Can I Refinance My Student Loans Multiple Times?

Michael Lux Blog, Consolidation, Strategy, Student Loans 0 Comments

There is no limitation on the number of times you refinance you student loans.  Refinancing more than once can be a smart strategy.  However, there is a downside that borrowers should understand if they are thinking about going this route.

Advantages of Multiple Refinances

The biggest advantage to refinancing your student loans more than once is that you continue to find lower interest rates and better terms.  Every time interest rates drop, or your credit score goes up, you may be able to lock in a better rate.  This means your student debt gets paid off faster.

Another advantage to refinancing more than once is that you can change repayment plans to help you accomplish your other goals.  Suppose you first refinance $60,000 of student debt at the low interest rate of 2.5%.  While you save a ton on interest, you also have very high monthly payments in order to pay off the debt.  After you have paid off half of the debt, you decide you want to buy a house, but you find your debt-to-income ratio is a problem.  You could refinance your student loans yet again in order to secure longer repayment terms.  Your interest rate would likely increase slightly, but your monthly payments would be dramatically lower.  This would put you in a much better position to buy the house.

A final advantage to multiple refinances is that you could make money up front with each refinance.  Many different lenders pay a bonus to new customers.  Because there is no cost to the refinancing process, you actually come out ahead.  At present, we are aware of 5 lenders offering a new customer bonus.

The Disadvantages to Refinancing More Than Once

The immediate downside is felt on your credit score.  Any new credit inquiry will drop your credit score by a few points.  The good news is that the credit score drop is temporary and that checking in with multiple lenders is treated as a single inquiry, so long as you do it within a short period of time.  The credit bureaus consider multiple credit checks in small window to be shopping around and only count it as one credit check.

The other issue is the time and effort that goes into each refinance.  Not only will you need to apply with multiple lenders to get the best rate, but once the new account is created, you will need to go through the steps of setting up payments and making sure each payment is processed as expected.

One potential issue would be any pre-payment penalty or origination fees associated with your loans.  No reputable lender charges any of these fees, but it is important to double check to make sure there is no cost associated with the transaction.  Our student loan refinancing company list and reviews will indicate if there are any fees associated with the loans.

Lastly, it is important to consider the loan that you are giving up if you choose to refinance.  Going from a low fixed-rate loan to a slightly lower variable-rate loan might look good on paper now, but in a few years, you might come to regret the decision.  If you refinance, make sure that the new loan is better than the old one.

Multiple Refinance Strategy

Refinancing student loans is too much of a headache to visit on even a yearly basis.  Instead, your strategy should be based upon major events in your life.  If something happens that would make you a more attractive candidate to lenders, it might be time to look into refinancing your loans.  Things that would make a major difference would include a big raise at work, or paying off existing debt, such as a car loan.  These things can dramatically improve your debt-to-income ratio and help you get a lower rate.  Another major change would also be a big increase in your credit score.  If a major negative event has just come off your report or your score has jumped, it is another good opportunity.

Finally, if you see news that indicate that interest rates are hitting record lows, it might be a good time to check it out.  For the last few years, interest rates have held pretty steady at low numbers.  However, if your loan is more than a few years old, the current market rates might be much better than they were when you first applied.

[Further Reading: When should I refinance my student loans for the second or third time?]

Bottom Line

Refinancing your student loans more than once is fair game.  Unlike a mortgage where there are closing costs and refinancing can be expensive, multiple student loan refinances should have no cost.  As long as you watch out for a few potential red flags, a second or third refinance of your student loans can be a smart move.  With 17 different lenders offering student loan refinancing, borrowers have plenty of options to choose from.