There is no doubt that a college education is one of the best investments anyone could make – and one that offers a whopping ROI of nearly 300%! And yet, today, over 43 million Americans have student loan debt and, for many, this represents a significant financial burden they’ll carry for over two decades.

So, how can you repay your student loan faster and take the first steps towards a debt-free life? Refinancing can be the key – but, now that interest rates are expected to rise, is it still a good time for this financial move?

Here’s what you need to know

Should You Refinance Your Student Loan?

If you have been looking at strategies to reduce the impact of your student loan on your financial life, the chances are that you have been considering refinancing. But is 2022 a good time for such a drastic financial move?

America has been living in a low-interest-rate environment since the 2008 crisis, which caused the Federal Funds Effective Rate to drop to 0.16% in just a few months. While rates started rising again between 2016 and 2019, the pandemic-induced economic crisis curbed this upward trend, bringing interests down to an all-time low of 0.5%.

Thanks to this economic environment, the average student loan interest rate has remained around 5.8% since 2007. But today things are about to change.

Federal Student Loan Rates have been increased to 4.99% for undergraduates in 2023, an increase of 1.26% compared to the 2021-2022 rates. At the same time, the Federal Funds Effective Rate has risen from 0.8% to 1.21% in just four months, which is likely to cause an increase in private student loans.

So, might this be the end of the low-interest rate environment as we know it? Potentially – which makes today a prime time to refinance your loan!

When To Refinance Your Student Loan

Refinancing your student loan can be an excellent move to readjust your monthly payments to your current financial situation, take advantage of low-interest rates, and climb faster out of debt.

But refinancing a loan can affect you in more than one way. For example, refinancing your entire student loan can cause you to miss out on relief options and forgiveness.

So, when does it make sense to refinance your loan?

This varies depending on your unique circumstances, but, generally, refinancing can be beneficial if:

You are earning more
You wish to reduce your monthly payments
Your credit score has improved
You can access low-interest rates
You can add a co-signer

Working with specialized refinancing service providers like SoFi can help you make the right choice, know what to expect, and meet your goals – such as still being able to qualify for partial forgiveness!

The Benefits of Refinancing Your Student Loan

On August 31, 2022, the pause on federal student loan repayments will end, and borrowers are now waiting for the announcement which will grant them $10,000 in student loan forgiveness as promised by Biden during his presidential campaign.

Should you wait for forgiveness or refinance your loan?

Luckily, you don’t have to choose: you can hold onto your federal loan and qualify for partial forgiveness while refinancing your private loan.

Here are some of the benefits of this choice:

Take advantage of the still-low interest rates before they start rising
Reduce your monthly payments to meet new financial needs (i.e.: in the case of a financial setback)
Repay your loan faster or more aggressively by increasing your monthly repayments
Keep your debt-to-income ratio below 28% – which is crucial if you are buying your first home!
Take advantage of the benefits of having improved your credit score
The ability to add a co-signer to your agreement

Know What To Expect Before Committing to Refinancing

Before refinancing your student loan, it is crucial to know what to expect from giving up your current loan agreement.

Not carrying out your due diligence can cause you to face unexpected payments and high-interest rates, as well as prevent you from qualifying for student loan cancellations. Before committing to this choice, work with a specialized advisor and get an accurate quote for your new loan.