When should I refinance my Student Loans?

Michael Lux Blog, Consolidation, Lower Payments, Student Loans 2 Comments

Refinancing your student loans can lower your interest rates, your monthly payments, and get your loans paid off faster.  Often people are surprised to learn that they can get significantly lower interest rates by consolidating or refinancing their loans.  This fact should not be too much of a shock.  A loan to a 19-year-old college student is far more risky than a loan to a college grad and a working professional.  Because there is less risk, the interest rates can be lower.

Anyone thinking about refinancing their student loans should consider three important factors:

1) Your personal credit situation

If you just filed for bankruptcy or just lost your job, now probably isn’t the time to refinance your loans, even if it is when you need the help the most.  The lenders who offer rock bottom interest rates will look at your credit score and your income.  They will also compare your income to your existing debt.  If you have a good credit score and high income relative to your debt, you will likely be a good candidate.

If you are about to clear some debt off of your credit report, such as paying off a credit card, waiting until this happens will increase your odds of a low rate and approval.  Similarly, if you may be on the brink of a big promotion or a fat raise, it may be in your best interest to wait until it becomes a reality.

2) Market factors

Interest rates go up and down.  Companies come and go.  Timing the market is pretty much impossible.  Waiting until the perfect opportunity may not be a good idea.

However, when the market is strong for borrowers, it is best to strike when the iron is hot.  As of the date of this article, three different companies are offering interest rates below 2%.  As the economy recovers, odds are that interest rates will creep back up.

3) Life factors

Applying for credit results in a temporary dip in your credit score.  Anytime you take on new debt or pay off old debt, it can affect your credit score.

When it comes to student loan refinancing, it is important to look at it in the context of other goals that you have.  If you plan on applying for a mortgage in the next three months, messing with your student loans and jeopardizing your credit score may not be a good idea.  On the other hand, if you plan on applying for a mortgage in 2 or 3 years, locking in lower interest rates and payments could help your future endeavors.

Refinancing your student loans can certainly be a good thing, but it is critical that you don’t let it get in the way of bigger priorities in your life.

So when is the best time?

Without a time machine, it is impossible to predict the ideal date to refinance your student loans.  However, if you carefully consider your personal credit situation, your personal goals, and market factors; you can find a time that is close to ideal.

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Normally, the best time is when the interest rates are dropping. It is a good way to lock in a lower rate.


With the refinance of student loan, whether the period of repayment not longer than before? With a refinance, the monthly bill is smaller. However, the result of debt repayment period be extended so that the burden of the borrower becomes lighter. That is all.