How Often Can You Refinance Student Loans?
Refinancing student loans can have several benefits, including a lower interest rate. Since interest rates change, student loan borrowers may wonder how often you can refinance student loans. After all, doing so could save you money in the long run. Continue reading to learn more about how often you can refinance student loans!
What is refinancing?
Refinancing allows borrowers to trade multiple student loans for a single private loan from a bank or similar company. The private lender will pay off the existing loans and give the borrower a new one that combines the loan values. Refinancing is applicable to private student loans, federal student loans, or both.
Refinancing is useful because it gives the borrower the convenience of making one monthly payment on one loan instead of multiple. Borrowers can also receive a lower interest rate on the new loan.
How often can you refinance?
There is no limit to how often borrowers can refinance student loans. Borrowers can refinance with the same lender multiple times or with multiple lenders. The only limit you may encounter is how much time must pass between refinances. Generally, lenders limit borrowers to applying for a new refinanced loan once per month or once per quarter.
Why refinance more than once?
Borrowers may want to refinance their student loans multiple times in order to get a lower interest rate. The interest rate for a refinanced loan is based on the applicant’s credit score and income. You could get a lower interest rate if your credit score or income has improved since the last time you refinanced. A lower interest rate will save you money over time.
Let’s break this down with an example. Imagine you owe $100,000 in student loans with a 7% interest rate, and plan to repay the debt in 10 years. Without refinancing, you would end up paying a total of $139,320. But let’s say you refinanced those loans to a 6% interest rate. You’ve already brought your total repayment down to $133,200. Now, let’s say you pay off your loans for 5 years at a 6% interest rate. At the end of those 5 years, you’ll have paid back $69,660. This will leave a remaining balance of $57,425 and another $69,660 to pay. Now, let’s say interest rates have fallen significantly since then. You refinance your loans at a 3% rate. This will reduce your payments significantly. You’ll only end up paying $61,911 more.
In this example, your total amount repaid ends up being $119,336. That’s about $20,000 than your initial total repayment! This is a great example of refinancing saving the borrower a substantial amount of money.
Another reason student loan borrowers may refinance again is to get a shorter repayment period. For example, your current refinanced loan may be repaid with monthly payments for 15 years. If you want a shorter repayment period, you may want to refinance with a company that offers a repayment period of 10 or even 5 years. A shorter repayment period will result in less interest paid over time. Keep in mind, however, that a shorter repayment period will raise monthly payments.
Additionally, refinancing can add or release a cosigner.
See also: How to find a cosigner
Things to keep in mind
Before refinancing your student loans again, there are some things you should consider:
- The type of loans you have. If you have federal student loans, refinancing will cause you to lose benefits such as income-driven repayment plans and Public Service Loan Forgiveness.
- Your current interest rate. Check the interest rate on your current refinanced loan. Do some searching and compare the rates.
- Your credit score. A higher credit score can qualify you for a lower interest rate. Check your credit score to see if you may be eligible for a better rate.
- Additional fees. Many lenders don’t have origination fees, but some do. Be sure to read the fine print as paying additional fees may not help you save money in the long run.
- Repayment period. Consider how refinancing may change your repayment period. A new loan may have lower interest, but a longer repayment period. In this case, you might not save money over time.
Check refinancing rates often
Interest rates are based upon your credit score, income, and the current financial environment. If you increase your credit score by building more credit or repaying debts, you may qualify for a better interest rate than you did before. The same goes for your income. If it wouldn’t be beneficial to refinance again now, check back as your financial situation changes!