Can You Refinance Student Loans While in School?

Refinancing your student loans can allow you to take advantage of certain benefits, like a lower interest rate and greater payment flexibility. In most cases, borrowers who refinance wait until after they’ve graduated. It is possible, though, to refinance before you even leave school.

Here’s what you should know about refinancing student loans while you’re still in school and whether it’s the right move for you.

[READ Best Student Loan Refinancing & Consolidation Companies]

Can You Refinance Student Loans While in School?

Refinancing student loans before you graduate is possible, but only with select lenders. Additionally, some lenders may place limitations on when you can refinance and when payments are due. Here are just a few examples:

RISLA. You can refinance and defer your loan payments until after you graduate, or you can start making payments immediately and qualify for a lower rate.

Discover. You can refinance at any time while you’re in school, but you’ll need to start making payments within 30 to 45 days after the new loan is disbursed.

Earnest. You can refinance if you’re scheduled to graduate by the next semester.

Some private lenders may allow you to refinance your loans without a degree, but you can’t be currently enrolled in school. Note that the type of student loans you currently have doesn’t matter. You can refinance both federal and private student loans while in school with the right lender.

Pros and Cons of Refinancing Student Loans While Still in School

While it is possible to refinance student loans before you graduate, there are some things to keep in mind before you begin the process:

Pros

Potential for lower interest rate. If interest rates are considerably lower than your current rate, you may be able to secure a lower rate with a refinance loan. Because interest typically accrues while you’re in school, a lower rate could save you money in the long run.

New lender. If you’ve had a bad experience with your current loan servicer or lender, refinancing can allow you to switch to a new one and hopefully get a better experience.

Different loan terms. Some private lenders allow college students to opt for interest-only or fixed monthly payments while they’re in school. Additionally, you may have decided on a variable-rate loan instead of a fixed interest rate because the starting rate was lower. If you want to change any of the terms of your loan, refinancing can allow you to do that.

Cons

No guarantees. Refinancing with a private lender typically requires good credit and solid income, both of which are difficult to achieve as a college student. Even if you can get approved, you may not qualify for an interest rate that’s low enough to make the process worth it. “If you aren’t currently working or have a limited credit history, you may need a co-signer to be eligible,” says Kendall Meade, a certified financial planner with SoFi.

Loss of certain benefits. If you have federal student loans, refinancing them with a private lender will cause you to lose access to certain benefits, including loan forgiveness programs and income-driven repayment plans. While private lenders typically offer forbearance options for borrowers experiencing financial hardship, they’re generally not as generous as the federal government’s relief options.

Payments may start immediately. Unless you find a lender that allows you to defer payments until after you graduate, you’ll need to start making payments within a month or two. This could put some pressure on your budget. “Make sure you can afford to make the new monthly payments,” says Tony Aguilar, founder and CEO of Chipper, an app that provides resources and advice to student loan borrowers, “and check to see if flexible repayment options are available.”

[Read: Best Private Student Loans.]

When Does It Make Sense to Refinance Student Loans in School?

For most college students, it usually doesn’t make sense to refinance student loans, especially if you have federal loans with a host of relief options. However, there are some situations where it might be worthy of consideration:

You’re in graduate school. As a graduate student, you may have had more time to build a credit history, and it may make sense to refinance your undergraduate loans now instead of waiting until after you complete your program.

You want to save money. If you have private student loans that require a monthly payment while you’re in school, refinancing could allow you to qualify for a lower payment amount. Additionally, you could qualify for a lower interest rate, especially if you’ve built your credit history or have a creditworthy co-signer.

You want a better experience. If you’ve experienced significant problems with your current loan servicer or lender, you can shop around for refinance lenders based on customer satisfaction and hopefully get a better experience.

You’ve dropped out temporarily. Monthly student loan payments usually start six months after you graduate, leave school or drop below half-time enrollment. If you’ve withdrawn from school but plan to return later, refinancing could help you secure a more affordable payment. Just keep in mind that not all lenders will allow you to put your loans back in deferment when you return to school.

[Read: Best Student Loans Without a Co-Signer.]

Is Refinancing the Right Move for You?

Whether you’re thinking about refinancing your student loans as a college student or shortly after you graduate, it’s important to consider how the decision can impact you both now and in the future.

In particular, make sure you understand the requirements to get approved and to secure good terms. In most cases, lenders require a minimum credit score in the mid-600s and income of $24,000 or higher.

But according to student loan refinance marketplace Purefy, its typical borrower has a credit score of 774 and an annual income of $98,156. To get an idea of what terms you might qualify for, get prequalified with a few lenders — the process doesn’t require a credit check — and compare the quotes with your current loan terms.

“Once you understand your options, you can decide if refinancing your student loans aligns with your goals,” says Meade.

It’s also important to consider whether the short-term benefits of refinancing could be costly in the long run.

For example, you may be able to get a lower interest rate compared with your federal student loan. But if you have a hard time finding a job after graduation or your income is lower than you expected, income-driven repayment plans and generous forbearance options won’t be available.

“If there’s a chance you may qualify for federal student loan relief, you should avoid refinancing,” says Aguilar.

The important thing is that you think about both the advantages and disadvantages of refinancing, and how they affect you in the short and long term. If you’re unsure, consider waiting until after graduation to revisit the decision.

More from U.S. News

How to Get a Low Interest Rate on a Private Student Loan

Should You Refinance Your Student Loans in 2023?

Should You Pay Off Student Loans or Invest for Retirement?

Can You Refinance Student Loans While in School? originally appeared on usnews.com

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