If you are like the majority of college students, you need to borrow money in the form of student loans to cover at least some of your education costs. But you may be wondering what the best way to handle them is while you’re in college. Should you start paying them while in school? Or should you wait until after graduation to make payments?
If you have loans with higher interest rates, you may be considering student loan refinancing as a way to tackle your debt. But can you refinance student loans while in school? Here’s what you should know.
What is Student Loan Refinancing?
Student loan refinancing is a popular way to manage student loan debt. To refinance your loans, you work with a private bank, credit union, or online company to take out a new loan for the amount of your total existing education debt. Depending on the terms of the new loan, refinancing can help you save money, lower your monthly payments, or pay off your debt faster.
Is it Possible to Refinance Student Loans While in School?
Can you refinance student loans while in school? It depends. Most lenders require borrowers to graduate and earn a four-year degree before they can refinance their debt. However, there are a few select lenders that do allow students to refinance in the following scenarios:
- The student has a job and meets the lender’s credit and income requirements
- The student is within their last year of school and has a job offer for after graduation
- The student has a cosigner with good to excellent credit and reliable income
Requirements for Refinancing Student Loans While in School
While borrower criteria varies by lender, ELFI has the following requirements for student loan refinancing:
- Must have a credit score of 680 or higher
- Must owe at least $10,000 in student loans
- Must have an income of $35,000 or more
If you meet those requirements — or have a cosigner that does — you can refinance and consolidate multiple federal and private student loans into one.
Considerations Before Refinancing While in School
Although refinancing while you’re in school can be an appealing idea, there are some considerations to keep in mind:
- You may lose your grace period: Depending on the type of loans you have and their terms, you may have a grace period — a period of time after graduating or leaving school when you don’t have to make payments. If you refinance, the new lender may not honor the grace period, so payments will be due much sooner.
- You may have to make significant payments while in school: If you have to make payments while you’re in school, they can be significant and take up a substantial amount of your income.
- You may lose federal loan benefits: If you refinance federal loan student loans, you will no longer be eligible for federal loan benefits like forbearance or deferment.
- You won’t qualify for loan forgiveness: Once you refinance federal loans, they become private loans. You will no longer qualify for loan forgiveness programs like Teacher Loan Forgiveness or Public Service Loan Forgiveness.
- You won’t be eligible for income-driven repayment (IDR): One of the perks of federal loans is the option of applying for IDR plans, which can significantly reduce your monthly payments. When you refinance your loans, they become private student loans and aren’t eligible for IDR plans.
Why Would You Refinance Student Loans While in School?
Refinancing has several benefits:
- New servicer: If you’re unhappy with your current loan servicer, student loan refinancing allows you to transfer your debt to another company.
- Simpler payments: Using the new loan to pay off the old ones, refinancing allows you to combine your debt into one easier-to-manage account.
- Lower interest rate: The main appeal of student loan refinancing is the potential to qualify for a lower interest rate. Over time, a lower rate can help you save money.
- Smaller payments: When you refinance, you can choose a new loan term. If you decide to stretch out the term to 10 to 15 years, you may get a lower payment than you have now.
- Different interest types: Depending on your loan type, you may have a variable interest rate, which can change over time. By refinancing your loans, you can lock in a fixed interest rate that remains the same for the duration of your loan, making it easier to stick to a budget.
Can You Consolidate Debt While in School?
Consolidation is often confused with student loan refinancing, but it’s a very different process.
Direct Consolidation Loans are for borrowers that have several federal loans. You can consolidate your debt into one, making it easier to keep track of your loans and keep up with the payments.
When you consolidate, you also have the option of extending your loan term or enrolling in an IDR plan, a Direct Consolidation Loan can help you get a smaller payment.
Only federal loans are eligible for Direct Consolidation Loans, and only borrowers that have graduated, left school, or dropped below half-time status are eligible.
Refinance Your Student Loans With ELFI
Can you refinance student loans while in school? While it’s possible to refinance your loans while you’re still in college, it’s not a strategy everyone should use. Finding a lender willing to work with you can be difficult, and you will likely need a cosigner to qualify for a loan. And unless you have a source of reliable income, keeping up with the payments can be tricky. Most borrowers will find they’re better off waiting until after graduation.
If you decide to refinance your loans, ELFI could be a great choice as a lender.* You can extend your term for as long as 15 years and choose between a fixed or variable interest rate. You can get a rate online without a credit check and view your loan options.
