How Often Can You Refinance Student Loans?January 14, 2020
Refinancing your student loans is a great way to consolidate your loans into one simple payment and bring your interest rate down. What if, however, you refinance your student loans and then interest rates drop again? If you’ve already refinanced, can you refinance more than once?
In today’s blog, we’re excited to teach you about the many benefits of student loan refinancing, as well as when refinancing might be right for you. Even if you’ve already been through the process once, understanding the factors that impact the rates you’re offered is a great way to lower your rates even further. Taking the right steps to prepare before refinancing could mean extra savings and more financial flexibility.
What is Student Loan Refinancing?
Student loan refinancing means a lender pays off your current loan with a new loan you borrow. You can refinance with your current loan provider or refinance student loans with a new company.
It’s also possible to refinance multiple loans into a single payment through student loan consolidation. Consolidating your student loans with a new lender is a great way to streamline the repayment process, especially if you’re keeping track of multiple lenders and deadlines. You can even consolidate both federal and private loans.
That said, some borrowers are confused by the differences in student loan consolidation vs refinancing. Although you can choose to consolidate your student loans when you refinance, you do have the option to refinance specific loans without consolidating all your payments. For example, you can choose to refinance only your private loans if you’re taking advantage of a federal loan benefit like an income-driven repayment plan.
So when should you look into refinancing? As soon as possible, depending on some factors discussed below. Interest rates change with the market, and the longer you wait, the more savings you could be missing out on. You can refinance student loans as often as you find it beneficial, as long as your financial situation qualifies you for refinancing.
>> Related: LIBOR: What It Means For Student Loans
How Many Times Can You Refinance Student Loans?
Although you can refinance multiple times, before searching for a new lender, take a moment to consider whether refinancing again will help accomplish your financial goals. If you notice lenders are offering low rates and your credit score is strong, now could be the perfect time to refinance again. Additionally, if you want to accomplish a more immediate financial goal like buying a house or launching your own business, then refinancing may enable you to select a longer student loan repayment term.
On the other hand, if your credit score could use some improvement, you may want to wait until you can optimize your chances of receiving the best possible interest rate before refinancing again. Also, if you notice interest rates have gone up, then it may be wise to hold off on refinancing for the time being. Knowing when and when not to refinance your student loans again is a great way to ensure you’re making a choice that will benefit your long-term financial goals.
How Often Should You Refinance Student Loans?
You can refinance student loans multiple times. Before refinancing again, however, be sure to consider whether the time is right for you. If you refinance your student loans more than once, you will be impacting your credit score, so make sure only to do so if you will be saving a significant amount of money. While many lenders will do a soft credit check to determine the appropriate rate estimate, moving forward with the refinancing process does require a hard credit check.
Fortunately, credit checks have small and short-term impacts on your overall credit score. If your score is in good shape and refinancing will help further your long-term goals, then it’s likely worth the temporary dent. If you need a little more time to boost your credit, however, then take the time you need to adequately prepare. Refinancing with a strong credit score will increase your chances of receiving a better rate, so your efforts will be rewarded.
Here are some instances when you should consider refinancing your student loans again:
- When you find a lower interest rate on student loans – Interest rates rise and fall with the market. If you initially refinanced when student loan rates were higher, check again when rates drop. It may be months or even a couple of years, but a lower interest rate is sure to save you money on your monthly payment.
- If your credit score has improved to qualify you for a lower rate – Did you clean up your credit and raise your score from when you initially refinanced? Having a higher credit score could make you eligible for a better interest rate.
- When your income has increased – Having a higher income can help reduce your debt-to-income ratio, thereby making lenders more willing to offer you a lower interest rate.
- If you have a variable interest rate and need steady payments – Refinancing student loans again to a fixed rate could provide ease of mind that your payment can’t go up because your interest rate goes up.
Factors to Consider Before Refinancing Student Loans Again
To maximize your refinancing success, take the time to adequately prepare before signing on the dotted line. By learning about the factors that impact your rate estimate, you’ll have the tools you need to earn the best possible rate on your loans.
Check Your Credit
Some lenders require a credit score in the 600s to refinance your student loans. To earn the best possible interest rates, however, you should aim for a credit score in the 700s or higher. Individuals with higher credit scores qualify for lower interest rates, so improving your credit gives you the best possible chance of decreasing your interest rate. To check your credit score for free, visit AnnualCreditReport.com.
