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Student Loan Refinancing

When To Refinance Student Loans: 9 Signs It’s Time

March 3, 2020
Updated August 24, 2020

When is it the right time to refinance your student loans? This can be a tough question to answer because everyone’s situation is unique. There are certain situations in which refinancing student loans is a good idea and certain situations in which refinancing is a bad idea. In this blog, we’ll explain the factors that can help you determine whether now is the time to refinance student loans, along with a few signs that it isn’t the right time.

 

When To Refinance Student Loans

Refinancing student loans may be a good option if you meet certain criteria listed below. Factors to consider include your credit score and credit history, your current loan status, your employment status, your debt-to-income ratio, your current interest rates, among others. Here are nine signs that now may be a good time to refinance your student loan debt.

 

You have a good credit score and credit history

Your credit score is an important factor in determining whether you should refinance student loans. Having a good credit score makes you a prime candidate for refinancing because it will allow you to receive more favorable interest rates when you refinance, allowing you to save more money over the life of your loan. 

 

Additionally, having a well-established credit history is another good indicator to lenders that you are a responsible borrower, which will also help you receive a better interest rate. Many lenders require a minimum FICO score of 650 to 680 in order to qualify. 

 

You’re up to date on your loan payments

If you’ve been consistent about making your student loan payments on time every month, you are more likely to be a prime candidate for refinancing student loans. 

 

Having a strong payment history shows lenders that you are a responsible borrower who will make your loan payments, which will also help lower your interest rate. Having made between 90-97% of payments on time is considered average, but a payment history with 98-100% of payments made on time is ideal and makes you a prime refinancing candidate.

 

You are employed with a steady income

When you apply for refinancing, your lender will require you to report your income. Having secure employment with a steady income also makes you a good candidate for refinancing student loans. Lenders prefer borrowers who can comfortably make their loan payments, even in the case of a financial emergency. 

 

Finding a job with a higher salary may help you qualify for a better interest rate, even if you have already refinanced your student loans in the past. See how often you can refinance your student loans for more information. 

 

You have a good debt-income ratio

A term commonly used by lenders, the debt-to-income ratio is also a key factor in showing borrowers your ability to take on debt. Your debt-to-income ratio, also known as DTI, is a number that shows how your total monthly debt compares to your gross monthly income. 

 

Most lenders require a DTI below 65%, with many requiring a ratio below 55%, with different requirements based on your income, degree type, and loan amount. If your debt-to-income ratio is in the 50% range or lower, you are likely a great candidate for student loan refinancing and may be able to secure a lower interest rate in the process.  

 

You know which student loans to refinance and why

When entering the refinancing process, it’s important to know which of your loans you want to refinance and why. Different student loans have their pros and cons, varying from borrower benefits to their interest rates. 

 

For example, federal student loans offer certain borrower protections, as well as Income-Driven Repayment (IDR) plans. For some borrowers, refinancing private student loans that have high interest rates without borrower protections makes the most sense, while other borrowers may decide to refinance their federal student loans as well due to having a large amount of debt and wanting to save over their loan term. 

 

If you’re not sure which loans you want to refinance, check out our guide to student loan refinancing to help make these decisions. 

 

Your grace period is ending

Some student loans, such as federal student loans, typically have a grace period following graduation to allow borrowers to get on their feet before making payments. Federal student loans offer a six-month grace period. Once this period is over, payments will begin. 

 

Refinancing your student loans may be a good idea once your grace period is coming to an end. However, keep in mind that some lenders will honor your previous loan’s grace period when refinancing. 

 

You will save money on interest or loan terms

One of the primary benefits of refinancing student loans is the ability it gives you to potentially save money on interest or shorten your loan term. A few scenarios in which refinancing could save your money on interest include if your current loans are high-interest, or if your current loan term is fairly long. 

 

Take some time to examine your current interest rates compared to rates offered by student loan refinancing lenders – saving just 1-2% over the life of your loan could result in thousands of dollars saved. Shortening your loan term also typically goes hand-in-hand with a lower interest rate. We recommend using our student loan refinancing calculator to calculate your potential savings to help determine if refinancing is worth it. 

