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When’s the Best Time to Refinance Student Loans? Explore Your Options Today

Kat Tretina
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If you’re dealing with student loans with interest rates of 6%, 7%, or even 8%, you know how fast interest charges can accrue. Your loans can quickly balloon, and it can seem like your monthly payments never make a dent in the loan balance.

You may have heard that student loan refinancing can be an effective way to lower your interest rate. But you may be wondering, “When is the best time to refinance student loans?”

Due to notable interest rates cuts, lenders are offering very low variable and fixed-rate loans. Depending on your situation, the best time to refinance student loans may be right now.

5 reasons why right now is the best time to refinance student loans

While the country is still reeling from the effects of the COVID-19 pandemic, refinancing your debt can make a lot of sense if you are in a relatively stable financial position for the following reasons:

1. Federal Funds Rate and LIBOR Rates are low

Thanks to major rate cuts, top student loan refinance companies can offer lower interest rates and help you save money.

Federal Funds Rate

The Federal Reserve cut interest rates in an attempt to provide some relief during the coronavirus pandemic. The Federal Funds Rate is currently at 0.25%, a remarkably low rate. Just one year ago, it was 2.25%.

When the Federal Funds Rate goes down as it has in the past few months, loan interest rates decrease as well. You can qualify for low interest rates on fixed-rate refinancing loans, locking in a competitive rate for the length of your repayment term.

LIBOR

Some refinancing loans are variable, meaning the interest rate fluctuates over time. Variable-rate loans are typically tied to the London Interbank Offered Rate (LIBOR). The lenders charge you an APR that is based on the LIBOR rate plus their margin. If the LIBOR rate increases over time, your APR will change, as well.

Current LIBOR rates are extremely low. As of July 30, 2020 — the last available data — the three-month LIBOR rate was 0.251%. That’s quite a difference from January 2, 2020, when the three-month LIBOR rate was 1.90%.

To put those numbers in perspective, consider this: If you had refinanced in January and a lender had a 2% margin, the lowest rate you could expect would be 3.90%. But if you refinance now with a lender with the same margin, you could qualify for a rate of just 2.251%.

The 4 Best Companies to Refinance Student Loans

Our Top-Rated Picks for 2022 Offer Low Rates and No Fees

efli-lender
No Maximum Loan Amount

Fixed Rate

4.48% – 7.29% APR 4

Variable Rate

2.99% – 7.24% APR 4
98% of surveyed customers would recommend SoFi to a friend

Fixed Rate

3.99% – 8.24% APR 3

Variable Rate

2.49% – 8.24% APR 3
earnest-logo
Precision Pricing — Pick Your Monthly Payment

Fixed Rate

3.99% – 8.99% APR 2

Variable Rate

3.24% – 7.99% APR 2
Loans Available in All States but Maine and Oregon

Fixed Rate

3.94% – 8.48% APR 5

Variable Rate

Not Offered

2. Federal CARES Act relief is coming to an end

If you have federal student loans, you likely qualified for the CARES Act. Under the CARES Act, the government temporarily suspended federal student loan payments and set interest rates on existing student loans to 0%. However, this relief program is currently set to expire on September 31, 2021.

If you have high-interest federal loans, such as PLUS Loans, want to reduce your monthly payments, or want to pay off your student loans faster, refinancing your loans can be a smart way to tackle your debt.

3. You have good to exceptional credit

If you’re looking for the best time to refinance student loans, take advantage of your good credit right away. Many people struggle with credit issues, so having a strong credit score makes you stand out as a refinancing applicant. According to Experian, 46% of Americans have a credit score of 740 or better, with just 21% in the exceptional category.

With a high credit score, you can qualify for the lowest advertised interest rates and most favorable loan terms from lenders.

4. You have a secure job

Unfortunately, this is a volatile time for our economy. The number of people collecting unemployment is estimated to be near 30 million. If you’re thinking about when to refinance student loans, you want to make sure your job is secure, and your finances are stable.

If you have federal loans and refinance your debt, you’ll lose federal benefits like access to income-driven repayment plans and loan forgiveness, so you need to be certain about your job security.

5. You have a cosigner

If your credit is less-than-stellar, you can still take advantage of today’s low interest rates if you have a parent, relative, or close friend who is willing to act as a cosigner. A cosigner is someone with good to excellent credit and steady income who cosigns your loan application and guarantees the loan. If you stop making payments, the lender will require the cosigner to pay them instead.

Adding a cosigner to your loan application decreases the lender’s risk, so the lender is more willing to approve your application and offer you a lower interest rate than you’d get on your own.

While asking someone to be a cosigner is a big favor to request, it doesn’t have to be a long-term commitment. Some lenders offer cosigner releases. After you prove yourself to be a trustworthy borrower by making your payments on time for a few years — often 24 to 48 months — you can apply to have your cosigner removed from the loan.

Compare student loan refinancing offers

When is the best time to refinance student loans? It’s hard to beat right now. Lenders are offering the lowest rates we’ve seen in years, so you could save thousands of dollars by refinancing your loans.

Before selecting a lender, make sure you shop around and get quotes from multiple refinancing companies. Rates can vary from company to company, and you may get a much lower rate from one lender over another.

While you can comparison shop on your own, the process can be time-consuming and overwhelming. Purefy offers an easier way with its Compare Rates tool. You can answer just a few simple questions and get quotes from top student loan refinance companies in minutes, without impacting your credit score.

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Student Loan Refinancing

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with no impact on your credit score.

ELFI Rate Disclosure

4 ELFI Rate Disclosure:

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. Interest rates current as of 11-21-2022. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 2.24% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

Earnest Rate Disclosure

2 Earnest Rate Disclosure:

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.24% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 3.49% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years 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%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

ISL Rate Disclosure

5 Iowa Student Loan Rate Disclosure:

Fixed Rate Loan Terms: 5 years/60 monthly payments, 7 years/84 monthly payments, 10 years/120 monthly payments, 15 years/180 monthly payments, or 20 years/240 monthly payments. Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. This rate is expressed as an APR. Fixed APRs range from 3.94% to 8.48% APR [low to high range with 0.25% auto-debit rate reduction]. Rates are subject to change without notice. Fixed rates will not change during the term. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan including a 0.25% auto-debit rate reduction. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. All estimates are based on information provided by you and are for informational purposes only, accuracy is not guaranteed and may not reflect actual rates or savings and do not constitute an offer of credit. Your actual rate, payment and savings may be different based on credit history, actual interest rate, loan amount, and term, including your cosigner [if applicable]. If applying with a cosigner, we use the higher credit score between the borrower and the cosigner for approval purposes. All loans are subject to credit approval.

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