Financial Advice on Student Loan Repayment

If you’re like most student loan borrowers, life hasn’t slowed down since you graduated. Whether you’re two years or 10 years out of school, chances are some big things have happened — ideally exciting, happy things like scoring a big promotion, getting married or maybe even going back to school to get another degree.

With everything you’ve got going on, it’s understandable if you haven’t given much thought to your student loans lately. However, it is possible that as you've continued to grow, you've outgrown your repayment strategy. You’ve matured since you left school, so why shouldn't your approach to student loans mature with you? If your financial situation has improved, you may be eligible to refinance your loans at a lower interest rate, allowing you to save money on interest and potentially even lower your monthly payments.

What are some signs that it’s time for your student loan repayment strategy to grow up? Here are three ways to tell:

1. Your finances have improved since you graduated.
When you set up your repayment plan after graduation, chances are you were still on the ramen noodle diet. But hopefully your degree has started to pay off in the form of higher pay and a growing bank account (not to mention tastier food options). And if you’ve been consistently making your student loan payments on time, ideally your credit has also improved.

Since income and credit score are two of the key factors considered in the refinancing application process, advancements in either of these areas can help your chances of qualifying for a lower rate. The lower the rate, the more money you save on interest over the life of the loan.

Depending on how quickly you intend to pay off your loan (or how quickly you expect your salary to increase), you might also consider refinancing with a variable rate student loan. Interest rates for variable loans are typically lower than rates for fixed loans (SoFi’s variable rates start at 2.66 percent APR with AutoPay). With variable loans, the interest rate is typically tied to prevailing interest rates, which are likely to rise in the future. In other words, they’re best suited for people who plan to pay off their loans quickly — before interest rates rise again.

2. Interest rates have declined since you left school.
In the aftermath of the 2008 credit crisis, interest rates across the board dropped to record lows and are only now beginning to creep higher. The only exceptions being federal unsubsidized and grad PLUS loans, which remained flat at 6.8 percent and 7.9 percent respectively, until last year’s Student Loan Certainty Act brought them closer in line with prevailing rates. But for borrowers who took out these loans before 2013, the damage was already done — they already received interest rates far higher than the prevailing.

The good news is that, thanks to student loan refinancing, eligible borrowers don't have to be stuck with those outdated rates. Just as a homeowner can apply to refinance a mortgage when rates go down, student loan borrowers can do the same. And contrary to the common misconception that federal loans can’t be refinanced with a private lender, this option is actually available through SoFi and a few other companies. We’ll talk more about the considerations for refinancing federal loans in the next section.

3. You’re set in your career path.
When deciding whether to refinance federal loans, it’s important to understand the potential benefits and protections that come with those loans — these features don’t transfer to private lenders through the refinancing process. For example, some federal loans offer forgiveness benefits for particular careers, such as teaching or working in the public sector for a certain amount of time (usually 10 years). If your chosen profession is in one of these areas, you’ll want to think twice before refinancing federal loans.

But if your career path lies squarely in the private sector, you likely won’t qualify for these forgiveness programs, so you have the option to refinance at a lower rate. Similarly, federal income-based plans like IBR and PAYE do not transfer to private lenders. However, most people who qualify to refinance typically don’t benefit from these plans due to their higher income level. If you’re not sure where you land, check with your lender, servicer or your school’s financial aid office.

Thinking about student loans is never a fun thing to do, but saving money is! If things have changed since you graduated, it may be worth it to spend a little time revisiting your education debt. And since refinancing applications are typically easy and available online these days, it only takes a small amount of time to see if you’re eligible for big savings. With SoFi, it takes about five minutes to find out for what rates and terms you qualify.

Now that’s time — and money — well spent.

This article is designed to provide useful information about student loan repayment options, but it is not intended to provide legal or tax advice.

Daniel Macklin is a member of the DailyWorth Connect program. Read more about the program here.