower your monthly payments and interest rate. If your interest rate goes down significantly, you could save thousands of dollars over the life of your loan.

But refinancing isn’t a viable option for everyone. Some people won’t qualify, and others won’t see much savings from refinancing.

So how do you know whether or not you’re a good candidate? Check out this full student loan refinance checklist to find out.

When should I consider refinancing my loans?

If all of these statements are true, then refinancing your student loans can be the right move for you. See how many you can check off below.

I have a steady income or job offer letter.

When you refinance your student loans, you combine them all into one new loan from a private lender. Although private lenders allow some repayment flexibility, they typically don’t help all that much if you run into financial trouble.

Before turning any federal student debt into one private loan, make sure you’re confident about your ability to pay it back. Plus, you’ll need to show proof of income (or at least a job offer letter) when you apply for refinancing offers. You’ll need to show you can pay back the new loan.

The weighted average interest rate of all my loans is high.

One of the best benefits of refinancing your student loans is getting a lower interest rate. Lowering your interest rate by just 1.5% to 2% can save you thousands of dollars over the life of your loans.

But if your interest rates are already low, a refinancing lender may not be able to beat them — and the last thing you want to do is make your interest rates go up.

If the average weighted interest rate of your current loans is high, you could qualify for a lower rate. CommonBond, for instance, offers variable interest rates between 2.57% and 6.84% and fixed interest rates between 3.18% and 7.12%.

If you can snag a lower rate, you could both simplify your monthly student loan payments and pay a lot less in interest overall.

I don’t need an income-driven repayment plan.

With federal student loans, borrowers have certain protections. Income-driven repayment plans, for instance, extend your repayment term. Plus, they cap your monthly payments at 10 to 15 percent of your discretionary income.

If you refinance, you’ll lose access to these federal programs. Instead of working with the government, you’ll work with one private lender, like SoFi or CommonBond. You should only refinance if you don’t need access to federal income-driven repayment plans.

I’m not working toward federal loan forgiveness.

Programs like Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness forgive federal student loan debt in exchange for service. If you refinance your federal loans with a private lender, you’ll no longer have access to federal forgiveness programs.

These forgiveness programs aren’t the only ones that help pay back student debt, though. You might still qualify for state and university-sponsored loan forgiveness and assistance programs. But if you could be eligible for federal student loan forgiveness, you might not want to refinance your student loans.

My credit score is 650 or greater.

Lenders determine your refinancing offer based on your creditworthiness. When you apply, they take a look at your credit score, among other factors. While many lenders don’t have a strict cutoff, they’re looking for a relatively strong score.

At the same time, some lenders understand that a recent college grad hasn’t had time to build up their credit score yet. But if your score still isn’t up to scratch, you could boost your application by applying with a cosigner. Some lenders even offer a cosigner release after you make on-time payments for a certain period of time.

If you’re not sure your credit score is strong enough, you can always request a quote from the company. This won’t affect your credit score and will give you an initial sense of the offers.

Refinancing would give me better terms on my student loans.

Finally, you must make sure refinancing would improve your student loan situation. Identify your goals for refinancing. Are you working with a lot of lenders and want to simplify your monthly payments? Refinancing would definitely help you do that.

Are you trying to lower your monthly payment or interest rate? To find out if refinancing will help, you must submit a few pieces of information, like your name, income, and total debt. In just a couple of minutes, you can see what kind of offers you could qualify for.

You don’t have to worry about a hard credit check at this point. You can compare lenders to see what your monthly payments and interest rates would be. Then, use a student loan refinancing calculator to determine whether or not you’d save money.

When is refinancing a bad idea?

There are some cases when you might be better off waiting to refinance. If any of the following refinance checklist applies to you, you might not be a good candidate for student loan refinancing at this time:

  • My income is irregular or unstable.
  • The average weighted interest rates of my loans is already low.
  • I might need an income-based repayment plan in the future.
  • I’m in or am considering a career that qualifies for federal loan forgiveness, such as PSLF or Teacher Student Loan Forgiveness.
  • My credit score is lower than 650.
  • Refinancing wouldn’t help me save money or lower my monthly payments.

Decide whether refinancing is right for you

Before refinancing your student loans, make sure you understand the full implications. Assess your situation to determine whether you’re a strong candidate for refinancing.

If you’re interested, you can easily browse offers with lenders like SoFiCommonBond, and LendKey. If you find a good offer, you could soon ease the burden of student loan payments.

For many people dealing with student loan debt, refinancing improves their financial picture. By evaluating your personal situation, you can confidently determine whether or not refinancing is right for you.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderRates (APR)Eligible Degrees 
Check out the testimonials and our in-depth reviews!
2.75% - 7.24%Undergrad
& Graduate
Visit SoFi
2.57% - 6.39%Undergrad
& Graduate
Visit Earnest
2.57% - 7.12%Undergrad
& Graduate
Visit CommonBond
2.99% - 6.99%Undergrad
& Graduate
Visit Laurel Road
2.58% - 7.26%Undergrad
& Graduate
Visit Lendkey
2.89% - 8.33%Undergrad
& Graduate
Visit Citizens
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