How Refinancing Student Loans Again Could Save More Money

Gayatri Brar, Relationship Manager; and Jennifer Scott, Relationship Manager, First Republic Bank
July 27, 2018

Refinancing student loans is a great way to potentially save money on the overall cost of your student loans – but if you’ve gone through the process once, you already knew that. If you’ve refinanced your student loans previously, you may still be wondering if a second refinance can save you even more money over the lifetime of your loan(s). The short answer is most likely yes, however, there are special considerations to take into account before you apply for another refi.

The following are some of the possible upsides of doing a second refinance on your student loans, as well as some of the additional things to consider before and during the process.

Upside No. 1: Paying less in interest over the life of your loan

How it works: One of the most popular reasons that people consider refinancing student loans, in general, is to save money on the overall cost of the loan. This savings usually comes in the form of a reduced interest rate on the loan, meaning the borrower would be paying less in interest over the life of the loan and therefore paying less overall. Refinancing your student loan for the second time provides you with an additional opportunity to get an even lower interest rate than you did the first time around.

Caveats to consider: A lower interest rate may seem nice on paper, but there are a still a few things to keep in mind. If you’ve already gone through the refinancing process with your federal loans in the past, those loans would be privately held now, and you would have already given up the special features—forbearance and income-based repayment, for example—that are specific to federal loans.

However, if a lower interest rate is your ultimate objective with a second refinance, keep in mind that private loan interest rates are often tied to multiple factors, like elements of your own personal financials (including income and credit score, to name two big ones), as well as the current market rates. Some or all of these factors may be either better or worse than when you refinanced your loan for the first time. If you think that your overall financial health makes you a more desirable candidate than it did when you previously applied to refinance, then now is a great time to check your rates again. However, if some of those factors have gone downhill (maybe you haven’t had a job in a while, or have accrued more credit card debt), then it might be worth waiting to build those areas back up before applying to refinance again.

Upside No. 2: Shortening the amount of time you need to make payments

How it works: One other factor that is highly desirable when it comes to refinancing is the opportunity to make payments for a shorter length of time. For example, if your current plan has you making monthly payments for the next 15 years and you can refinance to a five- or 10-year plan, you could end up saving a good amount over the course of your student loan.

Caveats to consider: Importantly, in order to actually save money overall on your loan, a shorter payment timeframe could mean higher monthly payments. Also, if you’ve already been making payments into your first refinanced plan for a number of years, refinancing again—even to a plan with a smaller number of years—may be extending the life of your loan overall. For example, if you refinanced your original student loans to a 10-year plan and are six years into those payments, refinancing to a new five-year plan means you’ll be making payments for 11 years overall, as opposed to 10. This could mean that even if your second refinancing offers you a lower interest rate, you’ll likely be paying more overall because of the additional year you’ll be paying into the loan.

Upside No. 3: Revisiting the details of your current loan

How it works: Checking in on opportunities to refinance your current student loans also gives you an opportunity to go over the details of your existing plan with a professional.

Caveats to consider: Besides walking through the general math of a second refinance to make sure it makes overall fiscal sense, also discuss with your provider any additional fees that might make refinancing for a second time undesirable. For example, some things you’ll want to discuss are any prepayment penalties that come with paying off your loan before it’s originally due, as well what would happen to your loan if you were to take advantage of any loan forgiveness opportunities.  

Upside No. 4: Moving on to other financial goals more quickly

How it works: Paying off your student loans more quickly through a second refinance and/or paying less on your loan per month could mean that you’re able to start saving for additional financial goals—like retirement, an emergency savings, or the down payment on a house—sooner than you may have thought possible.

Caveats to consider: Paying off your student loans more quickly may require making higher monthly payments, which could actually cause you to defer savings for other financial goals in the meantime.

Bottom-Line: A second student loan refi may be good for you

Before applying for a second student loan refinance, it’s good to determine what your overall financial goals are for the foreseeable future in order to determine how to best allocate the payments in your current monthly budget. With that information on hand, you can make an educated decision regarding whether or not a second refinance is right for you. Learn more about student loan refinancing with First Republic or speak to a financial advisor about your specific needs.

Refinance your student loans – fixed rates as low as 1.95% APR with discounts.

The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document. First Republic does not provide tax or legal advice.