Refinancing student loans can help you lower your costs over time, or make payments more manageable. But if you’ve already refinanced once, you might be wondering if you can do it again, or if there’s a limit as to how often you can refinance those loans to score lower rates.
In fact, there’s no limit to the number of times you can refinance your education debt, assuming you maintain eligibility. With that said, refinancing a second or third time could be the wrong decision, particularly if you can’t lower your interest rate or if extending your loan term increases the total cost of repayment.
Here’s what you should know:
- How often you can refinance
- Student loan refinancing basics
- Pros, cons of refinancing
- How to decide whether to refinance
How often you can refinance student loans
If you have private student loans, you can typically refinance them with the same or a different bank, credit union, or online lender without giving up any borrower protections. However, if you switch lenders, you might give up certain, lender-specific discounts or perks.
And there’s no formal limit on how many times you can refinance. So, if you’re able to build up your credit or otherwise improve your creditworthiness after an initial refinance, you may be able to score more savings by refinancing those loans a second, or even third time.
The key here is to understand your goals. For example, if you’re looking to maximize your savings, a lower interest rate or shorter repayment term may make sense. But if you’d prefer to lower your monthly payment, you may be willing to go with a longer repayment term. Either way, one bonus here is that student loan refinancing is fee-free. And many lenders offer an auto-pay discount.
| Tip: To qualify for student loan refinancing, you’ll need to have solid credit, as well as a good income and payment history. The best way to understand your options, including rates and terms, is to compare top refinancing lenders and get prequalified. That way, you’ll be able to see potential refinancing terms without impacting your credit. |
What affects how often you can refinance?
The main factor that will impact your ability to refinance — whether it’s your first time or not — is qualifying. In general, lenders look at factors like your credit score, income, and debt.
You’ll want to get your credit score as high as possible, but lenders typically want to see scores that are in the high 600s (at minimum). A score in the 700s and above is what’s required to access the lowest rates advertised by lenders and refinancing companies.
Reducing your revolving debt, signing up for autopay on debt payments, and asking for higher credit limits can help you qualify. You can also monitor your credit score by signing up for a free monitoring service, requesting your free annual credit report from one of the three major credit bureaus, or your credit card company may offer it for free.
You’ll also want a debt-to-income (DTI) ratio that’s below 50%. (You can calculate this by dividing your monthly debt payments by your pre-tax monthly income.) So, again, reducing your debt is a helpful step to qualify for refinancing, if you can manage it.
Brushing up on student loan refinancing basics
In case you need a refresher course, student loan refinancing lets you take one or more existing student loans and move them to a new lender with new terms. By going with a lower interest rate or shortening your repayment period, you can potentially save money on those loans. But there are potential downsides you should be aware of, especially if you have federal loans.
In fact, refinancing federal student loans would mean giving up borrower protections (like income-driven repayment, more generous forbearance and deferment options, and even loan forgiveness). Those programs can be extremely helpful should you hit a financial rough patch later on. So, you should seriously consider the consequence of giving them up before refinancing any loans from the Department of Education.
There’s also a big difference between Direct Consolidation Loans — which are offered by the federal government and maintain (or even extend) federal loans’ status and protections — and student loan refinancing, which is done via private lenders.
If you’re interested in consolidating your federal loans, the federal government offers the option to bundle those loans. This would mean you’d only have one payment, and your new fixed interest rate would simply be an average of your existing rates (even if they’re variable), rounded up to the nearest one-eighth of one percent. While there’s not typically going to be interest-rate savings, it can be a more convenient way to pay. It may also result in a lower monthly payment — but keep in mind that would only happen if your loan term is extended, meaning you’d pay more overall.
If you’re looking to refinance private student loans, though, you can technically do that as many times as you want. Just keep in mind that you’re essentially taking on a new loan, so qualifying (and the impact to your credit) are likely going to be the main factors which dictate how often you can refinance.
Pros and cons of refinancing student loans
Refinancing student loans isn’t right for everyone. And, aside from meeting the sometimes-stringent qualification requirements, there can be some downsides you need to consider — even if you’re not looking to refinance federal loans.
“If your private student loans are the oldest debt in your credit history, then paying those off through a consolidation could shorten your credit history and have a negative impact on your credit score,” says Dan Rooker a CFP and consultant at Student Loan Planner, a company that helps borrowers get out of student loan debt. “However, there are other criteria that go into your credit score, like missed payments or defaulting [on the debt], that usually have a much larger negative impact than the length of credit.”
On the other hand, refinancing is typically fee-free, unlike loans that carry origination and other fees. So, your real “cost” is going to be the time you invest in looking for a new lender, Rooker adds.
Here’s a quick overview of what you should know before you apply:
Pros
- No fees to refinance
- Switch to a friendlier lender
- Release the cosigner on your original loans (if you qualify)
- Can help you save money if you nab a lower APR
- Can help you optimize your payment amount
Cons
- Forfeiting government-exclusive borrower protections (when refinancing federal loans)
- Refinancing multiple times can increase your loan term, costing you more in interest
- Being locked into a loan term (unless you refinance again)
How to decide whether refinancing is right for you
Refinancing can be extremely helpful, but think about the kind of loans you have (private or federal), as well as the associated pros and cons of refinancing those loans, before deciding if it’s the right call for you.
But Rooker, the CFP, offers a general rule of thumb to get you going:
“If you have private student loans, refinancing could be an opportunity to get a lower interest rate, pick a different repayment period, or lower your month-to-month debt-to-income ratio,” he says. “If you have federal loans, first explore the federal repayment plans to see if there’s a better way to tackle your student debt.”
| Tip: The COVID-19 moratorium on federal student loan repayment is slated to end 60 days after June 30, 2023, if litigation around mass forgiveness isn’t resolved by that date. Before refinancing federal loans, it’s likely best to exhaust your eligibility for the moratorium and potential forgiveness options. Talk to your federal loan servicer to understand the options available on your government-held education debt. |
If you only have private loans to refinance, then seeing if you prequalify for your desired rates and terms is worth a shot. That way, you’ll be able to decide if it’s truly worth it for you, based on more concrete numbers.