Quiz: Should You Refinance Your Student Loans?

Jen Williamson Updated on May 14, 2019

When you refinance your student loans, your new lender pays off all your existing loans and issues you a single new one with a new (hopefully lower) interest rate.

Refinancing can save you hundreds a month on your repayment—and thousands over the life of your loan. But it isn't for everyone. This quiz will help you get a better handle on whether you should refinance.

Do you have a good credit score?

This is the key question to ask yourself. If your credit score is excellent, you could particularly benefit from refinancing.

Lenders look at your credit score when determining what interest rate to offer you. If your score is high, they’ll see you as a safer bet—and offer you a rate at the lower end of their range.

If you have a low credit score, you may not be able to get lenders to offer you interest rates better than what you’re currently paying.

If you answered “yes” on this question, give yourself 1 point. 

Are any of your student loans in default?

Default can happen to the best of us. But if it’s happening to you right now, you won’t be able to refinance.

Lenders generally won’t refinance loans that are in default. And if you have one loan in default and are trying to refinance the others, it may not be worth the effort. A default can tank your credit score, which will make lenders reluctant or offer you a good deal on your interest—or work with you at all.

You can turn things around, however, by getting current on your loans and then applying.

If you answered “no” on this question, give yourself 1 point. 

Do you want lower monthly payments?

One of the biggest benefits of refinancing is a lower interest rate—which means you pay less, both over the length of your loan and on a monthly basis. You can also stretch out the term of your loan, which means you save even more every month.

If you’re currently having a hard time making your monthly payment, you may be a prime candidate to refinance—as long as your credit is good and you’ve been making those payments anyway.

If you answered “yes” on this question, give yourself 1 point.

Are you currently paying a high interest rate?

Some private lenders offer interest rates as low as 2.62%. If your current rate is significantly higher, you could benefit a lot from refinancing.

Add up all the interest rates on your student loans, then divide by the number of loans you have. That will tell you how much interest you’re currently paying on average 

Some federal loans have higher interest—as much as 6% for Direct Unsubsidized Loans and graduate or professional loans disbursed after July 1, 2017. If you have a lot of these—or private loans with higher interest rates—refinancing is worth considering.

If you answered “yes” on this question, give yourself 1 point.

Can you get a cosigner with a good credit history? 

No one’s financial record is perfect. Hopefully you have good credit and financials that look stable enough to lenders that you qualify for a good interest rate.

But if you don’t—if there’s something in your financial history that would make them look twice—a cosigner can really help you out.

When a cosigner signs onto your loan, they’re promising to take over your payments if you fail. A cosigner can make you eligible for interest rates much lower than you’d get on your own.

If you answered “yes” on this question, give yourself 1 point.

Do you have little or no income?

If your income is either nonexistent or unstable—and it’s not because you’re, say, a med student with a promising medical career in your future—you may not benefit that much from refinancing.

Lenders will look at your income when determining your interest rate.

If you don’t have an income—or your income is unpredictable—you may be better off going with income-based repayment, if you have federal loans. This program takes your income into account, not your credit score, when setting your monthly payment.

See also: Beginner's Guide to Income-Driven Repayment Plans

If you answered “no” on this question, give yourself 1 point.

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Do you have a lot of student loans?

Another perk of refinancing is that it streamlines loan repayment.

If you’re like most people, you graduated school with a mix of federal and private loans—all held by different lenders. It gets confusing.

You can certainly refinance any number of loans—even just one or two. But if you have a bouquet of loans held by different lenders, you can especially benefit by having one single lender and one low interest rate.

If you answered “yes” on this question, give yourself 1 point. 

Are you planning on seeking Public Service Loan Forgiveness?

One drawback of refinancing your federal student loan is that you lose access to certain perks, such as Public Service Loan Forgiveness (PSLF).

Under this program, your loan gets forgiven if you make 120 qualifying payments while working full-time for a qualifying employer in the public service sector—a process that usually takes a minimum of ten years.

So if you’re either currently paying into Public Service Loan Forgiveness or are planning to seek it in the future, you shouldn’t refinance your loan.

If you answered “no” to this question, give yourself 1 point.

Do you have only federal loans? 

When refinancing private loans, it’s a relatively simple decision. But with federal student loans, the picture gets more complicated.

You lose federal perks such as income-based repayment and forgiveness when you refinance—but you could wind up paying significantly less in interest, depending on your credit and the kind of loan you have.

Refinancing is the only way to reduce interest on your federal loan—as consolidating through a Direct Consolidation Loan, the federal government’s equivalent, could result in a slightly higher interest rate.

So, yes, you can refinance only federal loans—and for many, it’s the right decision. There are just a few more pros and cons to weigh.

If you answered “no” on this question, give yourself 1 point

Do you have high earning potential?

If you’re not making much now, but you’re on a path that leads to a fairly dependable hiring market and high earnings—jobs in engineering and medicine come to mind—then you may be an excellent candidate for refinancing.

Earning potential is one of the factors lenders look at when determining your interest rate. Being on the path to earning a degree in a high-wage, high-demand field will help you land a better interest rate.

If you answered “yes” on this question, give yourself 1 point.

Time to add up your score

If you have four or more points, you’re an excellent candidate for refinancing—and you owe it to yourself to get a few quotes from lenders.

See how much you could save—check out Refi Ready.

Published in: Refinance

About the Author
Jen Williamson

Jen Williamson is a freelance writer living in Brooklyn. She has written for a variety of industries, including software, education, business, and personal finance. Prior to that, she worked at an adult literacy nonprofit in Philadelphia, where she coached nontraditional students in passing the GED test and applying for college. When she isn’t writing or reading—which is rare—she can usually be found planning her next travel adventure, training for a marathon, or sneaking in somewhere she’s not supposed to be. Read more by Jen Williamson

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Comments

I reduced my student loan payment by $152 per month, by refinancing thru Nitro:

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