Do This if You’ve Already Refinanced Your Student Loans

Cecilia Clark
By Cecilia Clark 
Edited by Karen Gaudette Brewer

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Student loan refinance is often the best way to reduce your payment, cut total loan costs and pay off your debt faster. If you’ve already refinanced, you have a way to improve your loan even more: Refinance again.

If your goals have changed since the first time you refinanced, or if you want to get to those goals faster, refinancing student loans again can help. Depending on when you refinanced, your interest rate could be 6% or higher. Refinancing again could decrease that rate and save you money now and in the long run.

For example, if you owe $27,000 at 6% interest, refinancing to 3% would lower your monthly payments by about $39 and your overall interest costs by $4,686, assuming a 10-year repayment plan.

And with student loan refinance rates expected to rise, now may be your last chance to get a good deal. Here’s what to consider when planning your next student loan refinance.

What are your financial goals?

Whether you decide to refinance again and what kind of term you pick should depend on your financial goals.

If you need more cash on hand each month, extending your term with a lower interest rate could be best. This may also be the better route if you need to improve your debt-to-income ratio to qualify for another line of credit, like a mortgage.

If you're looking to pay off your student loans faster or decrease the amount you’ll pay overall, going with the shortest term will be your best bet. This may also be the way to go if getting the lowest interest rate is your primary goal. Lenders will typically reserve their best rate offers for those who elect the shortest terms available.

No matter which route you choose, you should refinance only if you can get a lower rate than you currently have. However, don’t be discouraged if you don’t get the lowest rate advertised. Lenders reserve their lowest available rate for those with the best financial profiles. They may also have additional criteria to qualify, such as degree attainment. According to 2021 NerdWallet survey data, only about 18% of borrowers are offered the lowest advertised rate for student loan refinance.

The beauty of refinancing multiple times is that you can continue to get a better rate as your financial situation improves.

What’s the catch?

Just as there's no real catch to refinancing, there's no catch to refinancing again. You can refinance as many times as you qualify. There are no added fees or penalties to do so.

The only potential downside to refinancing is that lenders pull your credit before final approval. This hard credit check may decrease your credit score by up to five points. That drop is temporary, though, and assuming everything else is OK with your credit profile, your score should recover within a few months.

It’s also important to pre-qualify with several lenders to ensure you get the best deal and the one most aligned with your financial goals. Pre-qualify with lenders that will give you an offer without affecting your credit.

As you get closer to your payoff date, however, you may only have options to extend your loan term. Several lenders offer repayment terms as low as five years, but few offer shorter terms.

The good thing about extending your term when you're close to payoff is your payment will probably be much smaller. The bad news is your total costs will likely increase.

For example, say you have $16,000 and three years remaining on your 4%-interest refinanced student loan. If you refinance again and get a 2% interest rate, but extend to a 10-year term, your payment will go from $472 a month to about $147 a month — a $325 difference. However, extending the loan term will cost you nearly $1,000 more overall due to interest accrual.

But if you have $64,000 and eight years left at 4% interest, you could refinance for 10 years at 2% interest and still save money: $191 a month and $4,224 in total. If you refinance for a shorter term, say, five years, you’ll save much more overall, but your monthly payments will increase. You’ll pay about $342 more each month and save $7,584 in total.

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