Student Loan Debt

Refinancing Student Loan Debt

Z - RefinancingWhen was the last time you took a close look at your student debt? If you’re like most borrowers, particularly those with six figures of student loan debt from graduate school or MBA programs, you probably shudder at the thought.

Chances are, you set up a loan repayment plan after graduation and figured you’d revisit it “later”—say, when you’re making more money, when your career is more secure, when you have more time.

With the skyrocketing price of advanced education, the recent graduates owe lots of money.

          Average Principal Loan Balance

Dental school grads                                        $200,078

Medical school grads                                      $169,775

Law school grads                                            $100,454

Veterinarian school grads                               $ 68,598

This approach is understandable, since after receiving your undergraduate or graduate degree your focus is on other things (like building a career that will help you pay off your loan balance). But if you let that nebulous “later” date turn into “never,” the repercussions can be costly. At some point, refinancing your student loans could save you a significant amount of money. You just need to figure out if you’ve reached that point.

So how do you know when it’s time for a student loan debt check-in? Here are four factors that should prompt a second look:

  1. Your current student loans have high interest rates.

The first thing you should look at is the interest rate that you’re paying on your student loans, particularly federal (direct) unsubsidized loans, federal Graduate PLUS loans and/or private loans. These loans tend to have higher interest rates than federal subsidized student loans, and you may be able to find a lower interest rate private loan option.

Depending on how high your loan balance is and how much you can cut that interest rate, your cost savings can be significant.

  1. Your financial situation has improved since you took out the loans.

You were likely a starving student when you first applied for your student loans, but ideally your financial situation has improved with time. This is great news for your bottom line, because a higher credit score and income level are key to helping you qualify for a lower interest rate.

And if you expect to stay on an upward financial trajectory, you might even consider refinancing with a variable rate student loan. Variable rate student loans typically offer lower interest rates than fixed rate loans; however, the rate is tied to prevailing interest rates, which are very low today but should go up over time. The upshot is that these loans are usually best suited for qualified borrowers who intend to pay off their loans at a relatively fast pace.

  1. You don’t get any advantages from federal student loan benefits.

Certain types of federal student loans offer perks that should not be overlooked before considering refinancing. If you’re a borrower who is a teacher, enters the military, or goes to work in the public sector, you’ll want to read the fine print on your federal loans to see if you qualify for federal student loan benefits (such as potential loan forgiveness) before you consider refinancing.

Some federal loans can also offer relief for borrowers that experience financial hardships (such as loan deferment and graduated/income-driven repayment plans). If you expect your income to be unpredictable, it’s usually a safer bet not to refinance federal student loans that are eligible for these benefits. But if you aren’t able to take advantage of any of these federal student loan benefits listed above, refinancing could be a good option.

  1. You’re about to take out a loan for a mortgage or other large purchase.

For loans like mortgages, lenders will take a look at your FICO score/general credit rating before moving forward with your application. To get the best interest rate on a mortgage, you’ll want to improve this score as much as possible before proceeding. Buying a new home or taking out another loan for a large purchase could be a good time to refinance your student loans for a lower interest rate, because it could help you get into better financial standing to get a good rate on loans like a mortgage, too.

If you’ve answered yes to these four questions, you may be a good candidate for student loan refinancing. The next step is to do a little research by checking out several private loan providers to compare interest rates and other features.

The market leader for student loan refinancing is SoFi.  We recommend you start there as there.  They offer rates as low as 2.615% APR for variable, and 3.35% for fixed rate loans.