If you’re an engineer and have student loan debt, consider refinancing your student loans. An engineering degree comes with a significant amount of debt, but refinancing can help reduce that debt burden.
The average student loan debt of an engineering student after completing their undergraduate studies is nearly $37,000, according to a student loan survey by SoFi. Meanwhile, engineers with a graduate degree reported spending an average of $25,252 a year on their advanced education — a third of which was funded with student loans.
Student loan refinancing for engineers is often available because of high engineering salaries. The median annual wage for engineers is $91,010, according to the U.S. Bureau of Labor Statistics (BLS). Engineers with an annual salary approaching six figures are a desirable student loan refinancing candidate for most lenders.
Here’s a closer look at why engineers should consider refinancing their student loan debt.
Benefits of student loan refinancing for engineers
Refinancing a student loan can be advantageous — under the right circumstances. You might consider refinancing your student loan to:
- Lower student loan interest rate.
- Lower your monthly student loan payment.
- Consolidate multiple student loans into one.
Let’s look at these situations one by one.
Getting a lower interest rate
The interest rate on federal student loans is typically lower than private student loans, but not always. For example, the interest rate for federal Direct Subsidized and Direct Unsubsidized student loans is 2.75% for loans disbursed on or after July 1, 2020, and before July 1, 2021, for undergraduate borrowers. It’s 4.30% for graduate borrowers.
Some federal student loan interest rates, like Parent PLUS loans, can sometimes approach 7%, however. This figure is especially true of PLUS loans for graduate students and parents.
If you’re locked into a high federal loan rate for your engineering school student loans, it might be worth seeing if refinancing can lower your rate.
The same goes if you used private student loans to pay for your engineering degree. If you or your cosigner didn’t have great credit when you applied for the loan, the interest rate you got then might be higher than you’d be eligible for now based on your current credit history and salary.
Reducing your monthly student loan payment
As an engineer, you can earn a great salary, but that doesn’t mean you’ll earn six figures right after graduation. If your starting salary is low, refinancing your loans can help lower your monthly payment so you can put money toward other expenses.
There are pros and cons to reducing your monthly payment. Yes, you’ll spend less each month, but your loan term will be longer and you’ll pay more interest over the course of the loan.
Consolidating student loans
Student loan refinancing for engineers can also make your life simpler. Refinancing your existing private student loans — which likely have varying rates — turns multiple loans into one loan with one monthly payment. Your newly refinanced student loan will have a fixed — and potentially lower — interest rate, too.
There are still benefits to consolidating even if your new interest rate isn’t significantly lower than your previous rates. Having one fixed monthly interest rate will make it easier for you to manage your budget.
Which engineers should refinance their student loans?
Student loan refinancing might not be the best solution for every type of engineer. The highest-paid engineers should look into refinancing their loans because a higher salary is one factor that lenders look for when reviewing applications. A high salary might also mean you have a low debt-to-income ratio.
Here are some of the highest paying engineering fields according to the BLS:
2019 Median Annual Salary
Entry Level Education
These are just a handful of the engineering specialties that are out there. Even if you’re just starting out in one of these fields and not earning as much as the average or median salary, you can see the future earnings potential — and so can private lenders.
If you’re at this salary point, or beyond, your relative job stability can make you attractive to lenders when you apply to refinance your student loans. The BLS projects 140,000 new jobs for engineers through 2026. The combination of a high salary and dependable employment is very appealing to lenders.
It’ll take more than a big paycheck to get a favorable interest rate if you refinance, however. You’ll also need to have good credit and a solid debt-to-income ratio. If you pull in a high gross monthly income, but most of it goes toward paying down debt, your new refinance rate may not be much better than the one you’re currently paying.
The case against student loan refinancing for engineers
If you have federal student loans and want to refinance, it’s important to understand what you might be giving up. Federal student loans have a few advantages over private student loans, including:
- Fixed interest rates
- Flexible repayment plans
- Income-driven repayment plans
- Longer forbearance periods
- Student loan forgiveness in certain situations
Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) are two benefits you’d lose through refinancing federal student loans.
PSLF is available to federal student loan borrowers who work for a U.S. federal, state, local or tribal government or not-for-profit program. The program forgives the remaining balance on your Direct loans once you’ve made 120 qualifying monthly payments through a qualifying repayment plan while you worked full time for a qualifying employer.
If you’re currently in the PSLF program and plan to work for eligible employers, it makes sense to leave your federal student loans alone.
IDR plans can help you manage your budget and potentially keep your student loan payment low when you begin your engineering career. The federal government currently offers four IDR plans:
- Revised Pay As You Earn. Generally 10% of your discretionary income.
- Pay As You Earn. Generally 10% of your discretionary income but never more than the 10-Year Standard repayment plan amount.
- Income-Based Repayment. Generally 10% of new borrowers’ discretionary income on or after July 1, 2014, but never more than the 10-Year Standard repayment plan amount. Payments are generally 15% of your discretionary income if you’re not a new borrower on or after July 1, 2014, but never more than the 10-Year Standard repayment plan amount.
- Income-Contingent Repayment. The lesser of either 20% of your discretionary income or what you’d pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.
The remaining loan balance is forgiven if your federal student loans are not fully repaid at the end of the repayment period.
Find out if you’re eligible for these repayment plans before refinancing your engineering student loans. You can’t go undo a refinance once you go through with it.
Student loan refinancing ladder for engineers
You can refinance your student loan more than once. A refinancing ladder lets you continually lower your interest rate and monthly payment over the course of your repayment term.
Here’s how you can put the refinancing ladder to work for you:
- If you started with a 10-, 15- or 20-year fixed-rate term loan, your interest rate would be somewhere between 4.5% to 6%.
- Making extra prepayments that exceed your lender’s requirements can decrease your principal balance ahead of schedule.
- High prepayments can eventually bring you to a point where you can refinance your student loan again.
- By refinancing again, you can shorten your loan term and lower your interest rate while keeping a similar monthly payment.
- You can then put your current payment amount toward your new loan and repeat the process.
Refinancing also lets you reduce your interest rate and makes you eligible for a cash bonus through Student Loan Planner.
Student loan refinancing for engineers
Whether refinancing is the right move for you truly depends on your situation. Given the high salary you can earn as an engineer, refinancing is worth considering. It’s especially a practical approach if you have a reasonable debt-to-income ratio, good credit and are currently burdened with high loan rates.
Refinancing is not recommended for engineers who have federal student loans and are pursuing PSLF or an IDR plan. The benefits of federal student loans outweigh the interest rate savings that refinancing can provide.