Depending on the type of student loans you have and when you took them out, your loans could have high-interest rates — some loans can have rates in the double digits. Student loan refinancing can help you save significant money, but how soon can you refinance a student loan? Although there are some lenders that allow you to refinance while you’re still in school, the earliest you can refinance with the majority of lenders is after graduation. Researching your options and refinancing soon after earning your degree can help you manage your debt more effectively.
Factors That Influence When You Should Refinance A Student Loan
How soon can you refinance a student loan? The timing is dependent on the following factors:
Do You Meet The Eligibility Criteria?
Student loan refinancing eligibility requirements vary by lender, but borrowers generally must meet the following criteria before they can refinance their debt:
- Good to excellent credit: Lenders typically lend to borrowers with good to excellent credit. According to Equifax, one of the major credit bureaus, that means your score should be between 670 and 850.
- Degree: Most lenders require you to complete your degree before you can refinance your loans. Even if a lender allows you to refinance while in school, waiting until after graduation can improve your chances of qualifying for a loan and securing a competitive interest rate since you’re more likely to be employed and earning a steady salary.
- Employment status: Refinancing companies may have employment requirements. Generally, you need to be employed full-time or have another source of income, such as earnings from freelancing, to qualify for refinancing.
- Income: Lenders will ask you for proof of income, and many lenders have minimum income requirements you must meet. For example, a lender may require borrowers to earn at least $35,000 per year.
- Debt-to-income ratio: Besides your annual earnings, lenders will also take your other debt into consideration by calculating your debt-to-income (DTI) ratio. Your DTI is how much of your monthly income goes toward your debt obligations; the lower the ratio, the better your chances are to qualify for a loan.
- Loan amounts: Lenders usually have loan minimums for refinancing. For example, the minimum amount you can refinance is usually around $10,000.
Your Co-Signer Requirements
Although a co-signer isn’t required to refinance student loans, adding a co-signer to your application can be helpful. A co-signer can improve your chances of qualifying for a loan if you don’t meet a lender’s income or credit criteria. And adding a co-signer can allow you to secure a lower rate than you’d get on your own. Not all lenders allow co-signed loans, so if you have a limited credit history or aren’t working full-time, check to see if your selected lender permits co-signers.
Current Interest Rate and Payment Terms
If you’re trying to decide when to refinance your loans, paying attention to current interest rates can help you make a decision. Comparing current rates to the rates on your existing loans can allow you to calculate your potential savings. For example, let’s say you took out a private student loan to pay for school. You borrowed $30,000, and the loan has a 10-year term and an annual percentage rate (APR) of 8.00%. If you refinance your debt, you could qualify for a 10-year loan at 6.5% APR. By refinancing your loans, your monthly payment would decrease by $23, and you’d save over $2,800 in interest.
| Original Loan | Refinanced Loan | |
|---|---|---|
| Loan Term | 10 Years | 10 Years |
| APR | 8.00% | 6.5% |
| Monthly Payment | $363.98 | $340.64 |
| Total Interest | $13,678 | $10,877 |
| Total Repayment Amount | $43,678 | $40,877 |
You can use the student loan refinancing calculator to see how much you can save by refinancing your loans with today’s rates.
Life Circumstances
Changes in your life can also affect your ability to refinance your loan and qualify for a better rate. For example, the following scenarios can improve your odds of refinancing to a loan with more favorable terms:
- Getting a raise at work, which improves your debt-to-income ratio
- Paying down credit card debt, which improves your debt-to-income ratio and boosts your credit score
- Making all of your payments on time, establishing your credit history, and improving your credit score
Refinancing Private vs. Federal Student Loans
There are two main types of student loans: federal and private. The difference between private and federal loans is the lender; private loans are issued by banks, credit unions, and financial institutions, while the U.S. Department of Education issues federal loans. Federal loans are eligible for more borrower protections and benefits, such as loan forgiveness and alternative payment plans. Because refinancing federal loans transfers them to private lenders, you’ll lose access to those protections when you refinance, so you should think twice about refinancing federal debt. Private loans aren’t eligible for federal loan benefits, so there are very few drawbacks to refinancing private loans with another lender. Refinancing could allow you to save money over the life of your loan or dramatically reduce your monthly payments.
Refinancing Your Student Loans With ELFI
How soon can you refinance a student loan? In most cases, you have to wait until after graduation to refinance your debt, but waiting until you earn a degree and get a full-time job offer can improve your odds of qualifying for a loan with better rates and terms. When comparing your loan options, keep in mind that there are many benefits to refinancing your student loans with ELFI.*
Learn more: Refinance your student loans in six easy steps
