If you’re eager to get rid of your student loans (and who isn’t?), student loan refinancing can help you take charge of your debt. However, timing is everything.
When thinking about when to refinance student loans, the best time tends to be when you’re in your late 20s or early 30s.
Why? Your career is more established, you’re usually earning more money, and you likely have better credit than you did as a new college graduate.
All of those things can help you refinance your student loans and secure the best possible interest rates.
6 reasons to refinance your student loans in your 20s or 30s
While refinancing your student loans can be an effective strategy for managing your college debt, waiting to refinance until you’re in your late 20s or early 30s can be a good idea for the following reasons.
1. You likely have a higher salary
By the time you’re in your late 20s or early 30s, you’re likely earning a much higher salary than you were as a new college graduate.
For example, let’s say you are a college graduate who works in marketing. According to PayScale, the median salary for marketing professionals right out of school is $39,000.
But after gaining ten years of experience, the median pay for a marketing professional with a bachelor’s degree jumps to $64,000, and some professionals earn as much as $90,000.
With a higher income, you’re more likely to meet student loan refinancing requirements and comfortably afford your loan payments.
2. Your job is more secure
As a new college graduate, finding your footing in the professional world can be difficult. You face fierce competition and high turnover rates, and you may struggle to find the right fit. In fact, the U.S. Bureau of Labor Statistics found that the majority of college graduates will leave their jobs before their first work anniversary and have several positions before they turn 30.
As you reach your late 20s and early 30s, your career is more established, and you know the kind of work — and the kind of work environment — you enjoy, so you’re more likely to stay with an employer longer.
With more stable employment, you’re a better candidate for student loan refinancing. You don’t have to worry about job searching or going without a paycheck, so you’re less likely to need to take advantage of federal student loan benefits like forbearance or income-driven repayment plans, which you’d lose access to when you refinance through a private company.
3. You probably have better credit
Right out of school, you likely didn’t have a lengthy credit history, and your credit score may have been low. Since most refinancing lenders require you to have a credit score in the good to excellent range — meaning a score between 670 and 850 — you may not have qualified for a loan on your own as a new graduate.
By the time you’re in your 30s, you’ve had more time to build your credit history and pay down debt, so you likely have a higher credit score than you did when you were younger.
4. You can qualify for a refinance loan without a cosigner
If you don’t meet a lender’s income or credit requirements, you may be able to qualify for a student loan refinance by adding a cosigner to your application.
A cosigner is typically a parent or close relative with good or excellent credit and steady income who applies for the loan with you and takes on responsibility for payments if you stop making them. It’s a big responsibility, but it increases your chances of getting a loan.
When thinking about when to refinance student loans, it can make sense to wait to refinance until your late 20s or 30s because you can qualify for a loan without a cosigner. With a higher income and better credit, you can qualify on your own and won’t need someone else’s help to get a loan.
5. You can lower your monthly payments — and your debt-to-income ratio
By refinancing your student loans, you can lower your monthly payments. That’s especially advantageous when you’re in your late 20s and early 30s because you may be thinking about buying a home.
When you’re applying for a mortgage, lenders will look at your debt-to-income ratio (DTI), or the monthly debt payments you make relative to your gross monthly income. According to the Consumer Financial Protection Bureau, you typically need a DTI of 43% or less to qualify for a home loan.
When you refinance, you may qualify for a lower interest rate or extend your loan term and reduce your monthly payment, giving you a lower DTI.
6. You can qualify for lower interest rates and save money
One of the most common questions people wonder is when you should refinance student loans. The answer is dependent on several factors, including your income and credit. But if you’re like most people, waiting until you’re in your late 20s or 30s to refinance can be wise. With a higher income and improved credit score, you can qualify for lower interest rates and save even more money over the length of your repayment term.
How to qualify for the lowest student loan interest rates
If you decide it’s time to refinance your student loans, you likely want to take advantage of the rates lenders are offering right now because refinancing rates are currently at a historic low. To get the lowest possible interest rates, follow these tips.
Choose a variable interest rate
If you want to get the absolute lowest interest rate available, opt for a variable-rate loan over a fixed-rate loan.
Fixed-rate loans have the same interest rate for the entire repayment period and tend to be higher than variable-rate loans.
Variable-rate loans usually start with lower rates than fixed-rate loans but can fluctuate over time. If you want to pay off your debt early, taking advantage of a variable-rate loan can be a smart way to accelerate your debt repayment and save money.
Select a shorter loan term
When you see lenders’ rates, the lowest-advertised rates are typically reserved for borrowers with excellent credit who pick the shortest repayment terms. Rather than choosing a repayment period of 10, 12, 15, or 20 years, select a repayment term of eight years or less to get the lowest interest rates. While your monthly payments will be higher, you’ll pay much less in interest charges, and you’ll pay off your debt earlier.
Compare offers from multiple student loan refinance companies
Before refinancing your student loans, make sure you get rate quotes from multiple lenders – and it doesn’t have to be a time-consuming process. With Purefy, you can use our Compare Rates tool to get quotes from top student loan refinancing lenders all at once and in one place – without impacting your credit score.