When Is the Best Time of Year to Refinance Student Loans?

Melanie LockertUpdated August 9, 2023

Share this article:

Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Student loan refinancing is a strategy to help lower the cost of your student loan repayments. It may be possible for you to get a lower interest rate through refinancing, which could make repaying your student loans more manageable. Knowing the most beneficial time to refinance can make a difference. Certain timeframes may be more advantageous than others, such as when your grace period ends. Read on to learn more about the best time to refinance student loans.

Student Loan Refinancing, Explained

Student loan refinancing is the process of refinancing your student loan debt through a private lender. The private lender pays off your student loans and gives you a new loan. The goal of refinancing student loans is to obtain a lower interest rate. That could help you save money over the life of the loan and might lower your monthly payment as well. However, because your student loans will be paid off through a private lender, there are some consequences of refinancing you need to be aware of. Refinancing federal student loans means that borrowers are no longer eligible for certain federal protections and programs, such as income-driven repayment (IDR) plans and Public Service Loan Forgiveness. While student loan refinancing may be a useful strategy to save money on repaying student loans, the drawbacks should be considered. If you are a federal student loan borrower, it’s important to think about whether refinancing makes sense for you.

Is There an Optimal Time to Refinance Student Loans?

If student loan refinancing is something you’re considering, you’ll want to be strategic and figure out the best time of year to refinance. Overall, the best time to refinance can vary from person to person depending on your specific situation. That said, there are certain windows of time when it may make more sense to refinance than others. These include:

After your grace period is over
When you can get a lower interest rate
You have a steady, secure job
Your credit is strong and in good shape
You’re not pursuing student loan forgiveness through Public Service Loan Forgiveness (PSLF) or IDR plans

So when is the best time to refinance your student loans? While there is no specific or definitive answer, the instances above can serve as helpful guidelines. After a three-year payment pause, the Covid-19 forbearance is set to end on Aug. 30, 2023. As a result, interest accrual on federal student loans will resume on Sept. 1, and payments will be due starting in October 2023. Borrowers can make more than the minimum payment when paying off student loans.If you’re currently a student and wondering if you can refinance while still in school, that may be possible, but it might not be the best option for your situation. You’ll want to investigate thoroughly before taking action.

Refinancing Private Student Loans

Refinancing private student loans comes with fewer risks than refinancing federal loans. Private education loans are not eligible for PSLF, Teacher Loan Forgiveness, or federal IDR plans. The best time to refinance student loans that are private is generally when the interest rates are the lowest.Typically, lenders follow economic trends, which means that as interest rates rise, it’s likely that the rates on private loans will do the same.

Refinancing Federal Student Loans

If you want to refinance federal student loans there is more to consider. Borrowers should understand that they’re forfeiting federal forgiveness opportunities by refinancing. It’s also important to know that federal loans have a fixed interest rate. For those considering refinancing graduate student loans or Parent PLUS loans that have fixed high interest rates, refinancing may help.Many student loan refinance companies offer fixed rates or variable rates. Fixed rates will stay steady while variable rates are typically tied to what’s happening with the Federal Reserve. Any monetary policy decisions by the Fed to raise or lower the federal funds rate can affect the prime rate many lenders use to help set the interest rates for loans.If you can lock in a loan with a lower fixed interest rate than you are currently paying, you may want to refinance your student loans. It’s a good idea to explore all the options to help find the best rates and terms.

Factors to Consider When Looking to Refinance Student Loans

If you’re interested in student loan refinancing, there are certain factors you’ll want to explore first. These include:

Interest Rates

The key goal of refinancing is to get a lower interest rate than the one you currently have. Be sure to understand the difference between fixed-rate and variable-rate loan options. When you opt for a fixed interest rate, you lock in that rate and have a consistent monthly payment. Variable rates may be good while interest rates are low, but they can change and go up at any time. A lower fixed interest rate could potentially help you save thousands of dollars over the term of the loan. If you determine that’s the case for you, it could be worth refinancing student loans.

Your Income

How much you earn is a factor lenders consider when you apply for refinancing. They want to know that you can reliably make and afford your monthly loan payments. Borrowers who are unemployed or those who are currently earning a low salary may want to hold off on refinancing until their income rises.

Your Credit Score

Your credit score is a tool used by lenders to assess how likely it is that you’ll repay a loan. Lenders want to see that you have a track record of making payments and managing debt. Your credit score can indicate that.Before refinancing, it’s a good idea to have a score in the 700 range or above, if possible. A high credit score can help you qualify for lower interest rates. Check your score through your bank or financial institution. It’s also wise to review your credit report to ensure all your information is correct. You can get a free copy from AnnualCreditReport.com.

Money You Have Saved Up

How much money you’ve saved is important if you’re thinking about refinancing student loans. In general, you should have three months worth of expenses in the bank to tide you over in the event of any emergencies.

Debt-to-Income Ratio

Another important factor for refinancing is your debt-to-income ratio (DTI). Your DTI refers to how much monthly debt you have when compared to your gross (pre-tax) monthly income. Lenders look at your DTI when considering you for refinancing.A benchmark to aim for is a DTI under 36%. That means your debt payments shouldn’t exceed 36% of your income.For example, if you earn $5,000 a month and owe $2,000 in monthly debt payments, your DTI is 40%. However, if your debt is $1,000 per month with that same salary, your DTI is 20%, which is in the ideal range.

Refinance Student Loans With Lantern

If you’ve considered all the important information and decided that now is the right time for you to refinance your student loans, Lantern by SoFi can make the process easier. In our online marketplace, you can quickly and conveniently compare rates and terms from multiple lenders all at once to find the best option for your situation. Compare student loan refinancing options with Lantern.

Frequently Asked Questions

Should you refinance student loans in January?

Is there a time of the year that is best to refinance student loans?

Can I refinance student loans whenever?

iStock/Kateryna Onyshchuk

LCSL0522014

About the Author

Melanie Lockert

Melanie Lockert is the founder of the blog and author of the book, Dear Debt. Through her blog, she chronicled her journey out of $81,000 in student loan debt. Her work has appeared on Business Insider, VICE, Allure, and more.

Share this article: