Though your student loans might feel like a ball and chain that's constantly following you around and dragging you down, that doesn't have to be the case. You're not stuck with what you've got. Many people don't realize you can refinance student loans to modify payments and improve terms. Timing is very important when you're considering refinancing your student loans. Following are six signs that the time is right for you to consider a student loan refinance.
1. Your Credit Score Has Improved
It's likely that as you've grown older, your credit score has improved. Having a stable job usually makes it easier for most people to pay their bills on time and afford the things they need. You're no longer a college student maxing out your credit cards and borrowing money from your parents to pay the minimum balance. If your credit score has in fact improved over the years, you can probably negotiate better terms on your student loan debt by refinancing.
2. The Interest Rate Is Lower
A lower interest rate is a clear sign that it might be a good time to refinance student loans. Just be wary of the fine print before you sign anything. In some cases, there might be fees involved that could make the loan refinance actually cost more money than your current debt. Also, note that variable interest rates will always be lower than fixed interest rates. You need to decide if you are willing to take a risk on the rate's fluctuation. If you are planning to pay off your debt in a short period, taking a chance could be worthwhile.
3. You No Longer Need Government Assistance Programs
The U.S. government and Department of Education don't offer refinancing programs. So, if you have a federal loan that you want to refinance, you will need to refinance your debt into private loans. That means you lose eligibility for government assistance programs like certain deferments, income-based repayment options, and student loan forgiveness. If you are in a comfortable place financially and feel confident you will not need to take advantage of these benefits, switching your federal loans to private might be the right move if you're after a lower interest rate.
4. You Want to Repay Your Loan Sooner or Later
Life happens, and there are some circumstances when you might need more time to pay off your student loan, or you might want to get it paid off sooner. In these situations, refinancing could be a good option. Though you typically can pay more than the minimum balance due each month with no penalty, if you refinance your loan to pay it off sooner, you may be able to score an improved interest rate. Likewise, if you need a little more time and want to lower your monthly payments by stretching them out, you will likely endure a higher interest rate, but that is always preferable to defaulting on the loan.
5. You Want to Lock in a Fixed Rate
If your current student loans have variable interest rates, your monthly payments can change as the rates change. For many, that uncertainty from month to month can be unsettling. Refinancing to a fixed rate loan guarantees the consistency of the rate. However, it's likely the rate will be higher than your existing variable rate loan.
6. You Want Freedom from Your Cosigner
Typically, when you first obtained your student loan, a parent or other family member with established credit had to co-sign. If you or that co-signer no longer wants to be entangled financially for whatever reason, you can refinance on your own or with a different co-signer. Keep in mind that your interest rate might rise if your former co-signer had better credit than you or than your new co-signer currently has.
As you can see, you don't need to feel stuck with your student loan debt. A successful refinance is all about timing, but it is possible to achieve improved rates and terms that work better for your current needs and lifestyle.