Should I Refinance My Student Loans?

April 10, 2019 No comments exist

By Joseph Reinke, CFA, Founder of FitBUX

We recently polled Members of FitBUX and asked them to identify their top questions about student loans.  One of the most popular questions is: Should I Refinance My Student Loans?  As I mentioned in our Student Loan Refinancing Guide, the correct decision is different for everyone. However, this article provides you with four answers for those looking to keep-it-simple.

Note: Refinancing student loans should only be done if you are not pursuing loan forgiveness. If you’d like to read more about loan forgiveness, be sure to check out our Student Loan Forgiveness Guide.

Also, to help you, we developed a step-by-step student loan refinance checklist.  Complete the info below and we’ll send you the checklist via email!

Table Of Contents:

  1. Answer 1: Private Student Loans
  2. Answer 2: The Quantitative Answer
  3. Answer 3: A Financial Aid Answer
  4. Answer 4: A General Rule Of Thumb

Answer 1: Private Student Loans

If you have private student loans, then the answer is easy…YES!  You should look into refinancing because you should be able to get a lower rate now that you have graduated.

If you have private student loans you’ll want to use the Quantitative Answer below to decide if refinancing is right for you.

Answer 2: The Quantitative Answer

There are two components that you have to analyze when deciding if you should refinance:

  • Savings: All else equal, how much could you save by refinancing to a loan with a lower interest rate.
  • Budget flexibility: When you refinance, you have to choose a loan term. This could drastically increase or decrease your required monthly payment.

The Quantitative answer to the question, “Should I refinance student loans?” solely looks at the savings component.

Simply put, the Quantitative answer is: Any loan that has an interest rate above the student loan refinance interest rate you are offered, should be refinanced.  Doing so will maximize how much you are saving by getting a lower interest rate.

For those of you who need to prioritize budget flexibility over financial savings, continue reading and I definitely recommend you join our free 3 Secrets To Student Loan Refinancing webinar.

Student Loan Refinance Giveaway

Answer 3: A Financial Aid Answer

Remember when we talked about the unique benefits of Federal loans? This is where this approach comes in.

What we have termed the “Financial Aid Answer” is the complete opposite of the quantitative answer above.  It only considers the budget flexibility aspect of refinancing.  Often times we hear it from financial aid officers.

Their answer to the question “Should I refinance student loans?” is usually to never refinance out of your Federal student loans. Their logic is that the Federal benefits, such as automatically forgiving the loans if you pass away, are too valuable to give up.  In their opinion, you would never refinance no matter what rate you could secure by refinancing your Federal student loans into private student loans.

However, everyone’s situation is different.  The biases financial aid officers often times show is one of the reasons why I wrote an article about why its hard to find a student loan planner.

Having said that, a “financial aid officer answer” may be the perfect approach for some people.  For example, it is a really good approach for those that may have variable income or non-stable income.

Answer 4: A General Rule Of Thumb

As I mentioned in our student loan refinance guide, refinancing is often both about savings and budget flexibility for the majority of applicants. Like many things in life, it’s all about finding the right balance which works for one’s specific situation.

When looking at refinancing opportunities, we at FitBUX look to reduce our Member’s rates by at least .50% for the process to be worthwhile.

Key to this strategy is knowing that you do NOT have to refinance all your loans.  This is one of the myths we discuss in our 8 Myths Of Student Loan Refinancing Article. Lenders are pushing for you to refinance all your loans because it helps their bottom line i.e. the more you refinance, the more money they make. However, cherry picking which loans to refinance (based on interest rate, balance or term) is perfectly acceptable to optimize your overall situation.

That is why FitBUX’s student loan refinancing service is free.  FitBUX is here to help you decide if refinancing is right for you, which loans you should consider refinancing and make sure you get the information you need from your loan servicer to complete the refinance.

One last item to note. This conversation applies only to fixed rate loans. If you want help deciding between fixed rate loans and variable rate loans, be sure to check out our variable rate student loan refinance guide.

FitBUX's Free Student Loan Refinance Service

If you’d like to read more about student loan refinancing or other articles about money, be sure to check out our blog home page.  Also, if you’d like to read reviews about 7 different student loan refinance companies, then you can check them out here.