Your credit score is based on several factors, the most important of which is payment history. Making on-time payments on your student loans, credit cards and other regular bills will help keep your score high, or raise it if it needs a boost. Additionally, paying down debt is another effective way to raise your credit score. For more information about improving your credit score, check out our guide for tips on building good credit.
Consider Your Financial Situation
To achieve the best possible interest rate, you must also prove that your income is high enough to cover your loan payments and any other debt. This means lenders will calculate your debt-to-income ratio. Your debt-to-income ratio is obtained by dividing the total of your monthly loan payments by your monthly income. For example, if your monthly student loan payment is $500, your car payment is $400, and you earn $3,000 per month, your total monthly debt payments are $900. Your debt-to-income ratio would be $900/$3000 = 30%. Generally, a debt-to-income ratio of 50% or less is needed to refinance.
As your income increases and your debt decreases, your debt-to-income ratio will improve. If you’re earning more now than you were when you last refinanced your student loans, you may be eligible for lower interest rates. If your income is similar to the last time you refinanced, consider paying down higher-interest debt, like credit card debt, to boost this metric.
Loan Terms and Fees
Before refinancing, be sure you know your current loan term and interest rate. If you’re looking to pay off debt more quickly, a short repayment term may be the best fit for you. If you’re working toward other financial goals and need more financial flexibility, then you may choose to opt for a long repayment term. You can also choose between a fixed or variable interest rate to find the best fit for you.
Here’s how choosing the right student loan repayment term can impact your monthly payment:
A private student loan of $20,000 with an interest rate of 8% for ten years will require you to pay $243 per month. Refinance the loan to a ten-year loan with a 3.99% interest rate, and you could be saving $40 per month and $4,831 over the life of the loan.
Whether you’re looking for a variable or fixed rate or a shorter or longer-term payment plan, a good refinancing company will offer different refinancing options to suit your situation. Should you choose to refinance student loans with ELFI, you can choose from repayment terms of 5,7,10, 15, or even 20 years.*
It’s also important to be aware of any fees you’ll incur when refinancing, like origination and prepayment fees. Some lenders charge origination fees as part of the cost of processing your loan application. If your lender charges prepayment fees, it means you’ll pay a penalty for making all or part of your loan payment early.
While these fees may seem inconsequential at first, they can become a hassle for borrowers who want to pay down their student loans as quickly as possible. With ELFI, you won’t pay an application fee, origination fee, or a penalty fee for prepayment*. Your focus and hard-earned money should go to paying off your student loan debt, not fees.
If you are interested in learning how much you could save by refinancing with ELFI, check out our student loan refinancing calculator.*
Switching Loan Servicers
Be wary of companies that are new to the industry and have little information available outside of their own website. As the student loan refinancing industry grows, it can also become a target for phishing attempts and scams. It’s important to safeguard your personal information and only to share your financial details with a legitimate, reputable lender. ELFI has earned an “excellent” rating by review site Trustpilot and been awarded NerdWallet’s BEST Refi for Customer Service award for 2019.
As you refinance, you may have questions or concerns come up that no chatbot can help with. Be sure the company you refinance with has a good support team who can advise you through the process. At ELFI, you would be connected to a Personal Loan Advisor who will guide you through every step of the way.
Adding or Releasing a Cosigner
If you’re having difficulty meeting the requirements to refinance your student loans, you may want to consider adding a co-signer. By choosing a co-signer with a high credit score and a low debt-to-income ratio, you may improve your chances of being approved for student loan refinancing. Alternatively, if your financial situation has improved and you’d like to remove a cosigner from your loan, refinancing often provides the opportunity for cosigner release.
Refinancing student loans can be a great option to save money on your monthly payment and interest costs over the life of the loan. Because you can refinance more than once, refinancing your student loans multiple times can be a great way to lower your interest rate further or change your repayment term.
Before committing to a new lender, however, do your research to be sure you’ll receive the financial benefits that make refinancing worth your time and effort. Understanding your credit score and debt-to-income ratio, as well as watching out for unnecessary fees, will help you to choose the right loan servicer. Knowing when to refinance student loans is one of the best ways to continue working toward your financial goals.
Be aware that when you are shopping around for rates at different companies, this could impact your credit score. When a company is requesting to view your credit report, this is known as a hard inquiry. Too many hard inquiries can impact your credit score. However, if rate shopping is done within a small time frame, it may only count as one inquiry and may not affect your score as much. Prequalifying for student loan refinancing, however, is considered a “soft inquiry” and will not affect your credit.