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.


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*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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Woman thinking about using credit card to pay down student loans
Should I Pay Student Loans with a Credit Card?

Paying off student loans can be a challenging process, so it’s natural to look for creative ways to accomplish your goal. One question some student loan borrowers have asked is whether they can use a credit card to pay student loans.    Technically, it is possible, but it’s generally not a good idea. Here’s what you should know before you try it.  

Can You Use a Credit Card to Pay Student Loans?

Unfortunately, making monthly student loan payments with your credit card isn't an option. The U.S. Department of the Treasury does not allow federal student loan servicers to accept credit cards as a payment method for monthly loan payments.   While that restriction doesn’t extend to private student loan companies, you’ll be hard-pressed to find one that will offer it.   That said, paying off student loans with a credit card is technically possible through a balance transfer. Many
credit cards offer this feature primarily as a way to transfer one credit card balance to another, and if you’re submitting a request directly to your card issuer, that’s typically the only option.   However, some card issuers will send customers blank balance transfer checks, which gives you some more flexibility. For example, you can simply write a check to your student loan servicer or lender and send it as payment. Alternatively, you can write a check to yourself, deposit it into your checking account, and make a payment from there.   Balance transfer checks often come with introductory 0% APR promotions, which give you some time to pay off the debt interest-free. That said, here are some reasons why you should generally avoid this option:  
  • Once the promotional period ends, your interest rate will jump to your card’s regular APR. The full APR will likely be higher than what your student loans charge.
  • Balance transfers come with a fee, typically up to 5% of the transfer amount, which eats into your savings.
  • Credit cards don’t have a set repayment schedule, so it’s easy to get complacent. You may end up paying back that balance at a higher interest rate for years to come.
  • Credit cards have low minimum payments to encourage customers to carry a balance, which could cause more problems. 
  • You won’t earn credit card rewards on a balance transfer, so you can’t count on that feature to help mitigate the costs.
  So if you’re wondering how to pay student loans with a credit card, it is possible. But you’re better off considering other options to pay down your debt faster.  

Can You Use a Student Loan to Pay Credit Cards?

If you’re still in school, you may be wondering if it’s possible to use your student loans to pay your credit card bill. Again, technically, yes, it is possible. But there are some things to keep in mind.    The Office of Federal Student Aid lists acceptable uses for federal student loans, and private student lenders typically follow the same guidelines. Your loans must be used for the following:  
  • Tuition and fees
  • Room and board
  • Textbooks
  • Supplies and equipment necessary for study
  • Transportation to and from school
  • Child care expenses
  If you incur any of these expenses with your credit card, you can use student loan money to pay your bill. However, if you’re also using your credit card for expenses that aren’t eligible for student loan use, it’s important to separate those so you aren’t using your loans inappropriately.   Also, the Office of Federal Student Aid doesn’t list credit card interest as an eligible expense. So if you’re not paying your bill on time every month and incurring interest, be careful to avoid using your student loan money for those expenses.  

How to Pay Down Your Student Loans More Effectively

If you’re looking for a way to potentially save money while paying down your student loans, consider student loan refinancing   This process involves replacing one or more existing student loans with a new one through a private lender like ELFI. Depending on your credit score, income, and other factors, you may be able to qualify for a lower interest rate than what you’re paying on your loans right now.    If that happens, you’d not only save money on interest charges, but you could also get a lower monthly payment.    Refinancing also gives you some flexibility with your monthly payments and repayment goal. For example, if you can afford to pay more and want to eliminate your debt faster, you can opt for a shorter repayment schedule than the standard 10-year repayment plan.    Alternatively, if you’re struggling to keep up with your payments or want to reduce your debt-to-income ratio, you could extend your repayment term to up to 20 or even 25 years, depending on the lender.    Keep in mind, though, that different refinance lenders have varying eligibility requirements. Also, just because you qualify, it doesn’t necessarily mean you can get more favorable terms than what you have now.   However, if you’re having a hard time getting approved for qualifying for better terms, most lenders will allow you to apply with a creditworthy cosigner to improve your odds of getting what you’re looking for.   Before you start the process, however, note that if you have federal loans, refinancing will cause you to lose access to certain programs, including student loan forgiveness and income-driven repayment plans. But if you don’t anticipate needing either of those benefits, it won’t be an issue.  

