You can refinance your student loans as often as you’d like.
Refinancing typically doesn’t carry any origination fees or other costs, and student loans don’t come with prepayment fees. If you can find a lower interest rate, you can save yourself money each time.
Benefits of refinancing
Refinancing means you combine your student loans into a new private loan with a lower interest rate. A lower rate will save you money over time by decreasing the amount you pay in interest. If you refinance again at an even lower interest rate, you can save more.
For example, say you graduate with an existing debt of $40,000 at a 7% interest rate. You’ll make $464 payments every month for 10 years and pay $15,732 in interest by the time the loan is repaid.
A lower rate will save you money over time by decreasing the amount you pay in interest.
Refinancing that loan immediately at an interest rate of 5% would save you $40 a month and $4,821 in interest over 10 years. If you then find a better rate at 4% and refinance the loan a second time, you’d save an additional $20 a month and $2,313 in interest over 10 years.
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If you have federal loans and are struggling to make consistent payments, refinancing is not for you. Instead, consider federal student loan consolidation or an income-driven repayment plan.
How refinancing can affect credit
It’s in your best interest to shop around for the lowest rates possible. No two lenders have the same underwriting criteria, and each may offer the same customer a very different rate.
But shopping around requires some caution, because lenders do a “hard” credit check before approving each new loan — and often just to show you rates for which you qualify. A hard inquiry represents an application for credit; too many inquiries can lower your credit scores.
It’s best to limit your shopping to a short window of a week. Multiple hard inquiries — “rate shopping” — for big loans such as student loans, cars and mortgages are treated as a single inquiry if done over a very short period.
It’s best to limit your shopping to a short window of a week.
These checks will stay on your credit report for about 24 months, but after 12 months they won’t impact your credit.
How big a hit you’ll take from a hard inquiry depends on your credit history. People with short credit histories or few accounts are likelier to feel the impacts of hard inquiries. Those with extensive credit histories won’t see much of a negative effect from hard checks, if it affects their credit scores at all.
Listen: SmartMoney podcast on student loan refi
How to refinance student loans
To refinance your student loans, you’ll need to have a credit score in the high 600s or above and a solid income. If you have low income or just OK credit, you may need a qualifying co-signer. If you’re facing financial difficulties, refinancing isn’t your best option. Instead, speak with your lender or servicer about other ways to lower your payment or interest rate.
» COMPARE: Refi offers from multiple lenders
Down the road, when your credit improves, you can investigate refinancing again.
You can choose to refinance both your private loans and your federal loans. If you refinance your federal loans, you’ll miss out on loan forgiveness and income-driven repayment options.
You can refinance with a bank, credit union or online lender. But you don’t have to stick with the same lender every time you refinance.