 

You have high variable interest rates

While most variable student loan interest rates are currently low, there is potential for interest rate increases in the future. If your student loan is currently a variable-rate loan, you may want to consider refinancing should your interest rate increase. 

 

Switching to a fixed rate also offers the benefit of locking in a lower rate without the risk of it increasing over time. Learn about fixed vs. variable rate student loans and determine which is best for you when refinancing. 

 

You know how to find a good lender

Before refinancing your student loans, you need to know the qualities of a good student loan refinancing lender. 

 

A few things to look for include a lender that offers personalized customer service and can help you navigate the student loan refinancing process, low competitive interest rates, the opportunity to prequalify to see your rate without affecting your credit score, and borrower protections in the case of financial hardships.

 

When should you not refinance student loans?

In some cases, student loan refinancing may not be for you. It’s important to note that some of these factors are temporary and may allow you to refinance later on, while other factors are more permanent. 

 

Here are the factors that may indicate that now is not the right time to refinance your student loans.

 

If you have bad credit

If you have a less than optimal credit score, now is probably not the time to try to refinance student loans. As stated earlier, lenders are typically looking for credit scores in the mid-600s at a minimum, while many borrowers who are approved have FICO scores in the 700s. Having a lower credit score when refinancing may force you into adding a cosigner in order to qualify, which may negatively impact them if you are not able to keep up with your loan payments. Look into ways to improve your credit score if this applies to you.

 

You’re struggling with student loan payments or defaulted

If you’ve had some difficulty making your student loan payments on time in the past or have defaulted on your student loans, now may not be the best time to refinance. Missed payments negatively impact your credit history, which is a key factor in qualifying for student loan refinancing. 

 

By reestablishing a history of on-time payments, you can improve your credit score along with your credit history, which could qualify you to refinance down the road.

 

You’ve declared bankruptcy

Filing for bankruptcy negatively impacts your ability to refinance student loans. Most lenders will require borrowers to wait a specific amount of time following bankruptcy before qualifying to refinance. If you’ve declared bankruptcy within the past 4-10 years, now may not be the right time to refinance your student loans.

 

If you are pursuing Public Service Loan forgiveness or want Income-Driven Repayment

If you’re in public service and know you’ll qualify for Public Service Loan Forgiveness after making ten years of qualifying payments, refinancing student loans may not be for you because it will disqualify you from the program – however, be sure to verify that you qualify for loan forgiveness. Check out this student loan forgiveness guide for more information. 

 

Additionally, refinancing with a private lender will not allow you to participate in the Income-Driven Repayment plans offered with federal student loans. If you prefer to have these student loan repayment methods, now may not be the time to refinance.

 

If it won’t lower your interest rate or will extend your loan term

While it may seem obvious, refinancing may not be a good idea if it will increase your interest rate or cost you more by extending your loan term. If you attempt to prequalify for refinancing and the rate you are given is higher than your current one, or if you only have a few years left on your loan term and refinancing will extend it, you may want to forego refinancing.

 

Is Student Loan Refinancing Right For You?

Student loan refinancing can offer many benefits if done in the right circumstances. It’s important to assess your situation in detail and do your research before making a decision.

 

If you have questions about student loan refinancing or need assistance in making a decision, reach out to Education Loan Finance. Our Personal Loan Advisors are experts in student loan refinancing and can address your questions, provide the guidance you need, and help you make the decision that is in your best interest. If you’re ready to refinance your student loans, learn more about student loan refinancing with ELFI and prequalify to see your rate in minutes without affecting your credit score. 

 

What To Know Before Refinancing Student Loans

 

 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

 


 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

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Man refinancing his student loans to a longer term
2020-09-23
Should You Refinance Student Loans to a Longer Term?

If your student loan payments are becoming overwhelming, it could be time to consider refinancing. When you refinance your student loans, you’ll not only have the option of consolidating multiple loans into one monthly payment; you’ll also have the chance to change your student loan repayment term.   When you take out private loans, you have the option of choosing to repay them over a short period of time or a longer period. We’ve compiled the pros and cons of both, as well as some situations in which a longer student loan repayment term might be the right fit for you.  

