Refinancing your student loans just once could help you save thousands of dollars in interest over the life of your loan. Even better, refinancing your student loan debt again could help you save even more. But how often can you refinance student loans? The answer might surprise you.
Here’s everything you need to know about how often you can refinance your student loans.
How refinancing works
When you refinance your student loans, you work with a private lender to take out a new loan and pay off some or all of your current federal or private student loan debt. The new loan typically has different terms than your previous loans, including a new loan term and interest rate. If you qualify for a lower rate on your refinancing loan, you could save a significant amount of money.
Example: Let’s say you have $35,000 in student loans at a 7% interest rate, and you have 10 years left to repay that debt. If you refinanced and qualified for a 10-year loan at 5.5% interest, you’d save $3,185 over the length of your repayment plan. That’s a significant difference, and that’s with a relatively modest reduction in interest rate.
Tip:
Use a student loan refinancing calculator to find out how much you can save through refinancing.
How often can you refinance?
While many people do a student loan refinance just once, there’s no limit to how often you can refinance your student loans. If you want to refinance twice or even more, you have the ability to do so. And in some cases, refinancing again can help you save even more money than you did when you originally refinanced your student loan debt.
Example: Let’s say you waited two years until your income increased before deciding to refinance the above loan a second time. For the new loan, let’s say you qualify for a five-year loan at a new interest rate of just 4.5%. With a shorter loan term and a lower rate, you would save $6,431. That means you’ll have saved nearly $10,000 by refinancing your loans twice.
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Is it bad to refinance student loans multiple times?
There’s nothing wrong with refinancing your student loans multiple times, assuming you’re getting a lower interest rate, better monthly payment, or other perk. You might be able to refinance with your existing lender, or apply for a refinance with a different one. (Some lenders may limit the amount of times you can refinance within a certain time frame.)
While prequalifying with multiple lenders to see potential new rates typically won’t hurt your credit, keep in mind that completing an official refinance application will involve a hard credit check. Too many refinance applications in a short period of time can trigger multiple hard inquiries, which can take a slight toll on your credit.
And if you have federal loans, think very carefully before refinancing them with a private lender. If you do this, you’ll lose access to the benefits and protections that come with federal student loans, such as income-driven repayment plans, generous deferment and forbearance, and federal loan forgiveness.
Pros and cons of refinancing more than once
Below are some pros and cons of refinancing your student loans more than once:
Benefits
- Potential to continue lowering your interest rate over time
- Change your repayment terms to suit your current financial situation
- Potentially save more money over the life of your loan
Drawbacks
- Refinancing federal loans means losing access to federal benefits
- You may not qualify for a refinance loan if you have adverse credit
- Submitting too many refinancing applications in a short period of time may negatively affect your credit
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4 things to do before refinancing again
Before refinancing your loans for a second or third time, take these steps:
1. Review your interest rate
Refinancing can help lower your interest rate, but there are limits to how low you can get it. Review your interest rate — and compare quotes online — to see what rate you can qualify for before submitting your application.
2. Check your credit report
Before applying for another refinancing loan, review your credit history and report for free at AnnualCreditReport.com. If your account is in good standing — meaning you haven’t missed a monthly payment, and you’ve paid down debt since you last refinanced — you’re more likely to qualify for a loan with a much lower interest rate.
3. Consider your finances
If your income has gone up, you’re more likely to qualify for a low-interest refinancing loan than you were before. A jump in salary, for example, could help you score a lower rate and save even more money than you did previously.
Another thing to consider is any credit card debt you may have. Before refinancing, consider paying off your credit card debt since it typically comes with higher interest rates than your student loans. Plus, this will help reduce your debt-to-income ratio (DTI) which, in turn, could reduce your refinancing interest rates.
4. Read the fine print
You have the legal right to pay off your federal or private student loans ahead of schedule, without being charged a prepayment penalty. While many lenders don’t have origination fees, some do — and those fees could negate your savings from refinancing. Do your research and make sure your new refinancing lender doesn’t charge an origination fee.
Check Out: Should I Refinance My Student Loans?
