Refinancing only makes sense when it benefits you in some way. This may mean an extended loan term with more manageable monthly payments or a reduced interest rate to save money. If you’re eligible and your loans are eligible, it’s best to refinance your student loans whenever you can achieve your desired benefit.
Read on to learn when to refinance student loans, the eligibility requirements associated with refinancing, and when not to refinance student loans.
When is the Best Time To Refinance Student Loans
When You Can Get a Better Interest Rate
Student loans are expensive. You should refinance whenever you can get a better rate on your loan. Just make sure there aren’t any pesky closing costs—all the lenders we work with have zero origination fees. A one or two percent interest rate deduction could save you thousands of dollars depending on your loan balance. The trick is making sure the refinanced rate is better.
Use this refinance calculator to see how much you could save by refinancing your student loans
When You Can Make Your Monthly Payments More Manageable
If you’re on a tight budget, you may want to refinance to lower your monthly payments. If that’s the case, refinance whenever you’re able to do that. Extending your loan term from say 10 to 20 years would reduce your monthly payment by $118 on a $20,000 loan with a 6% interest rate. Plus, you could still pay more each month if you have extra money; this would help you pay off the loan faster.
Keep in mind that extending the loan term typically results in you having to pay more interest over the life of the loan. Use the refinance calculator above to see how much more you’d have to pay in interest.
When You’re Unhappy with Your Current Lender
Are you tired of poor customer service or a confusing online portal? Is your cosigner eager to get off the hook? Aside from paying the balance in full, refinancing is the only way to get away from your current lender. Refinance once you find a company that can give you what your current lender is lacking. This may mean a refinance company that offers cosigner release, an easy-to-use website, an autopay discount, and/or a personal loan advisor.
When You Want to Remove a Co-Signer
If someone originally co-signed your student loans, you may want to refinance to take them off the hook. Once you have a stable job and income, refinancing your student loans without a co-signer is possible.
Eligibility Requirements for Student Loan Refinancing
Not everyone is eligible to refinance their student loans. Each lender has specific requirements, but there are a lot of commonalities. In general, you need to have:
- At least $5,000 of student loans to refinance
- Proof of income
- A good credit score or a cosigner with a good credit score
Of course, there are exceptions to the above criteria. Read through the following scenarios for more specifics about refinancing eligibility. The following questions are in reference to private refinancing only.
I’m Still a Student, Can I Refinance?
Students aren’t eligible to refinance their student loans. The only exception is students who are in their last semester before graduation and graduate students who are refinancing student loans from a completed degree.
I’m Unemployed, Can I Refinance?
It depends. Some lenders require employment while others only require proof of sufficient income. If you have other means of affording monthly payments like a cosigner, an inheritance, etc., you can still refinance.
I Never Graduated, Can I Refinance?
Yes, but it’s going to be more difficult. Most student loan refinancing companies only work with college graduates.
Citizen’s Bank is one of the few large institutions that refinance loans of non-graduates. To be eligible, you need to have at least $10,000 in student loans to refinance and have proof of income. You also need to have made a minimum of 12 qualifying payments on your loans after leaving school.
I Have an Associate Degree, Can I Refinance?
It depends on the lender. Most lenders only work with students who have graduated with at least a bachelor’s degree. A few of the lenders we work with, Earnest, SoFi, and College Ave, accept associate degree holders.
I Have Bad Credit, Can I Refinance?
Possibly, but it’s probably not in your best interest. In general, the higher your credit score, the better your rate. Several of the lenders we work with have minimum credit score requirements starting at 660-700. Some lenders let you refinance with a cosigner who has strong credit. To make your cosigner feel more comfortable, go with a company that offers cosigner release after a set period of on-time payments.
Earnest is another potential option for those with poor credit. This lender bases rates on more than just your credit score. If you can show that you have sufficient income and are financially responsible, you might just get approved.
When Not to Refinance
Refinancing isn’t always the right move. This is especially true for borrowers looking to refinance their federal student loans. Here are few of the common scenarios where refinancing just doesn’t make sense.
You’re Not Financially Stable
When you refinance your federal student loans, you lose out on protections like repayment plans and loan forgiveness. It’s important to take a hard look at your financial situation before green-lighting a refinance offer. Refinancing might not be the right move if you have trouble holding down a job, are in an industry or at a company that’s notorious for layoffs, or primarily just do seasonal work. Not only will you have a hard time getting a good refinancing rate, but you’ll also have trouble making payments if your income fluctuates.
You’re in Poor Health
You can’t predict a medical emergency. But, if you know that your health is poor, you may not want to risk losing out on the total and permanent disability student loan discharge. The federal government and a few private lenders, like Wells Fargo, will discharge your loans if you become permanently and totally disabled. This is a very valuable benefit, especially because discharged income is no longer viewed as taxable.
A select few private refinance companies do offer discharge in cases of death or permanent disability. These include College Ave and Earnest. If you’re in poor health and set on refinancing, consider those companies first.
It Doesn’t Benefit You
Don’t refinance “just because.” Only do it if it’s going to benefit you in some way. If you can’t get the lower interest rate or the term length you want, hold off. You can always try through another lender or wait until you can build credit and/or improve your credit score.
You’re Almost Done Paying Off Your Debt
Refinanced loans come with loan terms ranging from 5 to 20 years. If you only have a couple years left until repayment, refinancing to a longer loan term may not make sense. You’ll end up paying a lot more in interest, so it’s better to stick it out with your current loan company if you can manage the payments.
You’re Working Toward or are Close to Forgiveness
The federal government offers several student loan forgiveness programs for eligible borrowers. If you’re close to earning forgiveness through an income-based repayment plan or the Public Service Loan Forgiveness program, refinancing isn’t a great idea. The second a private refinancing company takes over your federal loan, you’re no longer eligible for forgiveness.
If this scenario resonates with you, you could still consider only refinancing your private student loans. Private student loans aren’t eligible for federal student loan forgiveness programs, so you aren’t missing out on anything.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.