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Refinancing your student debt can have many benefits, including saving on interest, lowering your monthly payments, or changing your repayment terms.
With so many benefits, you might be wondering how often you can refinance your student loans and when might be best to wait. See what to consider before refinancing multiple times.
How does student loan refinancing work?
When you refinance a student loan, you take out a new loan (ideally one with lower interest rates or better terms) and use it to pay off your existing student debt. Refinancing can be a helpful way to lower your monthly payment, save money on interest, or adjust your repayment schedule.
Your first step should be to research and compare refinance lenders. Consider lenders that offer low interest rates, low fees, and perks like flexible forbearance periods or co-signer release, if needed.
Many lenders allow you to prequalify for a loan. To do this, you will provide basic information about yourself before the lender does a soft credit check. Once you’re prequalified, you can compare estimated interest rates, repayment terms, and monthly payments you may qualify for.
After selecting the desired lenders, you can submit an application online. Be prepared to provide personal information, including your social security number, driver’s license, and recent tax and income documents. If approved, your refinance lender will usually repay your old student loans directly. Once this is complete, you will begin making payments to the refinance lender.
How many times can you refinance student loans?
There is no limit to the number of times you can refinance a student loan. And since many lenders don’t charge prepayment penalties or origination fees, there’s often no additional cost associated with refinancing a student loan.
Some borrowers may refinance more than once to take advantage of low interest rates. Borrowers with poor credit may refinance their loans multiple times as their credit score improves and they become more desirable candidates.
But just because you can theoretically refinance your student loans an infinite number of times doesn’t mean you should. For example, if your goal is to save money on your student loan debt, you might prioritize refinancing to get a lower interest rate. But after a while, it may be impossible to find a lower interest rate than the one you already have. At that point, refinancing again would be pointless.
Advantages and disadvantages of refinancing several times
For many borrowers, the best part of repeatedly refinancing student loans is the ability to pay less total interest. If you can refinance at a lower interest rate, you may be able to save hundreds or even thousands in interest.
Some borrowers choose to refinance multiple times to get the lowest possible monthly payment. If you extend your repayment schedule, for example, you could reduce your monthly bill. By doing so, borrowers can free up money for other goals, such as investing for retirement, paying off high-interest debt, or saving for a home.
However, extending your repayment term generally results in an increase in interest paid over the life of the loan. A refinance calculator can help you see exactly how your debt is affected when you change your interest rate or repayment term.
Refinancing often requires a good amount of research and comparison to find the best deal. The process isn’t always worth the time and effort if you don’t save a lot of money or gain real benefits with your new loan.
Frequent refinancing can also impact your credit. Each time you submit a loan application, the lender will perform a rigorous credit check, which can negatively affect your credit score. Additionally, regularly opening and closing new loan accounts can also affect your credit in potentially detrimental ways.
When to consider refinancing again
There is no exact formula for deciding if or when you should refinance your student loans. Much depends on the interest rate you currently have, the rates currently available, and your overall financial goals.
If your financial situation has improved since your last refinance, you could benefit from it again. For example, if your income or credit has improved significantly, you may now qualify for better rates than a year ago.
More important economic trends may also influence your decision. While interest rates are generally low for all types of loans, you may find better rates now than when you last refinanced. Likewise, if rates are expected to rise soon, you can choose to refinance now to lock in a low rate.
If you previously had to use a co-signer to refinance and have since improved your credit, you can now qualify for refinancing on your own and remove the co-signer. Your loan shows up on your co-signer’s credit report, so it’s worth deleting them if you can.
What to consider before refinancing
One of the most important things to consider before refinancing is the type of student debt you have. If you have federal student loans, refinancing will convert them to private debt and you will lose all related federal benefits, including income-based repayment plans, more flexible forbearance programs, and access to education programs. loan cancellation.
Refinancing is permanent and cannot be undone. For this reason, think carefully about whether you need to refinance your federal student loans and make sure you won’t need to access these federal benefits in the future.
You should also review your own credit before refinancing. Check your credit score and see if you can qualify for a competitive loan on your own. If you need a co-signer to get the best deal, weigh the pros and cons of this strategy before moving forward.
Finally, think about your other financial goals and how refinancing might affect them. If you’re about to apply for another loan, especially a mortgage, refinancing could affect the interest rate a mortgage lender gives you. And because mortgages are so big and last so long, that interest rate difference could end up costing you tens of thousands of dollars more over the life of the loan.