5 signs you should refinance your student loans

Managing student loan debt can be a challenge, no matter how good you are with your money. While the temporary student loan pause offered a reprieve during the COVID-19 pandemic, the interest on federal student loans will resume by September 1, and federal student loan payments are slated to resume in October. When they do, it could put even more strain on your budget. 

Fortunately, there are options that can help you better tackle your student loan debt. One of the most popular is student loan refinancing. While refinancing isn't the right move for every borrower — those with federal student loans may want to think twice, for example — it can still be a smart move for many borrowers.

If you're looking to lower your monthly payments and grab a lower interest rate on your student loans, then refinancing may be right for you. Click here to check your rate today and see what offers are available.

When to refinance your student loans

Whether or not you should refinance your student loans is a personal decision. However, there are certain times it makes sense to take this route. Here are a few signs that it's time to refinance now.  

Interest rates are low

One of the primary reasons to consider refinancing your student loans is to take advantage of lower interest rates. If interest rates have decreased significantly since you initially borrowed money for your education, refinancing may help you secure a lower rate, which has the potential to save you thousands of dollars over the life of your loan.

Learn more about how you can qualify for a competitive student loan refinance rate here.

Your credit score has improved

Your credit score has a significant impact on your borrowing costs. If your credit score has improved since you first took out your student loans, refinancing can be a smart move, as lenders typically offer the best rates to borrowers with good or excellent credit. By refinancing at a lower interest rate, you can reduce your monthly payments or shorten the repayment term, saving you money in the long run.

If you're not sure what your credit score is, don't panic. There are several sites that can crunch the numbers for you within just minutes.

You're financially stable

Private lenders will weigh a number of factors when considering your application for student loan financing, including your income and overall financial picture. Having a stable income and a solid financial position indicates to lenders that you're a reliable borrower and have the ability to repay your loan, increasing your chances of qualifying for more favorable terms. 

You've changed your repayment goals

If your financial circumstances or goals have changed since you initially borrowed money for your education, refinancing allows you to align your repayment strategy with your new objectives. For example, making the transition from an income-driven repayment plan to a fixed payment plan may result in paying off your loans faster or reducing your monthly payments.

Looking to make changes to your current payment plan? See what kind of student loan refinance options you qualify for to get some extra relief today.

You want to release a cosigner

It's not unusual to have a cosigner on your student loans. Many students will need a cosigner with better credit or steady income to qualify for this type of funding, but there may be a point in which you want to release them from this financial obligation. By refinancing your student loans, you can remove a cosigner from their ties to your loan, allowing you to assume full responsibility for your debt, which can potentially improve your credit while giving your cosigner some financial relief.

Factors to consider before refinancing

While the situations outlined above are good indicators that you should consider refinancing your student loans, there are a few other factors that you may want to consider before signing on the dotted line. These include:

• Repayment timeline: While refinancing can lower your monthly payments, opting for an extended repayment term may increase the overall interest paid. If your goal is to pay off your loans quickly, be cautious about extending the repayment timeline, as it may result in higher overall costs.
• Federal loan benefits and protections: Federal loans offer options such as income-driven repayment plans, loan forgiveness programs and deferment or forbearance during financial hardship. If you anticipate needing these benefits, refinancing may not be the best choice for you since private student loans don't offer the same protections.
• Fixed vs. variable rate: While fixed interest rates are common with student loans, some lenders will offer variable interest rates that can fluctuate over time. While variable rates may initially be lower than fixed rates, they run the risk of increasing in the future. Consider your risk tolerance and ability to handle potential rate changes before choosing a variable interest rate.
• Origination fees and closing costs: Many private lenders will charge origination fees or closing costs to borrowers refinancing their student loans. These fees can vary significantly among lenders, but if they're steep enough, these costs can negate any potential savings. As such, it's important to consider these costs when assessing the overall benefits of refinancing and factor them into your decision-making process.

The bottom line

Refinancing student loans can be a smart financial move when it's done strategically — but can result in some major money issues if you aren't careful. By understanding the key factors that indicate when it makes sense to refinance, such as lower interest rates, improved credit score and a stable financial situation, you can make an informed decision that's right for you and your wallet.