For those students who are about to graduate from college, the idea of beginning to repay substantial student loan debt can be overwhelming. There may be questions about when the best time to refinance a student loan is, or if it is a good idea to refinance the loans at all. We have created a brief guide that will help answer some of the pressing questions for college graduates.

Is There an Ideal Time to Refinance a Student Loan?

Upon graduating from college, most students have a grace period of six months before beginning to make student loan payments. For those interested in seeking a refinancing of their student loans, the best time to begin the process is at the beginning of the last year in college. The reason for this I because the refinance process takes time, and it is best to have it completed before the six month grace period is up.  The reason for this is there is an interest rate reduction of around .6% if a refinance is completed before loan payments have to be started. Although this might not sound like a large amount, the benefits over time can be substantial. In addition, the interest rate is locked in for the lifetime of the loan.

Student Loans

Student Loans

Is it Better to Consolidate Loans or Refinance Them?

This is another one of those questions that can best be answered by “It depends.” For many college graduates, a refinance is the best option because it reduces the interest rate as well as lowers monthly payments. It does typically extend the life of the loan, but for many recent graduates the lower payments are worth the additional time. For others, however, consolidating all of their student loans into one monthly payment can be a better way to go, depending on how much each monthly payment is. The best way to discover which option is best is to contact the loan servicing agency.

What are the Advantages and Disadvantages of a Student Loan Refinance?

As with any major financial decision, there are both advantages and disadvantages to refinancing student loans. It is best to weigh all of them carefully before deciding on this course of action.

  • There is the advantage of having the loan locked in at a lower interest rate. However, since a refinance also  extends the term of the loan, it may cost more in the long run to refinance.
  • If the student loan is a Federal loan, refinancing could actually decrease some of the benefits of the loan. For example, the college graduate may no longer be eligible for any type of forbearance or income contingent repayment plan. If this is something that you may have to consider, the loss of these perks could be potentially devastating from a financial standpoint.
  • Refinancing a student loan can offer certain cash back incentives or interest rate deductions, depending on the lender. For many students, these added benefits help reduce the total payments they have to make before the loan is paid.

Regardless of whether the amount of student loan is very large or relatively small, refinancing is a viable option for many college graduates. The best thing to do is to conduct thorough research before committing to a refinance.