When Is The Best Time To Refinance Student Loans?

6 min read

Updated on June 24, 2022

happy family walking after refinancing student loans

Student loan refinancing is one repayment option for private and federal student loans. Choosing to refinance student loans may help borrowers reduce the amount they pay overall and free up their monthly budget for other things.

Although refinancing may offer students/borrowers a better repayment plan, it’s important to refinance at the right time to ensure you are benefitting from competitive interest rates. Interest rates can vary significantly, so knowing when to take advantage of refinancing is crucial.

In this article, you’ll learn all you need to know about when to refinance student loans and the criteria for eligibility.

When Should I Refinance My Student Loans?

Not everyone qualifies for student loan refinancing, and there are several factors to be aware of. However, if you do qualify, you’ll probably want to know when to refinance student loans for the best results. Refinancing can be a good option even if you are not yet eligible. It is unlikely you will qualify for student loan refinancing if you have a poor credit score. Just because you don’t qualify now doesn’t mean you won’t qualify in the future.

If you are not eligible because of your credit score, then you may be later if your personal finances improve in the future.

If Your Finances Have Improved

Many factors can affect your credit score, such as paying off existing loans or reducing your credit card debt. Reducing your existing debt is always a good thing and may be beneficial before applying for student loan refinancing.

If you have recently improved your credit score, this can be a good time to consider refinancing. It’s important to remember that student loan refinance companies will assess your credit report to help determine the rate you qualify for. Your credit history may significantly impact your chance of being offered a competitive interest rate – or even being qualified for a student loan refinance.

If You Have Private Student Loans

You could consider refinancing your student loan if you have private student loans. Private loans do not offer the same benefits to borrowers as federal student loans. For example, you will not be eligible for federal programs such as Public Service Loan Forgiveness (PSLF). Federal loans offer federal student loan forgiveness programs and income-based repayment plans. These options are not available to you if you have a private student loan, so refinancing is one student loan repayment option and plan that could benefit you if you qualify.

If Interest Rates Are Low

If you want to know when to refinance student loans, a good time is when the market for interest rates is low. Keep an eye on the market rates. If you notice that student refinance companies are offering lower refinance rates because of the financial market, then it may be a good time to consider refinancing. A lower interest rate might help save you significantly more throughout the duration of the loan. Of course, high interest rates may mean that you are paying much more than you need to.

If You’ll Lower Your Monthly Payment

Another good time to consider refinancing is if it means you’ll pay a lower monthly payment. Depending on the interest rate you qualify for and the terms you select when you refinance, you may even be able to lower your debt more quickly than if you hadn’t refinanced. Even if lowering your monthly payment won’t allow you to pay off your loan sooner, refinancing your loan balance could free up room in your budget for other expenses.

If Your Existing Loan Has Variable Interest Rates

If your existing loan has high variable interest rates, securing a fixed interest rate is another way to potentially pay less in the long term. With a fixed rate, you’ll know your rate for the life of your loan and have more consistent monthly payments, so you won’t likely be hit with surprise huge bills.

So, when should I refinance? Consider when it makes sense for your situation and your unique financial circumstances. If your credit report has improved, if you have private student loans that aren’t eligible for federal programs, if you qualify for a lower rate or terms that better match your financial goals – there are different scenarios to evaluate when you should refinance.

When is it worth it to refinance student loans? “If you’re able to save money in the near-term — such as lowering your monthly payment — and/or over the life of your loans, it may be worth it for you to consider refinancing your student loan or loans.

Who Shouldn’t Refinance Student Loans?

When discussing when to refinance student loans, it’s important to know when you shouldn’t consider refinancing. Student loan repayment through refinancing isn’t right for everyone. It isn’t a one-size-fits-all solution.

Borrowers With Federal Student Loans

As mentioned above, you shouldn’t consider refinancing if you only have federal student loans. This is because federal student loan repayments qualify for income-based repayment programs and many forgiveness programs. Therefore, it’s usually best to explore the options available to you rather than considering student loan refinancing.

