Refinancing your student loans is a great way to consolidate them into one simple payment and bring your interest rate down. But what if you refinance your student loans and then interest rates drop again? If you’ve already refinanced, can you refinance more than once?
Even if you’ve already been through the process once, it’s possible to refinance again if you’re eligible. Understanding lender qualifications and taking the right steps to prepare before refinancing could mean extra savings and more financial flexibility. Here’s what to know if you’re wondering how many times you can refinance student loans and how often.
What Does It Mean to Refinance Your Student Loans?
With student loan refinancing, you apply for a loan with a private lender, and that loan replaces an existing student loan. You can refinance your student loans with your current loan provider or a new company, provided you meet their borrowing requirements.
Choosing Between Student Loan Consolidation or Refinancing
It’s also possible to consolidate multiple student loans into a single payment with student loan consolidation. Consolidating your existing student debt with a new loan is a great way to simplify repayment, especially if you’re keeping track of multiple lenders and deadlines. You can consolidate federal loans, private loans, or some combination of the two.
While the processes work similarly, some borrowers are confused by the differences in student loan consolidation vs. refinancing. The primary difference is this: You can choose to consolidate all your student loans when you refinance, but you also have the option to refinance specific loans individually. For example, you can refinance your private loans alone if you want to keep a federal student loan benefit like an income-driven repayment plan. Or if you have several federal student loans, you can consolidate all of them with a Direct Consolidation Loan.
How Many Times Can You Refinance Student Loans?
You can refinance as many times as you’d like, provided you meet lender requirements. Private lenders typically require that you have good credit, consistent income, and manageable debt before they approve you for a student loan refinance.
When Should You Refinance Student Loans Again?
Just because you can refinance your student loans multiple times doesn’t necessarily mean you should. First, consider whether refinancing again will help meet your financial goals. For instance, if you want to accomplish a more immediate goal like buying a house or launching a business, refinancing to a loan with a longer repayment term could be wise because your monthly payments may be lower. Just know that you’ll likely pay more interest over the life of your loan with a longer term.
But if your credit score could use some improvement, you may want to wait until you can rebuild it so you can secure the best possible interest rate. And if interest rates have increased, it may also be wise to hold off on refinancing for now. Understanding when to refinance your student loans again vs. when to avoid it helps ensure your choice aligns with your long-term financial goals.
4 Instances When Student Loan Refinancing Could Make Sense
Here are four circumstances where refinancing student loans could be a worthwhile financial choice. Note that if you have federal and private student loans, you might sacrifice some federal benefits, such as access to income-driven repayment plans, if you refinance with a private lender.
- Lower interest rate: If you initially refinanced when student loan rates were higher, check again when rates drop. It may be months or even a couple of years, but a lower interest rate is sure to save you money on your monthly payment.
- Better credit: Did you clean up your credit and raise your score from when you initially refinanced? Having a higher credit score could make you eligible for a better interest rate.
- Higher income: Having a higher income can help reduce your debt-to-income ratio, thereby making lenders more willing to offer you a lower interest rate.
- Variable to fixed rate: Refinancing student loans from a variable to a fixed rate could give you peace of mind that your payment won’t increase due to fluctuating rates.
What to Consider Before Refinancing Student Loans Again
You’ll want to consider several factors before moving forward with a student loan refinance. Here’s what to think about:
Your Credit
Private lenders often require a minimum credit score in the mid-to-high 600s to qualify for a student loan refinance. However, individuals with higher credit scores typically get lower interest rates; improving your credit gives you the best possible chance of decreasing your interest rate. Your lender will also review your credit reports during its loan decision process.
To check your credit reports for free, visit AnnualCreditReport.com. Many credit card issuers also offer a free credit score component, so you can get an idea of your credit score before you apply. For more information on improving your credit score, check out our guide to building good credit.
Your Financial Situation
Your lender will also calculate your debt-to-income (DTI) ratio during the loan decision process. This ratio is calculated by dividing your monthly debt by your monthly income.
For example, if your monthly student loan payment is $500, your car payment is $400, and you earn $3,000 per month, your total monthly debt payments are $900. Your DTI would be $900/$3000 = 30%. Generally, you’ll need a DTI ratio of 50% or less to refinance, and the lower your DTI the better your interest rate may be.
As your income increases and your debt decreases, your DTI improves. So if you’re earning more now than when you previously refinanced your student loans, you may be eligible for a lower interest rate. If your income is similar to the last time you refinanced, consider paying down higher-interest debt, like credit card debt, to improve your DTI.
Your Loan Terms and Fees
Before refinancing, be sure you know your current loan term and interest rate. If you’re looking to pay off debt more quickly, a new loan with a shorter repayment term could work for you. If you’re working toward other financial goals and need more financial flexibility, then a long repayment term may be better. You can also choose between a fixed or variable interest rate.
Here’s how choosing the right student loan repayment term can impact your monthly payment: A private student loan of $20,000 with an interest rate of 8% for ten years will require you to pay $243 per month. Refinance the loan to a ten-year loan with a 3.99% interest rate, and you could be saving $40 per month and $4,831 over the life of the loan.
Also consider potential fees, such as origination fees or prepayment penalties before settling on a lender.
Adding or Releasing a Cosigner
If you don’t meet a lender’s requirements to refinance your student loans independently, consider adding a cosigner. A cosigner is someone who cosigns your loan and agrees to make your payments if you get behind. Choosing a cosigner with a high credit score and a low debt-to-income ratio could improve your chances of qualifying for student loan refinancing. Alternatively, if your credit and financial situation have improved since you initially borrowed your student loans and you’d like to remove a cosigner, refinancing often allows for a cosigner release.
Final Considerations
Refinancing student loans can help you save money on your monthly payments or interest costs over the life of the loan. And it’s possible to refinance your loans multiple times to reduce your costs, provided you meet lender requirements.
Before committing to a new lender, research potential rates, fees, and your lender’s past track record with customers. The best lenders offer competitive rates, minimal fees, and high customer satisfaction rates. If you’re considering working with ELFI, learn more about our student loan refinance options.
