Is it smart to refinance student loans right now?
And that's what borrowers should keep in mind: While it's not the best time to refinance right now, student loan rates likely won't be this high for long. If the Fed lowers interest rates in 2024, expect refinance rates to come down as well.
Federal Student Loans
Interest began accruing again in September 2023 and payments restarted in October. If you're dealing with high interest rates on your federal student loans, refinancing is one strategy that could help. Borrowers with strong credit scores may be able to snag a better rate through refinancing.
Education Refinance Loan Rate Disclosure: Variable interest rates range from 7.29% - 12.43% (7.29% - 12.44% APR). Fixed interest rates range from 6.99% - 10.98% (6.99% - 10.99% APR).
Refinancing your student loans means spending less money on interest over time and, thus, putting more money back into your pocket. For this reason, the best time to refinance your student loans to maximize your savings is as soon you graduate. Of course, it's not quite that simple.
Refinancing may lengthen your timeline for paying off loans: Refinancing your student loans when you are already halfway through paying them off may give you lower monthly payments for the rest of the term, yet it may stretch out the amount of time it takes to pay them off completely.
You generally can't or shouldn't refinance if: You have federal loans and could see a drop in income. If there's a chance your income could decrease, don't refinance federal student loans. You'll miss out on federal student loan relief options, as well as government programs like income-driven repayment.
Con: You lose all federal benefits and protections
When you refinance federal student loans, you're essentially swapping them for private loans, which can result in the loss of certain federal benefits and programs.
The act of refinancing means you are applying for a new loan, so there will be a 'hard credit inquiry. ' Any hard inquiry will have a temporary, and negligible, impact on your credit score. Typically your score will drop by five points or less, but if you submit a number of applications it might drop more.
When you refinance federal debt, you lose access to government programs, such as income-driven repayment plans, student loan forgiveness, and deferment and forbearance. That said, if you're nearing the end of your repayment term and see a lower rate, refinancing your federal loans could save you money.

If you signed up for a Sallie Mae loan when you entered college, you may have a high interest rate because you were a college student with no credit history and no full-time income. If you have a stable job and a good credit score now, you'll likely be eligible for a lower interest rate.
What is a good credit score to refinance student loans?
The credit score you need to refinance your student loan varies by lender but is often 680 or higher. The higher your credit score, the better your chances of qualifying for a loan with a lower rate. In addition to your credit score, lenders consider other factors, like your DTI and repayment term.
Which is better for you? Refinancing is your best option to save money while consolidation is your best option for maintaining federal loan benefits.
If your variable interest rate increases, your loan will accrue more interest and you'll probably have to make a larger payment each month.
If you lock in a lower interest rate, your monthly payments will be reduced. If you change the term of your loan (say, from 30 years to 15 years) your monthly payment amount will likely increase, but you'll make fewer interest payments throughout the life of your loan.
A lender may reject your application if it believes that your income is too low or unstable to handle the payments on a new loan. Having some recent instability in your job can also make it difficult to get approved.
Consolidating student loans can both positively and negatively impact your credit score. It can simplify repayment, possibly lower interest rates, and improve credit scores over time with on-time payments.
You typically need a credit score in at least the high 600s to qualify, and average interest rates for a refinance range from around 5% to more than 9%. Consider private student loan consolidation if you have: Existing private student loans. Good or excellent credit, generally defined as credit scores of 690 or higher.
The average credit score for approved Sallie Mae borrowers is around 748 for undergraduate student loans. That's pretty high – but don't panic if your credit score is much lower than that. You'll need a minimum credit score (or have a cosigner with a minimum credit score) that is somewhere in the mid-600s.
If the loan is paid in full, the default will remain on your credit report for seven years following the final payment date, but your report will reflect a zero balance. If you rehabilitate your loan, the default will be removed from your credit report.
Drawbacks of federal student loans
Interest could capitalize when you're not making payments: For most federal loans (except Direct Subsidized Loans), interest starts accruing from the time the funds are distributed. This means you will accrue interest while in school if you don't make payments on your loans.
How to get a lower student loan refinance rate?
Refinance your existing student loans
If you have good to excellent credit (usually meaning a credit score of at least 670), you might be able to get a lower interest rate — and therefore save money — through refinancing. You can also opt to switch from a variable rate to a fixed rate (or vice versa) by refinancing.
You can't change the type of interest rate (fixed or variable) that your private student loan has once it's certified (approved) by your school. But there are some things you can do to lower your total loan cost. Take advantage of discounts your lender offers, like Sallie Mae's discount for enrolling in auto debit.
While federal loans are usually a better deal, many people turn to private lenders for additional funding. Private student loans, including refinance loans, usually require a credit score of at least 670.
A good credit score for college students — and for anyone — would be anything 670 or over. Anything over 739 is considered 'very good,' and 800 or higher is considered 'excellent. ' However, students with scores lower than 670 shouldn't feel discouraged.
There is no limit on how often one can refinance. Taking this step makes the most sense when your finances or credit score improves or interest rates decline. Under these circumstances, it's possible to save thousands of dollars in interest by lowering your interest rate just a few percentage points.
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