What Factors Affect Whether You Can Refinance Your Student Loan After College?

BIG Ideas:

• Refinancing student loans involves replacing your federal and/or private student loans with one loan from a private lender.
• Refinancing federal student loans may offer benefits, but it could result in the loss of federal loan protections.
• Your credit score, income, loan type, and interest rate all determine if refinancing makes sense.

Your time in college has left you with so many incredible things: lifelong memories, lasting friendships, and valuable knowledge that can help you build a career. It’s an experience of a lifetime.

But if you borrowed money to pay for college, it’s left you with something else that can feel like it will last a lifetime – student loan debt. Depending on the amount you borrowed and your earnings, that debt can not only put a strain on your monthly budget but also keep you from achieving goals.

There’s a solution that can help you make that debt more manageable: you can refinance your student loan.

What is Student Loan Refinancing?

Student loan refinancing involves replacing one or more of your existing federal and/or private student loans with a new private loan that may have a new interest rate, repayment term, and monthly payment. Refinancing does come with benefits. It can help you lower your monthly payment, reduce the amount of interest you pay, and pay off your loan sooner.

Sound good? Well, pump the brakes for a moment. There are some factors you must consider before refinancing student loans, including:

• The type of loans you have. Federal student loans come with certain protections that are not available with private student loans. So, if you refinance your student loan with a private lender, you may lose these federal benefits, which include:
  • Income-driven repayment plans. These plans adjust your payments based on your income and family size. So, if you’re having difficulty making your monthly payments, you can get relief.
  • Deferment and forbearance. If you experience a job loss, health issue, or other situations that result in financial hardship, you may be able to temporarily pause or reduce your payments.
     
  • Public Service Loan Forgiveness. If you work full-time in a public service position and have made the required number of qualifying payments, you could have your loan forgiven.
• The interest rate. Federal loans also come with fixed interest rates that won’t change for the life of your loan, making it easier to budget. Variable-rate loans, however, can increase or decrease over time depending on market conditions. So before refinancing your student loan, make sure you qualify for a lower interest rate. There are private lenders that offer both variable and fixed interest rates.
• Your income and credit score. Unlike federal student loans, which are not based on your credit and income, private loans are based on your income and creditworthiness. So to qualify for a private loan, you’ll need to have a good credit score and steady income.
• The amount you owe. If you have substantial student loan balances, refinancing student loans to a lower rate could result in significant savings. That’s money you can use to build your savings for emergencies and long-term goals.
• Whether you have a co-signer. A co-signer with strong credit can help you get the private loan you need and secure a lower interest rate that can save you money. 

The Benefits of Refinancing Student Loans:

Depending on the factors above, there are many benefits of refinancing student loans, including:

• Lowering your monthly payments
• Shortening the term of your loan
• Releasing a co-signer from your loan if you meet the qualifying criteria
• Combining multiple loans into one, so you only make one payment
• Saving money on interest if you get a lower rate and don’t extend the loan term

The Drawbacks of Refinancing Student Loans

Refinancing your student loan does come with some potential drawbacks, including: 

• Losing federal loan benefits like Public Service Loan Forgiveness
• Paying more interest over the life of the loan if you extend your repayment terms
• Losing federal loan hardship protections like deferment and forbearance
• Risking getting a variable interest rate, which could increase your monthly payment if rates rise.

So now that you understand the pros and cons that come with refinancing student loans, you may be wondering, Does student loan refinancing make sense for me? Well, here are some cues to help you decide:

When Student Loan Financing May Make Sense For You:

• Interest rates on private loans are lower than the rates on your federal student loans
• You have good credit and a steady income
• You have high student loan balances
• You have multiple loans and want to make repayment simpler
• You don’t work in or plan to work in a public-service position
• You have high-interest private loans

When Student Loan Refinancing MAY NOT Make Sense For You:

• The interest on private loans is higher than the rates on your existing loans
• You’re struggling to make your federal loan payments
• You may qualify for Public Service Loan Forgiveness
• You have a poor credit score
• You have lower or unsteady income 

Steps to Take to Refinance Student Loans

If you think refinancing student loans is a good decision for you, you should take the following steps:

• Review all your current loans, including the type of loan (federal or private), interest rate and type (variable or fixed rate), as well as your balances.
• Shop around for private lenders. Private lenders vary significantly in interest rates and fees, so carefully review your options. Be sure to look at non-profit lenders like Brazos, which may offer lower rates to help you save even more.
• Use a refinance calculator to see how much refinancing could save you money.
• Check your credit score.

Refinancing student loans is a big decision and depending on your financial situation and goals, it could be a very wise one. But it doesn’t mean it’s the right decision for you. Understanding the loans you have, comparing rates, and considering your budget and long-term goals can help you decide whether it makes sense for you.

If interest rates drop after you refinance your student loan, you can refinance again, since there is no limit to how many times you can refinance. Conversely, if now may not be the right time for you to refinance, you have the option to revisit it again if it makes sense for you.

Brazos Has Student Loan Refinancing Options to Meet Your Goals

For more than 40 years, Brazos Higher Education has helped students finance the cost of college. As a Texas nonprofit, we offer competitive refinance loans that can help you save money. Contact us today to learn more.