Multiple Student Loan Refinance: the Costs, the Lenders and How to Avoid a Mistake

Michael Lux Blog, Strategy 0 Comments

Refinancing a refinance student loan might sound redundant, but it is an excellent way for borrowers to eliminate debt more efficiently.

Not all borrowers should try to refinance their student loans a second time, but in many circumstances, the permitted extra refi can save a bundle and provide some financial stability.

How Many Times Can I Refinance My Loans?

There is no limit on the number of times student loans may be refinanced.

However, there isn’t a benefit to repeatedly refinancing student loans.

Borrowers should seek to refi their student debt whenever better terms become available. If improved loan terms are not available, there is no reason to refinance.

Is there a Cost to Refinancing More than Once?

When refinancing debt, there are often transaction costs. For example, in a mortgage, there is an inspection, lender fees, and recording fees. These costs can add up quickly.

Fortunately, in student loan refinancing, there are no transaction costs. Lenders should not be charging any prepayment fees on the existing loan, nor should there be any charges for application fees or loan origination.

If there is a fee associated with student loan refinancing, it should be a red flag to the borrower as it could be an indication of a potential scam.

How long do I have to wait to Refinance a Second or Third time?

There isn’t a single rule that dictates how long a borrower should wait before they refinance their student loans again.

Borrowers should let the student loan market and their personal situation dictate when they attempt a second or third refinance. If student loan refinance rates have dropped considerably just a month or two after a refinance, it might be time to jump back into the market. Similarly, borrowers who just received a raise or have improved their credit score may also want to investigate new opportunities.

Practically speaking, the only time a refinance might be too soon is if the previous refinance hasn’t finalized. It can take a couple of months for the old loans to be paid off, the new loan to show up on the credit report, and the old loans to fall off the credit report. If both the new loan and the old loans are on the credit report, it is probably too soon to refi.

Additionally, there can be some credit score fluctuations for borrowers who go through the refinance process. Most changes are temporary, but those with borderline credit scores may need to wait a bit extra before jumping back into the refinance process.

Can I Refinance with the Same Lender?

Generally speaking, borrowers are not able to refinance their student loans with the same lender.

Put simply, there isn’t much of an incentive for a lender to drop interest rates for a current customer. Most lenders will not care about the threat of a possible refinance.

However, some lenders may be willing to refinance an existing customer’s loan if the customer can show that they will definitely be refinancing the loan. Checking rates with new lenders is not enough. Borrowers need to go through the entire refinance process with a new lender up to the point of signing the Promissory Note for the new loan contract. Once borrowers have the new contract with the new lender, they can approach their old lender. At this point in the process, the only thing the borrower needs to do is sign the contract, and the loans will be moved. Some lenders have shown a willingness to match terms under these circumstances.

When is it a Mistake to Refinance Student Loans Again?

The first refinance comes with several risks, especially if the original loans were federal, but a second or third refinance is far less dangerous. At that point, the biggest concern for borrowers should be whether or not they are improving their loan terms.

Arguably the biggest mistake a borrower can make with an additional refinance is doing it while trying to buy a home. A new debt appearing on a credit report may cause issues with the mortgage application. Borrowers wanting to ensure that a refinance doesn’t hurt their home loan should do the refi at least six months before applying for a mortgage. Even though the best practice is six months, those who need to use a student loan refi to help fix a Debt-to-Income ratio (DTI) issue with their mortgage application can usually get away with shortening the timeline.

How do I know when the Time is Right to Refinance Again?

The time to refinance is when you can find a better interest rate or loan terms. Knowing when better terms might be available is the tricky part.

Generally speaking, there are two circumstances in which borrowers are likely to find a better deal on a student loan refinance:

Improved Credit Profile – The main factors on any credit application are credit score and debt-to-income (DTI) ratio. If your credit score has grown substantially, your odds of finding a better refinance rate have gone up. Similarly, if you recently got a raise at work, or paid off an existing loan, a better DTI could lead to a refinance opportunity.

Market Rates Get Better – Like mortgage rates, student loan interest rates can move with economic conditions. Each month, this site conducts market research analysis and lists the lenders with the best available rates in various loan categories.

Borrowers wishing to keep tabs on things may want to shop refinance rates each year when they do their taxes. Additionally, if lower mortgage rates are in the headlines, student loan refinance rates may often follow the same trend.

Has COVID-19 Affected Mulitple Student Loan Refinance Strategy?

The Coronavirus pandemic may cause many borrowers to rethink their student loan repayment strategy.

In times of economic and employment uncertainty, borrowers may choose to find lower minimum monthly payments and use the extra money to build up a larger emergency fund. Additional student loan refinancing can help with this strategy.

Anyone concerned about their job security can use a multiple refinance strategy to increase flexibility and protect their financial interests.

Because refinancing is nearly impossible for someone who is out of work, it is a good idea to refinance into a loan with low monthly payments before you lose your job or have a salary cut. For most borrowers, this means a 20-year loan. These longer loans come with higher interest rates, but the big benefit is lower monthly payments. Those going through a tough time will be glad they were able to lock in a smaller student loan bill.

Once stability has returned to the equation, borrowers can refinance yet again, this time selecting a shorter loan length to get the lowest possible interest rate.

This approach to dealing with Covid-19 economics is not for everyone, but in many cases, it could prove to be a savvy strategy.

What Are the Best Companies for a Second or Third Refinance?

The student loan refinance lenders do not care what lender currently holds the loan and whether or not it was already refinanced.

In most cases, the lender offering the lowest interest rate will often be the best choice. This can require a bit of shopping around as the lenders that advertise the best rates are not always the ones at actually offer the best rate. As a result, borrowers are usually advised to reach out to 3-5 lenders to find the company offering the best loan.

At present, the lowest advertised refinance rates are with the following lenders:

RankLenderLowest RateSherpa Review
1Splash Financial1.92%Splash Financial Review
T-2Laurel Road1.99%Laurel Road Review
T-2Earnest1.99%Earnest Review

Borrowers looking for the lowest monthly payment will want to find the lender offering the best deal on a long-term loan. At present, the following lenders have the lowest advertised rates for a 20-year fixed loan:

RankLenderLowest RateSherpa Review
1Splash Financial4.26%Splash Financial Review
2Citizen's Bank4.49%Citizen's Bank Review
3ELFI4.75%ELFI Review