There is no defined time for you to refinance student loans, but there are times when it makes more sense to consider it. Let’s take a look at both federal and private student loans and the best time to refinance them.

Before we get into it, make sure that you understand what student loan refinancing is and how it works.

Should I Refinance My Federal Student Loans?

Federal student loans make up 92% of the total amount of student debt in America[1]. But if you have federal loans, it’s not always a good idea to pursue refinancing. For one thing, you can only refinance through a private lender, which will sever your access to government programs and benefits.

Federal loans offer benefits such as:

  • Forbearance in your loan payments (such as during the 2020 pandemic)
  • Student loan forgiveness programs
  • Income-based repayment plans
  • Debt forgiveness

You won’t have access to these benefits if you refinance your federal loans.

When Should I Refinance My Federal Student Loan?

You should refinance federal loans only when you find a private lender offering a significantly lower interest rate. For instance, a difference of 3% to 4% could save you a considerable amount in the long term, though you’ll likely still see greater benefits by sticking with the government.

If you have a stable job and a substantial income and your credit is very good or excellent, refinancing government loans might be an option. You probably won’t be using most of those federal loan perks, and you could get a substantially lower interest rate.

Alternatives to Refinancing Federal Student Loans

Another option you might consider is consolidating your federal student loans through a direct consolidation loan. Doing so won’t save you money or lower your interest rate, but it can make it easier to keep track of your payments. You might even avoid late payments that cause you to have to pay penalties.

Should I Refinance My Private Student Loans?

Although private student loans make up only 7.6% of total educational debt, this still adds up to $131 billion nationwide[1].

Private lenders don’t generally offer the kinds of debt relief programs and income-based advantages that come with federal loans, so refinancing your private loans can be a great way to save money and reduce your monthly payments.

It’s possible to have a mixture of private and federal student loans. If so, you can always refinance your private loans and retain the advantages of your federal loans.

When Should I Refinance Private Student Loans?

If you decide to refinance your student loans, you’ll want to ensure you do so at the right time. Here are some tips to help you determine when to refinance your student loans.

  • After You Graduate – Some lenders require that you complete your degree before refinancing your student loans. Yes, that means completing graduate school before refinancing your Bachelor’s degree. You generally won’t have to worry about student loans until after you graduate, so you can afford to wait.
  • When You Have a Steady Job – Once you have a steady job — one that you intend to maintain for several years — you’ll be in a good financial position to repay your loan. Having a steady income may also help you meet eligibility requirements for favorable interest rates.
  • When Your Credit Improves – Your credit score is one of the most important factors when it comes to your interest rates. Only consider refinancing once your credit score improves. According to CNBC, the baseline credit score for refinancing is 670, so this might be a goal to shoot for when you’re considering your options[3].
  • When You Have Many Private Loans – Refinancing can also help you consolidate multiple loans. The lender will repay your existing loans and replace them with a single payment, making it easier to manage your bills.
  • When You Have a Variable Interest Rate – Some loan programs come with a variable interest rate. That’s good news in low-rate environments, but it isn’t the best idea long-term. Locking in a low, fixed interest rate can help you save money as well as provide reliable monthly payments.
  • When Your Balance Is High – The sooner you refinance, the more you’ll benefit from a lower interest rate. But some lenders might have specific requirements about your minimum balance, sometimes specifying as much as $10,000 before refinancing is possible. You’ll have more options if you shop for lenders while your student loan balance is high.

When NOT to Refinance Your Student Loans

It’s better not to refinance your student loans when:

  • You have federal student loans
  • You don’t have a stable job
  • You haven’t graduated yet
  • Your credit score hasn’t improved
  • Nationwide interest rates haven’t improved
  • You’re behind in your payments

For example, if you’re late in your payments or default on your existing loan, you won’t be able to obtain a new loan. You’ll be better off simply working with your current lender to pay off your loan or waiting until your circumstances improve.

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