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10 Questions to Ask Before Refinancing Student Loans
Updated On January 13, 2022
Editorial Note: This content is based solely on the author's opinions and is not provided, approved, endorsed or reviewed by any financial institution or partner.
Should I refinance my student loans?
It’s a popular question on Google that many student loan borrowers ask.
Student loan refinancing is a smart strategy to get a lower interest rate, lower your monthly payment and save money. Many borrowers consider student loan refinancing to be the best student loan repayment strategy.
Before you decide to refinance your student loans, it’s important to ask these 10 questions:
- Why should I refinance student loans?
- What interest rate can I get?
- What credit score do I need to refinance student loans?
- What income do I need to refinance student loans?
- Can I lower my student loan payment?
- Should I refinance federal student loans?
- Do I need a cosigner?
- Is there a cosigner release option?
- How many lenders should I apply to?
- Can I refinance my student loans more than once?
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Disclosures: SoFi | Earnest | NaviRefi | ELFI | Splash Financial | Citizens | Laurel Road | LendKey
1. Why should I refinance student loans?
Why should you refinance student loans? There are many advantages of refinancing student loans. First, you can get a lower interest rate. Second, you can lower your monthly payment. Third, you can pay off student loan debt faster. Make sure you understand your goals before you decide to refinance student loans.
2. What interest rate can I get?
When you refinance student loans, your first question may be: What interest rate can I get? You can compare the latest rates for student loan refinancing on Mentor Money.
There are many factors that determine your interest rate. Lenders will evaluate your credit score, income, monthly cash flow and debt-to-income ratio, among other criteria. Your interest rate also depends whether you choose a fixed or variable interest rate. A fixed interest rate means your interest rate will not change during the term of your student loan. A variable interest rate can increase or decrease during your loan term. Typically, a variable interest rate is lower than a fixed interest rate. If you choose a shorter loan term such as a 5-year loan term, you can get a lower interest rate. In contrast, a 20-year loan term, for example, typically has a relatively higher interest rate. Finally, your credit and income profile may affect your interest rate.
Most lenders will let you check your interest rate for free within about two minutes. This process is known as a soft credit check, which doesn’t impact your credit score.
3. What credit score do I need to refinance student loans?
You may be wondering what credit score you need to refinance student loans. Each lender has its own criteria for student loan refinancing. Some lenders have no minimum credit score. Other lenders have a minimum credit score of at least 650. Most borrowers who are approved have a credit score above 700. Lenders want to ensure that you have a history of financial responsibility, including on-time payments. This helps lenders ensure that you can pay off your student loans responsibly. The lowest interest rate often is available to the borrower with the best credit score, which is typically 750 or higher.
4. What income do I need to refinance student loans?
You also may be wondering how much income you need to refinance student loans. The good news is that most lenders don’t require a minimum income level. Rather, lenders want to ensure that you have enough monthly cash flow to pay your living expenses and monthly debt obligations. Other lenders may specify a minimum required income. A debt-to-income ratio may be a better metric on which to focus. This ratio evaluates the relationship between your monthly debt payments and your income. Your goal is to have as low a debt-to-income ratio as possible.
5. Can I lower my student loan payment?
Student loan refinancing is a smart way to lower your student loan payment. There are several ways to lower your student loan payments. The best way to lower your monthly student loan payment is to get a lower interest rate. The most popular reason to refinance student loans is to get a lower interest rate. With a lower interest rate, your monthly payment can decline, which helps you save money. Alternatively, you could choose a longer student loan repayment term. For example, if you choose a 20-year repayment term, you could get a lower monthly payment. However, a longer student loan repayment period also could cost more money since more interest can accrue.
6. Should I refinance federal student loans?
Student loan refinancing is available for both federal student loans and private student loans. You can refinance federal student loans, private student loans or both. If you have federal student loans, there are several considerations. First, if you’re struggling to pay off student loans, determine if you think you’ll need an income-driven repayment plan. To qualify for an income-driven repayment plan, you will need a federal student loan. Similarly, the Public Service Loan Forgiveness program requires federal student loans. If you plan to participate in either of these options, you may choose to keep your federal student loans outstanding and only refinance private student loans. However, if you don’t need these options or other federal student loan benefits such as forbearance or deferment through the federal government, then you could refinance both your federal student loans and private student loans.
7. Do I need a cosigner?
Many borrowers ask whether they need a cosigner when they refinance student loans. A cosigner is someone such as a parent or spouse that takes equal financial responsibility for your student loans. A qualified cosigner can help you get a lower interest rate and help you get approved for student loan refinancing. Student loan refinancing lenders prefer cosigners with a good to excellent credit profile, stable monthly income, a low debt-to-income ratio and strong monthly cash flow. There is no requirement to have a cosigner when you apply to refinance student loans. However, it’s possible that you can strengthen your chances to get approved for student loan refinancing.
8. Is there a cosigner release option?
If you decide to use a cosigner when you apply to refinance your student loans, some lenders also may offer a cosigner release option. A cosigner release option helps you release your cosigner from financial responsibility for your student loans. After you refinance, you can ask your lender for a cosigner release. Importantly, not every lender offers a cosigner release option. Each lender may have certain requirements for a cosigner release so make sure you understand the requirements. It’s also possible that you don’t need a cosigner release and can continue to pay off your student loans even if you still have a cosigner.
9. How many lenders should I apply to?
After you compare the student loan refinancing lenders on Mentor Money, you can apply to as many lenders as you prefer. To increase your chances of approval, you should apply to multiple lenders. The good news is that multiple applications typically only count as a single credit inquiry. For example, if you submit five student loan refinancing applications within one week, a credit bureau would count only one inquiry on your credit report or credit score. Plus, the more lenders you apply to, the more you can compare interest rates and loan terms.
10. Can I refinance my student loans more than once?
Yes, you can refinance your student loans as many times as you would like. If you can find a lower interest rate, it may make sense to refinance your student loans again. Student loan refinancing has no fees, so it won’t cost you money each time you refinance.
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