Is it time to refinance your student loans?

Refinancing your student loans is a great way to lower your interest rate and earn financial freedom more quickly. You can refinance both private and federal loans, and if you’re tracking a multitude of payment dates and timelines, consolidating your loans through refinancing can be a great way to simplify your financial life and work toward becoming debt-free.   You can refinance your loans as many times as you’d like, so even if you’ve already refinanced once, it never hurts to explore new lenders! Now is an especially good time to refinance your student loans, as interest rates have recently dropped as a result of the COVID-19 pandemic. As of September 18, 2020, student loan refinancing rates are as low as 2.39% for variable interest rate loans and 2.79% for fixed interest rate loans.   If you think now is the right time to refinance your student loans but you’re not sure, keep reading for more insights. We’re here to support your journey toward financial freedom and applaud your researching smart money moves!  

Signs it might be time to refinance your student loans:

  • You think you could earn a better interest rate. If interest rates recently dropped or your credit score has gone up, research your options to see if refinancing could be the right choice for you.
  • You have mostly private student loans. If your loans are through private lenders, now could be the time to consider refinancing, as you won’t risk losing any federal benefits.
  • You need more financial flexibility. If your student loan payments are keeping you from accomplishing other financial goals, refinancing could help by lowering your interest rate and extending your student loan repayment term. To learn more about the pros and cons of a long student loan repayment term, read on.
 

What happens when you change your student loan term?

A student loan repayment term calculates how long you have to pay back your loans in full. ELFI, for example, offers varying repayment terms for student loan refinancing.   When you consolidate and refinance your student loans, you’ll have the opportunity to change your student loan repayment term. This is especially useful if you’ve taken out several loans with different amounts and timelines.  

Choosing a longer term for your student loans

Opting for a longer student loan repayment term means you will pay more in interest over time. Each monthly student loan payment, however, will have a lower balance than if you had opted for a short repayment term.   If you're looking to accomplish several financial goals, like saving for a down payment on a house or purchasing a new car, lengthening your student loan repayment term may give you the flexibility you need to work toward those goals. Be advised, however, that if you do opt for a long student loan repayment term, the total amount you’ll pay in interest will go up. At the end of the day, the right student loan repayment term for you depends primarily on your long-term financial goals.

It might be time to refinance your student loans to a longer term if:

  • You want the financial flexibility of a lower monthly student loan payment
  • You’re expecting a drop in income and need to lower your monthly expenses
  • You’re having difficulties keeping up with your current student loan payments
 

What about shortening my student loan repayment term?

If none of the above scenarios apply to you and your most pressing question is “how can I pay off my student loans faster?” then a short student loan repayment term could be right for you.   Unlike a long student loan repayment term, you’ll make larger monthly payments but will pay less in total interest. Opting for a short student loan repayment term is the right choice for borrowers who have the financial flexibility to make larger monthly payments for a short period of time.   Learn more about short student loan repayment terms in our recent blog, “Choosing the Right Student Loan Repayment Term.”  

Refinancing student loans with ELFI

Ready to explore your student loan refinancing options with ELFI? Great! We’re excited to help. In addition to potentially lowering your interest rate and choosing a new student loan repayment term, when you refinance with ELFI, you’ll also work directly with a Personal Loan Advisor who will help provide a seamless, personalized refinancing experience.   Don’t take our word for it. Check out recent customer reviews on Trustpilot! If you’re ready to explore potential interest rates by refinancing with ELFI, check out our Student Loan Refinance Calculator.*  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
Man contemplating which student loans to refinance in 2020
2020-09-10
Which Student Loans Should You Refinance in 2020?

With interest rates favorable to student loan borrowers, right now can be a great time to refinance. But not all loans are created equal. In fact, it may be better to wait to refinance certain types of loans. Keep reading to find out which student loans you should refinance in 2020.    By Caroline Farhat  

Refinancing Rates at All-Time Lows. Should You Refinance?

