Can You Refinance Student Debt Before You Graduate?
An increasing number of student borrowers are looking for payment relief by reducing their interest costs through student loan refinancing. The question is, can you refinance your student loans before you graduate? The answer is yes.
Below, you will see why it may make sense to refinance before you graduate and what to keep in mind before doing so.
On this page:
- What to consider when refinancing before graduation
- Income-driven repayment is an alternative
What to consider when refinancing before graduation
When you refinance student loans, you are taking out a new loan with new loan terms through a private lender. Oftentimes, the goal of refinancing is to lower your interest rate, therefore decreasing the overall cost of your loan.
For example, if the average rate on your existing student loan balance of $50,000 is 7% and you can reduce it to 5% through refinancing, it could save you around $50 a month over a 10-year repayment period, or more than $6,000 over the life of the loan. That’s money that can be put towards buying a car or a house, saving for retirement, or starting a family.
If you have federal student loans, refinancing them with a private lender will remove borrower protections such as income-driven repayment plans and the potential for loan forgiveness. Make sure to consider whether sacrificing these benefits is worth it.
In addition to the loss of federal benefits, private lenders have difficult eligibility requirements for students who have yet to complete their degrees. These requirements can include an established credit history, steady income, and a low debt-to-income ratio amongst other things.
Since most students can’t meet these requirements, a cosigner will be necessary to receive approval. Your cosigner should have a strong, established credit history, and a steady income at the minimum.
Income-driven repayment may be an alternative
These plans factor in your discretionary income to reduce your payment amount so it is more affordable. You don’t save anything in interest costs, but it makes the loan more manageable.
Once you are on one of the income-driven repayment plans you are also eligible for loan forgiveness after 20 or 25 years depending on the plan.