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7 Signs That It’s the Right Time to Refinance Your Student Loans

Ben Luthi

Refinancing student loans could help you save money on interest and reduce your monthly payment.

Depending on your financial situation and credit history, you may be able to take advantage of these benefits and more to help you pay off student loan debt more quickly while saving significant cash in the long run.

If you’re wondering when to refinance student loans — and if you even should — here are seven signs to know if you may be ready.

When to refinance student loans

Unfortunately, not everyone can refinance their student loans due to a variety of factors including credit score, credit history, and annual income.

And just because you have the ability to refinance, that doesn’t mean you’ll get better rates and terms than you already have.

So when should you refinance your student loans? Beyond just getting approved, here are some ways to tell if it could be the right solution for you.

1. Your credit score is in great shape

Unlike the U.S. Department of Education, private lenders require a credit check for all applicants and your eligibility for approval and loan terms depends on the state of your credit history.

In general, student loan refinance lenders are looking for a credit score of at least 660 for approval. But if you want to score a super low interest rate, your score will need to be higher than that.

If your credit isn’t in stellar shape, you may still be able to get approved with favorable terms by applying with a creditworthy cosigner. But cosigning a loan could have some potentially negative consequences for the person helping you out, so it’s important to weigh the pros and cons first

2. Your budget is tight

If you can qualify for a lower interest rate, refinancing can help reduce your monthly payment and save money over the life of your new loan —giving you some breathing room in your budget.

Even if you can’t get a reduced interest rate, you could extend your repayment term with the new loan which will also lower your monthly payment.

Just keep in mind that extending your repayment term means that you’ll ultimately pay more in interest over the life of your loan. Also, if you have federal loans, you can also get a longer repayment term without changing your loan’s interest rate or undergoing a credit check.

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3. You’re experiencing a major life milestone

If you’re planning to get married, buy a house, have kids, or experience another major life moment, refinancing your student loans can provide you with a little extra cash flow to afford your new expenses.

Also, if you can manage to get a lower monthly payment through refinancing, it could make it easier to qualify for the home you want.

That’s because mortgage lenders look at your debt-to-income ratio — your total monthly debt payments divided by your gross monthly income — to determine how much house you can afford. If you can lower your student loan payment, it’ll result in a reduced debt-to-income ratio, which means you can afford more of a monthly mortgage payment.

4. You want to focus more on retirement savings

Although retirement may be decades away, the sooner you start setting money aside for that period in your life, the more time that money will have to grow. Saving now will also make it so you don’t have to put more away later in life in order to catch up.

What’s more, the stock market has historically generated higher returns over the long term — that includes both ups and downs in the market — than the typical student loan interest rate. As a result, it could make sense to reduce your monthly payment through refinancing, so you can use that extra money to invest for your retirement instead.

5. You have other savings goals

Making payments on your student loans will reduce how much you owe over time. But if you have an unexpected expense or lose your job, you can’t get that money back from the lender.

If you can manage to reduce your student loan payment every month or save money in the long term, you could gain the extra cash you need to establish an emergency fund. Financial experts recommend having three to six months of expenses socked away.

If your rainy-day fund is already robust, you could use the extra money for other savings goals, such as a home down payment or vacation.

6. You don’t like your current loan servicer

No student loan servicer is perfect, but if you’ve had a bad experience with yours (or multiple bad experiences), refinancing your student loans allows you to choose which lender you work with.

It can also simplify things if you’re currently working with multiple servicers (or lenders if you have private student loans) and want to consolidate those relationships into one — which gives you just one monthly payment to worry about.

As you’re searching, look up customer reviews and benefits offered by each lender to find the right fit for you. Once you find the right one, it could make your repayment process a lot less stressful.

7. You don’t need federal loan benefits

Refinancing federal loans with a private lender will result in you losing certain benefits. That includes access to certain loan forgiveness and repayment assistance programs and income-driven repayment plan options. Also, while some private student lenders provide deferment and forbearance options, they may not be as general as the Department of Education’s.

That said, if you don’t anticipate needing these perks now or in the future, it may make more sense to take advantage of a lower interest rate and other benefits through refinancing.

The best time to refinance student loans is when it makes sense for you

There’s no one-size-fits-all answer to the question of when you should refinance student loans.

So, it’s important to understand your financial situation and your goals. It’s also essential to take your time to shop around and compare offers from multiple lenders before you choose one.

This process can be time-consuming if you do it with each lender individually, so consider using Purefy’s Compare Rates tool to speed up the process — with no credit check required.

Simply share a little bit about yourself and your student debt, and you’ll be able to compare rate offers from multiple lenders in one place with one easy form.

Once you have an idea of what you qualify for, compare it to what you’re currently paying and determine if taking the next step and applying is the right fit for you.

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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 12/01/2022. 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 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 4.49% APR to 8.99% 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 4.64% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 4.24% APR to 8.54% 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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