Refinance student loans

5 Signs You’re Ready to Refinance Student Loans (and 4 Signs You’re Not)

ready to refinance student loans

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Are you interested in refinancing student loans for better rates, but not sure if now is the right time? Before making a move, it’s important to know if you’re ready to take on a refinanced student loan. Here are five signs you’re ready to restructure your debt through refinancing — and four signs you’re not.

5 signs you’re ready to refinance student loans

If any of the following ring true, you could be in a good position to refinance your student loans for better rates.

You have strong credit and sufficient income

To get approved for student loan refinancing, you need to have fairly decent credit and a sufficient source of income. Private lenders offer refinancing, and they want to see that you have the means to pay back your loan.

Plus, they look at your credit history to make sure you’ve stayed current on other loans you’ve had in the past. As long as you can meet a lender’s underwriting requirements — or can apply with a cosigner who can — you could be ready to refinance your student loans.

You’re confident you can pay back your loan

Besides meeting a lender’s requirements for credit and income, you should make sure you feel confident about your ability to pay back the loan. Private lenders aren’t usually as flexible as the federal government if you’re struggling to make payments.

Some offer temporary forbearance, but you won’t really have options for income-driven repayment or a similar plan. So before agreeing to a refinanced student loan, make sure you’re confident you can pay it back according to the terms you’ve chosen.

You’ve thought through the pros and cons of refinancing

Another sign you’re ready to make a move is if you’ve thought through the pros and cons of refinancing. Student loan refinance has a bunch of potential benefits, including lowering your interest rate, restructuring your terms, and combining several loans into one.

But it also has potential downsides, such as the loss of federal protections and benefits. By doing your research, you can feel confident that you understand both the perks and potential downsides before making changes to your debt.

You’re not relying on federal programs or protections

Since refinancing federal loans with a private lender turns them private, you’ll no longer qualify for federal repayment plans or protections. If you don’t need plans such as income-driven repayment, you could be ready to refinance with a private lender.

You also should make sure you don’t need federal forbearance or deferment options and aren’t counting on federal forgiveness programs now or in the future. If not, you could be in a good position to refinance federal loans with a bank, credit union or online lender.

Note that this consideration doesn’t really apply to private student loans, since they’re already not eligible for federal plans and programs anyway.

You’ve shopped around to find the best rate

A final sign you’re ready to pull the trigger on refinancing is if you’ve spent some time rate shopping. The best student loan refinancing lenders offer online instant rate quotes, showing you if you pre-qualify in just a minute or two.

This pre-qualification check won’t harm your credit, so you can shop around to find the best rate on your refinanced student loan. This important step will ensure you find the best deal that will save you the most money on your student debt.

4 signs you’re not ready to refinance yet

If the above ring true for you, you could be ready to refinance your student loans for better rates. But if the following sound more like you, it might be wise to wait before you apply.

Your credit score is below 650

If your credit score is below 650, you’ll probably have trouble qualifying for student loan refinancing. You could still apply with a “creditworthy” cosigner, but you’ll need to make sure that person is comfortable sharing debt with you.

And if our credit is hovering around 650, you might qualify, but you probably won’t get the best rates. It might be better to take steps to increase your credit now and then apply in the future when you can get a decent rate.

Your interest rates are already low

If your interest rates on your student loans are already low — say, lower than 4% or 5% — you might not benefit much from refinancing. Some lenders offer variable rates lower than 2%, but you’ll need excellent credit to get those.

If your student loan interest rates are already low, you might not see much savings from refinancing. It could be worth checking your offers and using a student loan calculator to make sure the process is worth it.

You’re relying on income-driven repayment

As mentioned, refinancing federal loans turns them private, so you sacrifice federal plans such as income-driven repayment. These plans can be helpful if you’re having trouble making payments and want to adjust your bills according to your income.

If you need income-driven repayment now (or think you might in the future), you’re probably not ready to refinance any federal student loans.

You’re working toward federal loan forgiveness

Along similar lines, it’s not a good time to refinance federal student loans if you’re working toward a forgiveness program such as Public Service Loan Forgiveness or Teacher Loan Forgiveness. Refinancing your federal debt would make it ineligible for these programs.

By thinking through these scenarios, you can make sure you’re truly prepared before making any changes to your student debt. If you are, you can start the process by checking your rates through our list of the best lenders to refinance student loans in 2020.

Want better rates? Here are the best banks to refinance student loans:

Variable rates start at...Fixed rates start at...Repayment termsWelcome bonus Check your rates
refinance student loans4.54%4.49%5 - 20 years$200Visit LendKey
refinance student loans4.99%4.47%5 - 20 years$200Visit Earnest
refinance student loans4.22%3.97%5, 7, 10, 15, and 20 years$120Visit Laurel Road
refinance student loans4.53%4.40%5 - 20 years$100 or $200, depending on the amount you refinanceVisit Credible
refinance student loans5.09%4.74%5, 7, 10, 15, and 20 years$100Visit SoFi
refinance student loans4.53%4.83%5, 7, 10, 15, and 20 years$100Visit ELFI