Student Loan Refinance

On April 6, 2022, the U.S. Department of Education extended the student loan payment pause through August 31, 2022, granting immediate financial relief to thousands of borrowers with eligible federal student loans. This payment pause allows the suspension of student loan payments, introduces a 0% interest rate, and stops collections on defaulted student loans.

Borrowers with existing federal student loan debt should check to see if their loans are affected by this payment pause before making a refinance decision. Although refinancing can help borrowers secure a lower monthly payment or interest rate, it may also offset the temporary benefits awarded by this pause.

The real answer is — it depends.

If you are currently making payments on your federal or private student loan debt and your interest rate is on the higher end of today's rate ranges, you may benefit from a refinance. If approved, you can potentially lower your monthly payment, secure a lower interest rate, and find a repayment plan that works better for you.

However, if you have an eligible federal student loan that is affected by the student loan payment pause, you may be better off waiting until the 0% interest rate falls off and the repayment period reopens. Every situation is different, so it is important to consider all of your options before making a decision.

The decision between fixed and variable APR loans should depend on each borrower's risk tolerance. 

Fixed APR loans generally start higher than their variable APR counterparts but allow borrowers to lock in their rate for the life of the loan. This is usually the preferred option for risk-averse borrowers and individuals that do not like change. Variable APR loans tend to start lower than fixed APR options but can fluctuate throughout the life of the loan. Fluctuations can either be in your favor or detriment, so you need to be mentally and financially ready to adjust to rate changes.

Interest rates have been on the rise in the last few months, but there is no way to know if this trend will continue. Rates are still lower than they have been in quite some time and refinancing is still a great option for many borrowers.

A credit score in the mid-to-high 600s may be enough to qualify for a refinance. Typically, refinance lenders will try to find borrowers with credit scores in the mid-700s, with each lender setting its own minimum requirements. But it's important to understand that the applicant's credit score will not be the only thing considered. Lenders will likely also consider factors like the applicant's income, outstanding debt, and other factors to gauge the applicant's ability to repay debt obligations.

To get more information on credit score requirements, please contact your lender directly.

Student loan consolidation will combine multiple federal student loans into one simple monthly payment. It also allows applicants to effectively keep their existing rates (using a weighted average from the combined loans). This type of consolidation is limited to federal loans but allows you to keep your federal benefits as well.

Student loan refinancing has a much broader scope and allows you to consolidate both private and federal student loans, get a lower interest rate, and select more suitable repayment terms. Borrowers can also refinance a single loan to get more favorable terms on their existing student loan debt.

Refinancing is a great option for individuals with good/great credit and income, as lenders will consider your overall creditworthiness, income, and other factors included in your loan application. Please keep in mind that federal benefits may be lost if you refinance your federal student loans.