How to Decide if Refinancing Law School Loans is Right for You

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Summary: Refinancing your law school loan debt is a useful money-saving move, but is it right for you?

With the price tag on legal education growing steeper every year, it’s become common for most law students to head into the real world not only with a degree but also with about six figures in student loan debt. According to the Board of Governors of the Federal Reserve System, as of March 2019, U.S. student loan borrowers owed a collective $1.6 trillion in federal and private student loan debt. 

Approximately 60 percent of law graduates borrow more than $100,000, according to a report by Gallup and AccessLex Institute. Unsurprisingly, many graduates and aspiring attorneys find refinancing law school loans to be a worthwhile strategy to ease the burden of repayment, as it could mean you’ll pay less over the life of your loan.

  

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That being said, refinancing might not be suitable for everyone.

In this guide, we’ll explain what refinancing is, how to know if refinancing student loans it’s the right option for you, and how to refinance law school loans.

Refinancing Student Loans is Not the Same as Consolidating Debt

Student loan borrowers may have heard the words “refinancing” and “consolidation” used interchangeably, but they’re actually two different repayment options.

Just like many other student loan borrowers, you may find this confusing, as both options essentially do the same thing: they replace your existing student loan with a new loan with new terms. 

So what’s the main difference?

Refinancing your law school debt means you take out a new loan that pays off the existing loans, usually at a lower interest rate. 

Consolidation only applies to federal loans and refers to bundling multiple loans into a single one through the federal government, so you can make a single monthly payment. Consolidation may simplify your monthly payments or give you access to better repayment plans or forgiveness programs. 

Can you refinance federal student loans?

You can refinance both federal and private student loans. However, an important thing to know is that when you refinance federal student loans, you’re privatizing them. Meaning you can refinance federal student loans through private lenders, but you can’t transfer private loans to the federal government.

Refinancing private or federal loans could give you a lower interest rate. However, refinancing a federal loan means you no longer qualify for some federal loan benefits such as loan forgiveness, forbearance programs, and income-driven repayment options.

What do you need to be eligible for refinancing?

Whether you’re refinancing federal student loans, private student loans or a mix of both, lenders are looking for borrowers who have:

A good credit score

Your credit score not only determines whether you are eligible for refinancing, but it can also determine the interest rate you’ll get. Typically you need a credit score that is in the high 600s. Many private lenders, however, only consider borrowers who have scores in the 700s or higher.

Borrowers with low credit scores may be able to qualify by applying with a co-signer. Remember that your cosigner is putting his or her credit on the line, so it’s advisable to see if your lender offers features like a cosigner release, which removes the cosigner from the loan after a predetermined period of time in which you’ve proven you can make your payments.

A history of on-time loan payments

Lenders have to make sure that you will be able to pay off the debt. Therefore, they will likely check your credit report to find evidence that you’ve paid your loans regularly in the past.

Enough income to pay your debts

Lenders will also analyze your capacity to repay the refinanced law school loan. Some calculate the amount of debt you owe relative to your income.

The required debt-to-income ratio for student loan refinancing is generally 50% or lower. A DTI of 20% or less is excellent.

When to Refinance Student Loans

You should consider refinancing in these circumstances:

You have private loans with high variable rates

Interest rates are expected to surge through 2020, meaning that loans with variable rates may get even more expensive to repay. Therefore you should consider refinancing to lock in a fixed rate. 

You have private loans with high interest rates

The point of refinancing your loans is to get a lower interest rate than what you already have on your original loan. The higher your current rate, the more likely you are to save money by refinancing at a lower rate.

Your credit score has improved dramatically

If refinancing doesn’t seem like an option when you graduate law school, consider it once you have a significantly better credit score.

Can you refinance student loans while still in school?

While many lenders won’t let law students refinance loans while still attending school, there are are two exceptions such as Earnest and SunTrust who consider students eligible for refinancing. 

For many, refinancing makes sense only after finishing law school – it gives you time to build your credit history, find a job, and become eligible for the best possible rates. 

However, if you already have a great credit while in school or have some savings on the side, you should consider refinancing as it will enable you to pay off your debts much faster. 

When should you not refinance student loans?

You generally can’t or shouldn’t refinance if:

You have federal loans and see a drop in income

If you are between jobs or considering leaving the workforce for a period of time you should stay away from refinancing your federal loans.

You’re pursuing student loan forgiveness

Refinancing federal loans means you can’t apply for federal loan programs including Public Service Loan Forgiveness and Teacher Loan Forgiveness.

You’ve recently defaulted on student debt

If you have a default in your past, that most likely is a red flag for lenders. It takes typically seven years for the default to be wiped from your credit report.