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How Often Can You Refinance Student Loans?
Refinancing student loans can be an attractive prospect for many borrowers, whether it is to lower their interest rates, change their repayment period, or add or release a cosigner. But how often can you refinance student loans? Although there is no lifetime limit on the number of times you can refinance, there are a few factors that may limit the frequency of refinancing.
In this article, we’ll offer a quick overview of reasons to refinance, guide you through how often you can refinance, and list some reasons why a borrower might refinance multiple times. Finally, we’ll help you through the process of finding promising opportunities for refinancing.
See also: How to consolidate and refinance student loans
What is refinancing?
Refinancing is the process of changing the terms of your current loan, whether it be striking a new agreement with your current lender, or having another lender pay off your debt and open up a new agreement with you. Effectively, it renders your previous debt null and void and strikes up a new account with the borrower for the same amount of money.
So, although the balance owed does not change with refinancing, it can impact the total amount you’ll end up repaying. That’s because a lower interest rate or a modified repayment schedule could both modify the amount of interest you’ll end up paying over time.
Why do borrowers refinance?
There are many different reasons why a borrower might refinance. Typically, they fall into one of three categories: Finding a lower interest rate, changing a repayment schedule, or adding or releasing a cosigner.
Finding a lower interest rate
Interest rates are constantly fluctuating with the economy. If a student takes out a fixed-rate loan during a period of high interest rates, it seems only natural that they would have some buyer’s regret when rates dip. Luckily, refinancing serves to remedy just that. You can either renegotiate the terms of your loans, or have another lender buy out your debt for you, and strike an agreement with them with interest rates that reflect the lower market price.
Changing repayment schedule
This could work in one of two ways. If you find that you are now able to afford higher monthly payments, you may decide to refinance to a shorter repayment schedule in order to pay less in interest over the lifetime of the loan. On the flipside, if you are having trouble making your current monthly payments, you may decide to refinance to a loan with a longer-term repayment schedule in order to make those payments manageable.
Either way, refinancing (as well as, in some cases, consolidation) can help solve these issues. For borrowers who are seeking a shorter repayment schedule, keep in mind that some servicers will allow you to make higher monthly payments without renegotiating the terms of your contract.
See also: How to find a cosigner
Change in cosigner
In general, lenders offer the best interest rates to the borrowers with the best credit histories. Since many students do not have a developed credit history, they ask their parents or another adult to cosign on the loans. However, these loans take many years to repay, and situations may change over that time. For example, the student may meet someone with a better credit score who is willing to serve as their cosigner, or their previous cosigner may no longer feel comfortable being on the contract.
In either of these cases, the student may want to refinance. Any private student loan borrower who finds someone with a strong credit score who is willing to serve as a cosigner should take advantage of the opportunity to lower their interest rates.
Also see: What is a student loan credit score?
How often can you refinance your loans?
Each individual lender sets its own rules regarding how often you can refinance your student loans. Typically, these limits fall somewhere between once every month or once every quarter. However, if you are moving your loans to a new lender, there should be no limit on how often you refinance your loans.
Does it cost money to refinance student loans?
The answer to this question varies on a case-by-case basis; some lenders do charge a small fee for refinancing, but in general, they do not. Each lender has an incentive to encourage you to refinance with them. So, it makes sense that they would refrain from adding on fees that would discourage new customers.
In fact, many lenders offer a cash bonus for borrowers who bring their loans aboard the company for the first time. So, you may end up receiving money rather than paying it when you refinance your loans.
Although this is the general market trend, it is not true of every single lender, so make sure to read the terms of any refinancing agreement carefully before signing on.
Why refinance your loans multiple times?
You may be wondering why a borrower would want to refinance their student loans multiple times. There are many different reasons why this may be the case. One might be the constantly changing market; a borrower may refinance as interest rates fall, and then as they fall again, the borrower may want to refinance again.
Borrowers may also want to take advantage of a new cosigner or release a previous cosigner from their contract. A new cosigner may open the possibility of loans with better interest rates, whereas a released cosigner may be someone who is no longer willing to be on the same contract as the borrower. This could result from a divorce or other changes in family dynamics.
What to keep in mind when refinancing
When refinancing your student loans, there are a few things to keep in mind to ensure that you are making a beneficial decision in the long-run. Here are a few points to consider and help you weigh your choice.
Keep asking questions!
As you work through the refinancing process, remember that it’s totally normal to have questions, and make sure to prioritize getting reliable answers to everything you’re wondering about. Sometimes, lenders can be opaque about their policies, but remember it is their job to provide you with the answers you need, so don’t feel bad about being persistent in your questioning.
You should also be sure to look beyond your lenders for answers; It can be a good idea to seek out support from other students who have been through this process, a trusted adult in a financial aid office, or free financial literacy resources in your community. Getting a variety of different perspectives will help you make the best decision for yourself.
For many people, student loans are the first major financial decision they’ll make in life. Use it as a learning opportunity and inform yourself as best you can – you’ll be able to use these skills down the line as you take on the financial responsibilities of adulthood.
Refinancing federal loans
Refinancing federal loans may be a good idea if interest rates have fallen, as it could save you money on interest in the long-run. However, there are a few advantages that you’ll be foregoing by refinancing to private loans.
- Income-driven repayment plans – Income-driven repayment plans are highly adaptable and flexible repayment options for federal loans that allow you to make your monthly payments a function of your salary. So, if you are not earning a lot of money, you won’t have to make high payments until you see an increase in salary. If you refinance your federal loans into private ones, you will no longer have access to this advantage.
- Public Service Loan Forgiveness – If you are considering a career in a qualifying field (these include teaching, nursing, firefighting, military service, NGO work, and more) you may be able to get your federal loans forgiven after 10 years of payments. However, if you refinance to private loans, you will lose eligibility for this program
- Forbearance during national emergencies – As of June 2022, federal borrowers have not had to make a single loan payment, nor have their loans acquired a cent of interest, since the onset of the COVID-19 pandemic. The federal government took this action in response to the economic stress caused by the pandemic. However, private borrowers have not enjoyed these benefits. If you refinance to private loans, you may find yourself in a tight spot should another similar emergency occur.
Impact of credit checks
In the long-run, refinancing student loans can actually help your credit score by putting you in a spot to make manageable payments and pay down your debt faster. However, they do have an initial effect of dinging your credit score. After any official credit score inquiry (a necessary prerequisite for refinancing loans) your credit score will decrease temporarily.
This should not limit borrowers from refinancing, but may prove prohibitive to those who are considering refinancing multiple times in a very short period. You may not be able to find loans with favorable terms if your credit score has suffered too much temporary damage from frequent inquiries.
Check for origination fees
As noted above, most lenders do not charge borrowers to refinance their loans. However, this is not a hard-and-fast rule, and borrowers should always read the terms and conditions carefully before agreeing to anything. Look for the language “origination fees” in the contract to find any fee that would come with opening the account. Although it may come under another name, this is the most common terminology.
See also: How to refinance student loans with bad credit
Finding the best refinancing opportunities
To keep your finger on the pulse of refinancing opportunities, it’s a good idea to browse student loan marketplaces. These allow you to compare different lenders side-by-side and see what each of them may be able to offer you. Also, remember that if you don’t already have a cosigner, finding one can be one of the most promising ways to improve the interest rates of your loan. We hope that this guide has helped you to make an educated refinancing choice, and good luck with your search!
Also see: Who is eligible for President Biden student loan forgiveness?