You probably shouldn’t refinance your student loan if you want to keep your federal protections.
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The best time to refinance your student loans will depend on your individual situation.
You may get a better interest rate if you refinance, but there may also be significant drawbacks.
You won’t be eligible for an Income-Driven Repayment Plan if you refinance your student loans.
You might consider refinancing your student loans if you’re unhappy with your current terms and want to switch them up. There’s never a perfect time to refinance your student loans, as everyone’s situation is different, but here are some tips you should think about before making your decision.
Consider refinancing student loans if…
You have private student loans. You don’t have anything to lose by refinancing a private student loan, as you won’t forgo any federal protections and are rarely charged an origination fee (a cost taken out of your overall loan proceeds) to refinance. You have improved your credit score. If you’ve taken steps to boost your credit score since initially getting your student loan, you may now qualify for better terms with your higher score. Federal loans don’t take your credit score into account — except for Direct PLUS Loans — so this may not apply in your case.You want to switch from a high variable rate loan to a lower fixed rate loan. You may have chosen to take out a variable rate loan because it came with a lower rate than the fixed rate loan you were offered at the time. However, because the interest rate on variable loans fluctuates, you may want to lock in a rate so you don’t have to worry about it increasing down the road. You’ll save money overall. This may seem simple, but if you can snag a lower interest rate or a shorter term length (saving you on overall interest paid), refinancing may be a good choice.
Hold off on refinancing student loans if…
You’re going after student loan forgiveness. The federal government has a few student loan forgiveness programs, including Public Service Loan Forgiveness and the Biden administration’s large-scale forgiveness. When you refinance, you’ll be ineligible for these programs. The federal government doesn’t offer student loan refinancing, so you’ll have to go with a private lender.You want an Income-Based Repayment plan. These plans are available through the federal government and take your particular income and family size into account when calculating monthly payments, and could reduce them to as little as $0 per month. Private loans don’t have this option. You’ll end up with a higher interest rate than the one you currently have. This might go without saying, but if refinancing your loan will leave you with a higher interest rate, it’s not a good idea.You’re currently behind on payments. Your payment history makes up a significant part of your credit score, so the score will be significantly lower if you can’t make your payments now. A low credit score will make it harder to get a good interest rate on your loan.
Whether or not you choose to refinance your student loan, consider seeking financial counseling before making a decision. A knowledgeable expert can help you make the best decision for your specific situation.