If you’re making payments on private or federal student loans, or a combination of both, you may have considered refinancing or consolidating them. There can be numerous advantages, but when is the right time to refinance?
You generally need to be in grace or repayment on one or more student loans after graduation or separation from school in order to refinance. Once you’ve reached that point, here are a few specific opportunities to consider:
1. When interest rates are lower than your existing rate(s).
Rates are currently at historic lows, so you may want to lock in a better interest rate before they go up again. Check the rates on your current loans, as well as whether you have a fixed or variable rate. Many sites offer calculators to help determine what your savings could be long term – access ours here.
2. When you want to shorten or extend the length of time you’ll be making payments.
Extending your repayment terms can lower your monthly required payment (though you’ll still be paying interest for the life of the loan and could pay more out of pocket in the long run).
Alternatively, you could choose a shorter repayment term to pay off your loans sooner, though this may also be possible if you make more than your minimum monthly payment on a current loan (assuming there are no pre-payment penalties).
3. When you want all your student loans under your own name.
Students often do not have the credit history necessary to qualify for a loan on their own. A co-borrower may sign for the loan, or a parent may take out a federal Parent PLUS loan in their own name. If your current loan doesn’t have a co-borrower release option, refinancing and consolidating your loans is one way to get all your student loans under your name and credit history.
It’s important to remember that every student loan situation is unique. There are many factors to consider when refinancing student loans, including a possible loss of loan benefits for any federal student loans you currently hold.
In addition, the CARES Act was passed in response to events related to the COVID-19 pandemic and includes broad relief measures for federal student loan borrowers, which are set to expire after January 31, 2022. If you are considering refinancing your federal student loans, please make sure to review these measures at www.studentaid.gov/coronavirus to understand your options.