Refinancing interest rates for student loans are at an all-time low in history. This is due to the Federal Reserve lowering interest rates in response to the COVID-19 pandemic. When the Federal Reserve lowers interest rates, this impacts rates that lenders will use on loans that you borrow. This change affects private student loans with variable interest rates and any new loan that you want to take out, including refinancing rates. This makes it an ideal time to refinance if you have certain loans.      As of September 8, 2020, student loan refinancing rates are as low as 2.39% for a variable interest rate loan and 2.79% for a fixed interest rate loan. If you refinance now you could potentially be saving thousands of dollars over the loan term because you will be able to lock in a low interest rate. This will also save you on your monthly payment.   

Example of Savings When Refinancing

Here is an example of how much can be saved by lowering your interest rate:    If you have $60,000 in student loans and an interest rate of 9% with 10 years remaining on your loan term, your estimated monthly payment would be $760.00. If you took advantage of the low interest rates now and qualified for a fixed rate of 3.76% you could save as much as $159.00 per month and over $19,000 in interest over the remaining 10 years.    To find out your possible savings, use our
Student Loan Refinance Calculator* where you can put in your specific loan numbers to obtain an estimate of the amount of savings for your specific situation.   So now that you see how beneficial it can be to refinance student loans, which ones should you try to refinance in 2020?   

Considerations for Refinancing Federal Student Loans

Federal student loans are currently benefiting from the protections provided by the CARES Act and the subsequent Executive Order signed on August 8, 2020. The benefits provided include: 
  • 0% interest - Right now federal loans are not accruing any interest because of the lowered interest rate. This means the loans are not increasing and can actually be paid off faster if payments are made while the interest rate is 0%.
  • Administrative forbearance - This means no payments are due during forbearance. Payments are set to resume in January 2021. 
  • During the administrative forbearance, payments that you would have made during this time but are not required to make, still count towards forgiveness for loans in the Public Service Loan Forgiveness program. 
  All of these benefits are set through December 31, 2020, making it more ideal to wait until 2021 if you want to refinance any federal student loans. If you have federal loans and were to refinance them now, you would lose these federal benefits. During this time if you have a federal student loan it is best to use the money that you would normally be paying on your loans to save for an emergency fund, pay off other high interest debt, or use it to make a lump sum payment on your loans when payments resume.    

Best Student Loans to Refinance in 2020

The loans that would be best to refinance now in 2020 include:  

Private Student Loans

If you obtained private student loans in the early 2000s you could have an interest rate as high as 9%. Refinancing older student loans would greatly benefit from the much lower interest rates. Even if you have newer student loans with a lower interest rate than 9%, with rates so low you may be able to refinance with a shorter term length and still be able to see savings and cut time off your student loan.    Here is how that could work: with a student loan balance of $60,000 with 18 years remaining at 7% interest you would be paying approximately $489 per month. But if you refinance the loan and qualify for a rate of 4.07% you could save an estimated $43 per month, over $25,000 in interest, and cut your loan term down to 15 years. That’s saving you time and money on your student loans!  

Variable Interest Loans

If you have a variable interest rate loan, you may also be experiencing the benefits of the interest rates being lowered. However, just as rates can be lowered, they can be raised. If you want the security of knowing your rate cannot go up, now would be a good time to lock in a low fixed interest rate.    

Bottom Line

Refinancing is a great way to save money on your loans. Knowing the current student loan environment is helpful to determine the best financial move for you now. With the current CARES Act, refinancing only your private student loans and not your federal student loans may be the most financially savvy move you can make this year.  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
2020-09-04
Student Loan Refinance Rates Just Dropped Again. Should You Refinance?

If you have student loan debt and are looking for ways to save money, you’re in luck because right now is a great time to consider refinancing your loans. Currently, refinancing rates are at an all-time historic low. As of September 3, 2020, interest rates for refinancing student loans are currently as low as 2.79% for a fixed rate. Compared this to the early 2000s when private student loan rates were as high as 9% and you can see that now is the time to take advantage of the opportunity to see significant savings. Before you decide on refinancing your student loans, it’s best to consider the pros and cons.  

