Should I Refinance My Student Loans?
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These days, student loans are very common. In fact, student loans have reached the trillions of dollars and 42.3 million people carry a student loan. A recent report from the Federal Reserve Bank of New York showed there were $1.34 trillion in student loans.
NerdWallet reported the average student loan for those graduating with a bachelor’s degree in 2015 had a student loan debt of $30,100. Some student loans (including ours) are much more than this and if you and your spouse both have student loans it may tip the scale to over $100K in student loans that can take more than a decade to repay.
Here are some things to think about when you are considering refinancing your student loans.
Things to Consider
When are your student loans due?
If you have a federal student loan, you might be under deferment. This means you may temporarily stop making payments. Also, while you are in school and may be able to wait up to six months after completing school before your repayments begin.
Private loans work a little differently and payments may become due immediately, even if you are still in school. So if you refinance, you may have to start repaying now.
What is your interest rate?
If you’re considering refinancing, make sure you know your current interest rate so that you can try to secure a better rate.
Hopefully a refi will help save you money by getting a better rate.
Our student loans were spread across the board. We had a bunch of different loans with different rates. After determining the average rate, we were confident that refinancing would give us the savings we were looking for without drawing out the length of time we were locked into repayment.
Your credit score might be affected
You will need to have your credit checked to qualify for a refinance. If you know your credit score could use some work, try getting your credit score and working on improving it before you attempt to qualify for a refinance.
Reasons You May Want to Refinance
There are a wide variety of reasons to consider a refinance of student loans. Here are a few that may make sense to you.
- You have a cosigner on your original loan and can now get the loan on your own and relieve your cosigner.
- You have multiple student loan accounts and want to consolidate down to a single payment (which was the case for us).
- You have a variable rate and want to get a fixed rate.
- You can reduce your monthly payment on student loans. If this is the case, remember to consider the length of the loan as you may be adding years to your loan to get a lower payment and therefore not really saving. I’d also recommend rolling the amount you save into a debt snowball plan to pay off debt as quickly as possible.
When to Avoid a Refinance
It comes down to what will be best for your situation and if you can save money by doing the refinance. Here are a few things to avoid with a refinance.
- If you already have favorable terms – you might not want to mess around with your current rates and terms if they are already good. You may eliminate great benefits with a new loan.
- Variable rates – you may initially get a lower rate, but it’ll likely continue to rise and cost you money and possibly another refinance down the road.
- Extended term – you don’t want to be paying on your loans longer than you have to. You might get a lower monthly payment, but end up paying thousands more because you are paying longer by adding years to the end of your loan.
- Your loans aren’t due yet – if you don’t have to make payments yet, it might not be the best time to consider a refinance as it’ll make your payments come due sooner.
- You can do it on your own – if managing different student loan accounts isn’t a problem and you’ve nailed down your own plan to save money then stick with it. It might give you more flexibility to repay on your current loan.
Our Experience with a SoFi Refinance
In our case, it was beneficial to refinance our student loans. After researching our options, we chose to go with SoFi for the refinance. They were easy to work with, reduced our interest rate and term and consolidated our loans into a single loan (which is easier for us to manage). Ultimately our monthly payment was lowered and we will save thousands in interest over the life of our loan.
If you are interested in looking into SoFi for refinancing your student loans, you can check them out here.