The Bottom Line

If you’re looking for ways to pay off your student loans more effectively, you may have wondered whether you can use your credit cards. While it’s possible, it’s generally not a good idea. Also, if you’re still in school, it’s important to be mindful of how you’re allowed to use your student loan funds, especially when it comes to making credit card payments.   A better approach to paying down your student loan debt is through refinancing. Take some time to consider whether refinancing your student loans is right for you, and consider getting prequalified to see whether you can get better terms than what you have on your current loans.
Woman refinancing her student loans
Student Loan Refinancing vs. Income-Driven Repayment Plans   

Student loans can be a real budget killer, with the average student loan payment being $393 per month. Over time, you may want to lower your monthly payment to make it more manageable or to put your savings toward other financial goals. Depending on the types of loans you have, you may choose to pursue income-driven repayment or student loan refinancing.   If you have federal student loans, you may be eligible to select an Income-Driven Repayment plan. Alternatively, for private and federal loans, student loan refinancing could be a better choice. To figure out whether you have federal student loans, check the Federal Student Aid site where all the information on federal loans will be available. To determine whether you have private student loans, request your credit report to see any reported private loans.   Once you know the types of loans you have, here are a few options that may reduce your student loan payment:  

Student Loan Refinancing

When you refinance your student loans, you obtain a new loan with a different lender, often a bank, credit union or third party. You can refinance your private or federal student loans, or a combination of both. Your refinanced loan will have a new interest rate, term length and monthly payment. Here are a few important things to know about student loan refinancing:  


To qualify for student loan refinancing, you must meet certain eligibility requirements.   Most lenders require:
  • A minimum credit score in the high 600s
  • Stable employment with proof of income
  • A minimum student loan amount
  • Debt-to-income ratio of less than 50%

Interest Rate

One benefit of refinancing your student loans is that you may earn a reduced interest rate, which can save you thousands of dollars. Here’s how it works:   If you have $65,000 in total student loan debt, a 15-year term and an interest rate of 6.8%, your monthly payment will be approximately $577. When you refinance, if you keep the 15-year term and qualify for an interest rate of 3.77%, your payment will be reduced by $104 per month. This results in $18,000 in interest savings over the life of the loan!  

Loan Terms

In addition to potentially reducing your interest rate, another benefit of refinancing student loans is you have more control over the terms of your repayment. You can select a fixed or variable interest rate, choose the loan provider that best meets your needs, and choose the amount of years of the loan.   If you want to pay your loan off more quickly, you can select a shorter student loan repayment term, although this will most likely increase your monthly payment. If you want to reduce your monthly payment, you can lengthen your student loan repayment term, but this may result in paying more in interest over the life of the loan. Try ELFI’s Student Loan Refinance Calculator* to see how much you could save.  

Income-Driven Repayment Plans

These plans are only available for federal student loans. There are four Income-Driven Repayment (IDR) plans offered, and with each plan, the payment is based on income and family size. Here are a few important things to know about Income-Driven Repayment:  


To select an IDR plan, you must apply through your loan servicer. Once an IDR plan is established, you’ll be required to recertify each year by submitting documents to prove your income and family size.  

Types of Income-Driven Repayment Plans

Once you recertify the monthly payment can go up or down depending on your income. The IDR plans available are:  

Revised Pay As You Earn (REPAYE)

The payment is always based on your income and family size. Your payment can increase to be higher than your payment on the standard repayment plan if your income increases significantly. The term length is 20 years for undergraduate loans and 25 for graduate loans.  

Pay As You Earn (PAYE)

The payment is 10% of your discretionary income but your payment cannot increase to be more than the payment on the standard 10 year repayment plan. The term length is 20 years for all loans.  

Income-Based Repayment (IBR)

The payment is 10% or 15% of your discretionary income, depending on when you borrowed the loans. Your payment will never be more than the 10-year standard repayment amount. The term length is 20 or 25 years depending on when you borrowed the loans.  

Income-Contingent Repayment (ICR)

The payment can be up to 20% of your discretionary income and the loan term is 25 years.  

Student Loan Refinancing vs. Income-Driven Repayment

To determine which option is best for you, it is helpful to evaluate the differences between student loan refinancing and income-driven repayment plans:  

Interest Rate

Although either option may reduce your monthly student loan payment, the major difference between Income-Driven Repayment and student loan refinancing is the interest rate change.   Income-Driven Repayment will not lower your interest rate. Rather, it will remain the same throughout the life of the loan. Student loan refinancing, on the other hand, may reduce your interest rate for the remaining life of the loan.  

Federal Benefits

With IDR plans, you are still eligible for federal benefits such as deferment, forbearance and forgiveness, although some private lenders also offer deferment and forbearance options.  

Financial Costs

There is no cost to refinance, and you may even save on interest costs if you qualify for a lower rate. With an IDR plan, there is no cost to apply for a plan, but your loan balance may actually increase on certain plans. This can happen when your minimum payment based on your income is not large enough to cover the interest costs that are accumulating. The interest costs can be added to your loan and your loan amount will actually increase rather than decrease.  


