Rising interest rates encourage refinancing student loans. But refinancing is not always the right answer. Can you refinance student loans to a lower interest rate?
When to refinance student loans
Not everyone can be eligible for refinancing student loans. Usually you need a university degree, good credit and income that will allow you to conveniently afford expenses and pay off debts. If you meet these requirements, consider refinancing in the following circumstances:
- Savings will matter. You don’t have to wait until you get the perfect refinancing loan as long as you can get a better rate than today. Check to see if the lender is offering a student loan refinancing premium to further increase your savings.
- You have private student loans. By refinancing private student loans, you have almost nothing to lose because they are not covered by federal loan programs such as income-based repayment and Public Loan Forgiveness.
- You have student loans with high variable rates. Forecasting payments with a floating rate loan can be difficult, and even loans with a low interest rate can be more expensive to pay back. Before increasing, consider refinancing to get a fixed interest rate.
- The rate environment is strong. Both fixed and variable refinancing rates for private loans may change depending on economic factors, such as interest rate increases or lowering interest rates in the Federal Reserve. When rates are reduced, you can take advantage of this situation by refinancing.
- Your finances have improved. If refinancing makes no sense after graduation, think about it when you’re on a more solid financial foundation. And if you have refinanced before but simply repaid your credit card debt or received a raise, you can now get a better rate – you can refinance as often as you like.
How refinancing a student loan
By refinancing student loans, you consolidate existing federal and private educational loans into one loan. This new loan has no initial payment and usually has a lower interest rate. During refinancing, you can often choose a loan with a variable or fixed interest rate.
There are many reasons why you should consider refinancing a student loan debt:
- Lower your interest rate
- Adjust loan repayment
- Combine multiple loans to simplify payments
- Choose your loan terms
- Better customer service (from the very beginning)