Maximizing the Benefits of Frequent Student Loan Refinancing: Key Considerations for Multiple Refinances
With the rising cost of college over the past few decades, more Americans have had to depend on student loans and financial aid. As of the third quarter of 2023, the Federal Reserve reports that the total student loan debt in the U.S. is over $1.73 trillion, including both federal and private loans.
More than half of the students graduating from college have debt, with the average student owing $28,950, according to Forbes. Although federal student loan payments were paused during the COVID-19 pandemic, nearly 37 million borrowers had to resume their repayment plans in October 2023.
The prospect of widespread federal loan forgiveness seems unlikely. For borrowers struggling to make ends meet and unable to use options like income-driven repayment programs or Public Service Loan Forgiveness (PSLF) plans, refinancing their student loans might be the best way to pay off debt faster and save money.
**How Often Can You Refinance Your Student Loan?**
Refinancing student loans allows borrowers to replace their existing loan with a new one from a private lender. By securing a loan with lower interest rates, you could potentially save hundreds or thousands of dollars and improve your overall financial strategy.
If you qualify for better loan rates, you can refinance your student loan as many times as you want throughout your life, although lenders might require a waiting period between closing one loan and refinancing to a new one.
**Reasons to Refinance Your Student Loan**
If you have a good credit score and a steady income, refinancing a student loan multiple times can be beneficial for several reasons. If you took out a loan when interest rates were high, want to remove a co-signer, or want to extend your repayment term, refinancing can be a smart move.
**Obtaining a Lower Interest Rate**
Refinancing to get a lower interest rate can save you money if you can reduce your rate without changing the loan term. Some lenders even offer special promotions or discounts for refinancing with them.
**Removing a Co-Signer from Your Student Loan**
A co-signer can help you qualify for private student loans if you don’t have a strong credit history. However, having a co-signer means they are equally responsible for the debt. Some private lenders allow for a co-signer release after a set number of consecutive payments, but refinancing can also remove a co-signer from your loan.
**Changing Your Loan Term**
Your financial situation can change unexpectedly. If you come into more money through a pay raise, inheritance, or secondary income, you might want to pay off your loan earlier. Conversely, you might need to extend your loan term to better fit your current financial situation. Extending the term won’t save you money and will increase the total interest paid, but it might be necessary at some point.
**What to Consider Before Refinancing Your Student Loan**
Before refinancing, ensure it’s worth it. While there are benefits, there are also important considerations.
**Are You Getting a Lower Rate?**
The main goal of refinancing is to pay less to your lender. Once you’ve secured an ideal rate, there’s little reason to refinance again unless you can negotiate better terms.
**Impact on Your Credit**
Refinancing can affect your credit score since each loan application involves a hard credit check. Too many loan openings and closings can be detrimental to your credit. However, most borrowers find their score recovers or even improves after a few months of on-time payments.
**Losing Out on Federal Student Loan Terms**
Refinancing federal student loans with a private lender means losing federal benefits like income-driven repayment plans and loan forgiveness programs. Make sure the benefits of refinancing outweigh the loss of these federal protections.