When you refinance, you have the option to select a fixed interest rate, as opposed to a variable rate, that will keep the payment the same throughout the life of the loan. On an IDR plan, there is uncertainty to what your payment amount will be each year, since you are required to update your income and family size. Your payment can change each year and your budget must account for it.  

Bottom Line

When you want to lower your student loan payment, evaluate the options and decide which works best for your financial plans. Both options can make your payment more manageable, but each have different long-term outcomes.
Grad student graduating with minimal student debt
6 Ways to Minimize Grad School Student Loan Debt

Embarking on your grad school journey can be an exciting time because it puts you one step closer to your dream career. But paying for grad school may cause anxiety if you are borrowing loans to cover the costs.   According to the U.S. Department of Education, in 2020 the average student loan debt from a graduate degree was $84,300. However, the cost of school shouldn’t prevent you from achieving your dreams. Here are 6 ways to minimize your grad school student loan debt:  

Minimizing Graduate School Debt

If you’re looking to graduate debt-free, here are a few tips for reducing your graduate school debt:  

Apply for a Stipend

If you are trying to decide which school is right for you, do your research and find out which schools provide stipends for graduate students. Certain degree programs will provide a stipend for living expenses, which will help reduce the loans you will need to borrow. The stipends may be provided for conducting research or teaching a class as a graduate assistant.   If you are fortunate enough to receive a grad school stipend, make a budget to help maximize the value of it so you can cover most, if not all of your expenses. Use some of these next tips to minimize your expenses.  

Earn Money Elsewhere

If getting a stipend is not possible, look into internships or a part-time job in your field of study. Although these may be low-paying options, working outside of school will not only bring in income that can help offset your costs, but will also offer you job experience.  

Reduce School Expenses

Of course you know tuition and living expenses need to be considered when paying for grad school, but be sure to think about the extra expenses too. Textbooks most likely will still be a necessary item for your program but it doesn’t mean you can’t save on the rising costs.   Try to buy textbooks secondhand from your school’s bookstore or online. You may also be able to rent your textbooks if you don’t think you will need to refer to them in the future. Although the expense of textbooks can add up, you can find ways to keep more money in your bank account.   Your wardrobe may not come into mind when budgeting for the extra expenses, but it should be something to consider. You will most likely need professional clothing for future internships or recruiting interviews. Professional clothing may be stretching your budget but a necessary expense.   If you are looking to minimize your grad school debt, you may want to consider shopping for used clothing or see if your school has an option to borrow professional clothing. Some schools, such as the University of Northern Colorado and Manhattan College, offer such options.  

Reduce Your Living Expenses

You may have thought your roommate days were gone once you graduated college. If you are considering grad school, however, living with a roommate can help lower expenses. A roommate may also be a built-in study partner if you choose to live with a fellow grad student.   To further reduce your living expenses, consider eating primarily at home. Although you may not have a lot of time for cooking when you are in grad school, when you consider the savings, it may be worth the effort.   Money Under 30 explains that eating out is about three times more expensive than cooking at home. This can add up to hundreds of dollars of savings each month. To help combat the problem of not having time, try meal prepping one day each week.   When curbing your eating out, remember a coffee habit can add up, too! If you are used to grabbing a cup of coffee from a shop on your way to class, instead try brewing some at home to save yourself an average of $2.99 each time. Every little bit of savings will help you minimize your grad school expenses.  

Minimizing Student Debt After Graduation

If you have already finished grad school and it feels like you’re facing a mountain of student loan debt, you still have options to help reduce your debt.  

Refinance Your Loans

If you have already graduated and are employed, refinancing student loans is a beneficial way to minimize your loan payments. Refinancing is when you obtain a new private student loan to pay off outstanding student loans, whether they are private student loans or federal. You can refinance just one loan or multiple loans.   One of the benefits of student loan refinancing is the chance to lower your interest rate, thereby lowering your monthly payment. It also helps reduce interest costs over the life of the loan, which can add up to thousands of dollars. If refinancing sounds like it could be a good fit for you, use the Student Loan Refinance Calculator* for an idea of how much you could save.  

Research Employer Benefits

Seek out an employer that offers student loan repayment assistance. Some employers may provide you additional money, monthly or yearly, to help repay your loans.   If you receive any money from your employer for loan repayment, try to use it for extra payments towards your loan rather than for monthly payments. Making extra payments towards the student loan principal will reduce the balance, helping you pay them your loan off more quickly and save on interest costs.  

The Bottom Line

Earning a graduate degree is a big accomplishment and something you should be proud of, but it doesn’t have to mean you will be paying for your education the rest of your life. Just using a few of these strategies can help minimize the financial burden of getting your degree and set you on a strong financial path. Good luck!