How Often Can You Refinance Student Loans?January 14, 2020
By Caroline Farhat
It comes each month like clockwork. You look at your monthly student loan statement and wonder how the balance just doesn’t seem to go down that much, despite your diligent payments. If you’re paying down your student debt, there’s a good chance you’ve also wondered if there is any way for you to reduce your monthly payments or the interest you pay on the loan. The good news is that there is — and it’s relatively simple for you to do. Student loan refinancing is one of the best ways to save money on your student loan debt. But what if you have already refinanced, should you refinance again? How often should you refinance student loans? Here are some things to consider when deciding whether refinancing is right for you, whether it’s your first time or you’re a seasoned refinancer.
What is Student Loan Refinancing?
Refinancing your student loans 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 is also possible to refinance multiple loans into one new loan. The major benefit of student loan refinancing is that typically the new loan has a lower interest rate, thereby saving you money over the lifetime of your loan. Just how much can you save? Take a look:
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.
To find out how much you can save in your situation, plug your numbers into our student loan refinancing calculator. It’s easy and free to use.
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 many times as you find it beneficial, as long as your financial situation qualifies you for refinancing.
>> Related: LIBOR: What It Means For Student Loans
What to Consider When Preparing to Refinance Student Loans
1. Your interest rate depends on your credit score, your income, and your history of on-time loan payments.
- In order for some lenders to consider refinancing your student loan debt, your credit score should at least be in the 600s. In order to get the lower end interest rates, most lenders will look for a credit score in the 700s or higher. Does your credit score need some help? Check out our guide for tips on building good credit.
- In addition, your income must be high enough to be able to pay all your debts. Some lenders will consider your debt-to-income ratio. This is obtained by dividing the total of your monthly debt 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.
If the credit score or income requirement is an issue for you, you may want to consider a co-signer on the loan that meets these requirements. If that is not an option, take the time to raise your credit score before refinancing. Otherwise, you may not be eligible for a much lower interest rate than your current rate.
2. Do your research about the best student loan refinancing companies. Some companies may offer the same borrower different interest rates, so shop around for the best rate and terms. Here are some things to look for in a good student loan refinancing company:
- Free application and no added fees – 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.
- Low rates – This is a no brainer. Why would you refinance if you’re not getting a fantastic rate?
- Expertise and/or a good reputation in the field – Be wary of companies that are new to the industry and have little information on them, outside of their own website. With student loan refinancing becoming more popular, it can be a target for scammers. ELFI has earned an “excellent” rating by review site Trustpilot and been awarded NerdWallet’s BEST Refi for Customer Service award for 2019.
- Flexible payment options – 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*.
- Helpful advisors and good customer service – 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.
Note: 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.
How Often Can You Refinance Student Loans?
You can refinance student loans multiple times, but that doesn’t necessarily mean you should. Each time you refinance, you will be impacting your credit score, so make sure only to do so if you will be saving a significant amount of money. 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.
Refinancing your student loans can be a great option to save money on your monthly payment and interest costs over the life of the loan. As you can see, there are many instances where it may be beneficial to try refinancing your loans again, but be sure to review all of the numbers and the impact it may have on your credit score before doing so.
*Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.10 per $1,000 borrowed. Rates are subject to change.
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