You Qualify for Deferment or Forbearance

If your loans qualify for deferment or forbearance, then refinancing may not be the best option for you. These are both potentially excellent ways to help with your education loan repayment term. Depending on the type of loans you have, you may qualify for deferment or forbearance instead.

If you have bad credit, it can be best to wait before refinancing. Generally, credit unions and financial institutions will be looking for good or excellent credit scores when determining your eligibility for student loan refinancing and offering fixed rate options. You should wait until your credit is good or excellent before applying to potentially qualify for the most competitive rates available; otherwise, refinancing may not be worthwhile.

Remember, although refinancing may not be the best repayment option for you now, it may be worth considering in the future. Student loan refinancing is a repayment option throughout the duration of your loan term, so it’s never too late to consider it if your eligibility changes.

Student Loan Refinance Qualifications

You’ll need to meet certain requirements before qualifying for student loan forgiveness, and different programs have different criteria, which can add to the complexity. You should always research beforehand and understand the options that are available to you.

However, for private lenders offering various refinancing rates, eligibility may be more straightforward. In general, private lenders want to see a positive credit report and ensure that your annual income is high enough to be considered. This is standard procedure for most loan and financing products. A good credit score, high income, and a low debt-to-income (DTI) ratio may increase your chances of qualifying for a low refinancing rate.

Private lenders will look at different factors to determine eligibility before approving you for a new loan through their financial institution. These factors may include your:

  • Payment History: You have a good history of paying back your loans and making consistent payments as agreed with the lender.
  • Credit Score: You have a good credit score based on your finances and borrowing history. A score of at least 690 is considered “good”.
  • Income: You have a stable income and documented work history. You may need to earn a minimum of $24,000 yearly salary to be considered for competitive rates.
  • Student Loan Amount: The amount of debt relating solely to your student loan.
  • Debt-to-income Ratio: The percentage of your income that goes towards paying off existing debt. Most lenders will want a ratio of less than 50%.

Although these factors are often what determine your refinancing rate, you may still be able to add a co-signer to your loan. Think carefully, however, before adding a co-signer as it comes with a lot of responsibility. A co-signer may be legally responsible for the repayment of the loan and will need to repay the loan on your behalf if you cannot make your required repayments. If you think you will be unable to make the monthly payments, you should not consider refinancing. Some people, such as younger adults and/or more recent college graduates, opt to add their parents as co-signers.

Frequently Asked Questions About Student Loan Refinancing

What types of loans qualify for refinancing?

Many student loans qualify for refinancing. You could refinance federal, private and Parent PLUS student loans. When you refinance, you can consolidate all your loans into one loan with one monthly payment. Certain lending partners may also allow you to refinance your loans together with your spouse’s loans.

What are the benefits of student loan refinancing?

Refinancing may help you secure a lower interest rate than your original loans and/or sign up for a new term length that is more aligned with your financial goals. You may be able to lower your monthly payment and/or save interest over the life of your loan. You may also be able to secure a fixed rate, if you currently have a variable rate on your student loan. Refinancing may help debt management, as consolidating multiple loans simplifies multiple payments into one single payment. Some private lenders also offer extra benefits, such as autopay discounts and prepayment benefits. However, this will depend on your loan terms and the way you choose to repay your student loan debt. These benefits will also vary between lenders.

MORE: 5 Key Benefits of Student Loan Refinancing

What is the difference between refinancing private student loans vs. federal student loans?

You can refinance private and federal student loans. If you have both private and federal student loans, you could consolidate them into a single loan. As noted above, federal loans have specific protections that private student loans do not, so always understand exactly what you’re signing up for when you refinance.


The information provided in this blog post is not intended to provide legal, financial or tax advice. We recommend consulting with a financial adviser before making a major financial decision.

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