Should You Refinance My Student Loans?

Whether you have student loans or not at this point you've received an email, call, or ad about refinancing your student loans. If you have student loans the option of refinancing may seem like a good idea, let's find out if it is?

What It Means To Refinance?
The most simple way to explain refinancing is a company will pay off the balance of your current loans so you can take out a new loan with them for the same amount at a lower interest rate. The reason a company would do that is because they want to collect on your interest payments for the next 10 - 20 years.  A classic win - win. Well kind of.. you still have to pay off your loans.

When It Makes Sense to Refinance
Before we even look into whether you should refinance, if you are going to try and get student loan forgiveness know the guidelines of that program. I have a post about student loan forgiveness so you can check those out. 

The concept of refinancing is great because you should be lowering your current interest rate, meaning you have a lower monthly payment. Plus, most companies will offer a sign up bonus of a couple hundred dollars and you should be using that toward your loans. Don't be an idiot!

If you have looked at the student loan forgiveness programs and you don't qualify or it doesn't look appealing you should refinance. 

If you have less than $50,000 in student loan debt or have 1.5x your income, while working in the private sector (a for profit company), it will be best to refinance.  You'll need to become more frugal (don't get a car payment, choose happy hours over fancy dinners) and aggressively pay off you loans. It will also help if you refinance every couple of years. Get a 10 year plan with a sign up bonus, then again at 7 years with a bonus and repeat. 

If the balance is between 1.5x and 2x you need to weigh your options on which would be best for you.

For those student loan debts that are above 2x your income, with no potential of significant growth above inflation, you may want to look into the 20 year student loan forgiveness plan. ​

When You Shouldn't Refinance
If you are going to apply for student loan forgiveness DO NOT refinance your loans. 

If the government is going to give you loan forgiveness they want to be the ones receiving your interest payments in the mean time.

I applied for, and got, student loan forgiveness which meant I had to suffer through interest rates from  6% all the way up to one at 7.9%. Naturally those were the first ones I targeted when reducing my balance. 


Hopefully this helps and if you have any questions feel free to reach out!