Flickr user Pete B.
For many students, one of the more popular reasons to refinance is to save money on student loans, but as with most student loan options, it should be chosen carefully. Refinancing can help you improve your current financial situation but only if you refinance student loans at the right time.
When to Refinance Student Loans
The best time to consider refinance (and consolidation) your student loans is after you have started earning a stable income and you have managed to build your credit history. Lenders offer better interest rates to borrowers who meet these two requirements. The earlier you refinance your loans at a lower rate of interest, the more you will save in interest payments.
However, this can take a few months to a year after graduation as you have to wait till you start earning a steady income and have had some time to build your credit history. You will find it difficult to refinance immediately after graduation and even if your request is approved, you will pay a much higher student loan interest rate, which may not be worth it.
Understand the Downside of Refinancing
Refinancing is only done by private lenders. This means if you choose to refinance your loans you will lose access to all benefits associated with federal loans such as student loan forgiveness programs and income-driven repayment plans. If you are eligible for these benefits and wish to use them, then refinancing is not the right option for you. You should choose to refinance your federal student loans only if you are sure you will not want either of these two options.