Pros of Refinancing Now

When you refinance student loans, it means you are obtaining a new private student loan to pay off your old loan or multiple student loans. You can refinance private and federal student loans. The new loan may have a different term length than your previous loan and will have a different interest rate (presumably a lower one) and monthly payment. Here are some reasons refinancing now could be beneficial:    

Lock in a Low Rate 

If you refinance now, you will be able to take advantage of the low refinancing rates being offered. Having a low interest rate helps you save money in interest costs. This can also help you pay off your loan faster if you are able to pay more than the minimum payment and can put more towards the principal of the loan. To see just how much a lower interest rate can save you, check out this example:   If you have student loan debt in the amount of $50,000 with an interest rate of 7% and a loan term of 20 years, your monthly payment would be approximately $388.00. If you refinance and qualify for an interest rate of 4.65% with the same loan term your payment would be approximately $320.00 and you would save over $16,000 in interest costs over the length of the loan. A lower interest rate can result in huge savings!     

Save on Monthly Cost

  If your goal is to save some money, refinancing can definitely help accomplish that goal in most cases. If you qualify for a lower interest rate, with the right loan term you can save on the monthly cost of your student loans. Based on the example above, you would see a savings of over $60 per month. In certain instances where your new interest rate is significantly lower than your previous interest rate, you may be able to shorten the length of your loan term and still save in monthly costs. This will save you money and time on your student loan!      

Save on Interest over the Loan Term

  If you refinance to a lower interest rate you can literally save thousands of dollars over the life of the loan. These savings can be put towards other financial goals, setting you up for a stronger financial future. Your savings rate will depend on what your current interest rate is on your loan and the new rate you will qualify for. If you are interested to see how much your savings could be, use our
Student Loan Refinancing Calculator to get an idea of your savings.*   

Single Payment 

Refinancing is also beneficial to help simplify your finances. If you have multiple student loans that you are paying with different due dates, it can be difficult to keep up with all the different loans. When you refinance, you can essentially consolidate all or some of your student loans into one loan with one payment. This will make it easier to manage your finances. You will also be less likely to miss a due date and avoid having to pay late fees.     

Cons of Refinancing Now

Although there are numerous benefits for many student loan borrowers, there are some drawbacks to consider before deciding whether refinancing is right for you now.     

Lose Federal Borrower Protections

  When you refinance federal student loans, you will obtain a private student loan, which means you will not have access to any of the federal borrower protections currently being offered due to the COVID-19 pandemic. Therefore, if you refinance your federal student loans now you will lose the following protections: 
  • 0% interest: an executive order was signed on August 8, 2020 extending a 0% interest rate on federal student loans through December 31, 2020. This means no interest will be accruing on your federal loans through the end of the year. If you refinance now, interest will begin accruing on your new loan at your new rate.  
  • Administrative Forbearance: included in the executive order extending the 0% interest rate, the administrative forbearance was also extended through December 31, 2020 meaning no student loan payments will be due on most federal student loans until 2021. If you refinance now, payments will begin being due at the start of the loan, instead of resuming in 2021.  
  • Other federal borrower protections that are lost when you refinance include: 
  • Public Service Loan Forgiveness (PSLF): if you work for a qualifying employer and have qualifying loans that you are hoping will be discharged through PSLF, it would not be wise to refinance any federal loans. Private student loans are not eligible for this program.  
  • Deferment or Forbearance options are more flexible with federal student loans. 
 

Considerations to Make

If you are still unsure whether refinancing is a wise financial move for you, consider some of these options:
  • Only refinance any private student loans you have and not federal loans. That way you can take advantage of a low interest rate on some of your loans, but still keep the federal borrower protections on your federal loans.
  • Wait until 2021 to refinance when the federal protections of 0% interest and administrative forbearance will end, and rates may still be low. Although keep in mind rates can change and increase.
 

Bottom Line

Deciding whether to refinance your student loans now is a decision that should make wise financial sense for you. Ultimately any time you focus on your financial future and plan financial decisions, it is a step in the right financial direction!  
  *Subject to credit approval. Terms and conditions apply.