Many or all companies we feature compensate us. Compensation and editorial research influence how products appear on a page. Student Loans Student Loan Repayment Should I Refinance My Student Loans? How to Decide Updated Sep 30, 2024 9-min read Expert Approved Expert Approved This article has been reviewed by a Certified Financial Planner™ for accuracy. Written by Amanda Hankel Written by Amanda Hankel Expertise: Writing, editing, digital publishing Amanda Hankel is a managing editor at LendEDU. She has more than seven years of experience covering various finance-related topics and has worked for more than 15 years overall in writing, editing, and publishing. Learn more about Amanda Hankel Reviewed by Jim McCarthy, CFP® Reviewed by Jim McCarthy, CFP® Expertise: Education planning, retirement planning, investment management, insurance planning Jim McCarthy, CFP®, ChFC®, is the owner of Directional Wealth Management, an independent financial planning and investment advisory firm in New Jersey. Jim advises families, professionals, executives, and business owners on how they can build better financial futures. Learn more about Jim McCarthy, CFP® Refinancing your student loans lets you replace one or more loans with a new one, potentially offering lower interest rates, reduced monthly payments, or better terms. While it can save money, refinancing isn’t right for everyone. In this guide, we’ll help you weigh the pros and cons so you can decide whether refinancing is the best move for your financial situation. Table of Contents Skip to Section Should I refinance my student loans?When you should refinance your student loansWhen you shouldn’t refinance your student loansMore about refinancing Should I refinance my student loans? The choice to refinance student loans isn’t one-size-fits-all. It depends on various factors and personal circumstances. Understanding the specific scenarios that apply to your situation will guide you in making an informed decision. Below is a table highlighting different scenarios when you might want to refinance and when it might not be in your best interest. Click the link for each scenario to navigate to a more detailed explanation below. When you should refinanceWhen you shouldn’t refinance✅ You have private student loans❌ You have federal loans and may need the benefits✅ You have a stable income❌ Your loans are in default or you’ve missed payments✅ You have a good credit score❌ You’ve declared bankruptcy✅ You would save money❌ You have bad credit✅ You have variable interest rates❌ You plan on taking out another loan soon (e.g., a mortgage)✅ You have multiple loans to consolidate Examine the scenarios in this table to determine whether refinancing is the right option for your unique situation. When you should refinance your student loans Refinancing student loans is a nuanced decision. It requires careful consideration of individual circumstances. Even if you fall into a category in the table above that indicates refinancing is wise, it’s essential to weigh all options. Below, we’ve outlined six situations where refinancing might make sense. Read More When to refinance your student loans ✅ You have private student loans Refinancing private student loans often involves less risk than federal loans. Federal loans carry benefits such as income-driven repayment plans. These match your payment to a percentage of your income to keep payments affordable. When you refinance into a private loan, you lose these advantages. Private student loans are ineligible for federal programs, making a refinance more attractive. If you have private loans, you might find opportunities to secure a new loan with a lower interest rate. This can lead to significant savings over the life of the loan. ✅ You have a stable income A stable income is crucial if you’re considering refinancing student loans. Stable income means a consistent and reliable flow of money, often from full-time employment or a steady part-time job you can reasonably expect to continue. Lenders prefer to see this stability because it reassures them you won’t have trouble making your loan payments. If you have a stable income, you likely won’t need to depend on income-driven repayment plans in the future, so refinancing federal loans may be a safer move. Many lenders set a minimum income threshold for refinancing: LenderIncome requirements to refinanceCitizens Bank$12,000 (required for borrower and cosigner)ELFI $35,000SoFiMust show you have extra funds after monthly expenseEarnestEvidence of a job and steady income. For those with nontraditional income sources, such as self-employment, refinancing is still possible, provided you can document a steady cash flow. ✅ You have a good credit score Good credit is another essential factor in the decision to refinance student loans. With a healthy credit score, you can often qualify for a lower interest rate, especially on private student loans. This lower rate can translate into significant savings over the life of your loan. For instance: LenderMin. credit score to refinanceSoFi650Earnest680 The higher your credit score, the better the rate you may secure. And typically, refinancing only makes sense if you can lock in a better rate. This advantage emphasizes the importance of knowing your credit score and understanding how it influences your refinancing options. ✅ You would save money The prospect of saving money is often the primary motivator for refinancing student loans. Even if you don’t qualify for the lowest interest rates, refinancing to a new loan may still be beneficial if the new rate is lower than your current one. If you’ve raised your credit score through consistent on-time payments, it may be the right time to explore refinancing. Understanding your potential savings is key to making this decision. Use the calculator below to determine whether refinancing would benefit you financially. ✅ You have variable interest rates Variable interest rates on private loans fluctuate with market conditions, as shown in the example chart below. This might be advantageous when interest rates are low, but it comes with the risk of paying more if rates increase. Refinancing lenders often offer fixed and variable rates. By refinancing, you can choose the type of rate that best suits your financial situation. If you’re concerned about unexpected rate increases, you can lock in a fixed rate through refinancing. This ensures your payments remain consistent and predictable, without the worry of market fluctuations affecting your budget. ✅ You have multiple loans to consolidate Managing multiple loans, each with different amounts, payments, due dates, and interest rates, can be overwhelming. Juggling various obligations can lead to confusion and consume valuable time. Refinancing offers a solution to this challenge. When you refinance, you have the opportunity to consolidate all your student loans into one more manageable loan payment. This process can simplify your financial life, making it easier to track payments and potentially reducing financial stress. If you find yourself struggling to keep up with all your payments because of the complexity of handling multiple loans, it could be a clear indication that refinancing and consolidation could be the right path for you. Check out our resource on the best lenders to refinance with. When you shouldn’t refinance your student loans Refinancing student loans isn’t the best option for everyone. Understanding when it’s not advisable to refinance is vital, and the scenarios below help with that decision-making process. ❌ You have federal student loans and may need the benefits Refinancing federal student loans with a private lender causes the loss of several unique federal programs. Income-driven repayment (IDR) plans are one such benefit. IDR plans adjust your monthly payment based on your income. This makes payments more manageable if your financial situation changes, such as a job loss or income drop. Also, various loan forgiveness programs are only available for federal student loans. Public Service Loan Forgiveness (PSLF) is one example. It forgives remaining balances after 120 qualifying payments under specific conditions. Refinancing with a private lender makes you ineligible for PSLF and similar programs. What to do instead Consider a Direct Consolidation Loan. It merges federal loans into one, with a new interest rate that averages your current rates. While not a significant money saver, it simplifies payment management without losing federal benefits. ❌ Your loans are in default or you’ve missed payments Being in default or having missed payments can make refinancing your student loans challenging. Most lenders require your loans to be in good standing to be eligible for refinancing. What to do instead Extend repayment terms: By extending the terms, you can lower your monthly payments. But remember, this also means paying more interest over time. Deferment or forbearance: If you’re facing financial hardship, your lender might offer deferment or forbearance. These options pause or reduce payments but can lead to increased overall loan costs. Both strategies can help you get payments back on track but may add to the overall cost of your loan. Weigh these options against the severity of your financial situation to make an informed decision. ❌ You’ve declared bankruptcy Bankruptcy is a significant obstacle to student loan refinancing. Bankruptcy usually won’t erase student loans, but it can make refinancing approval difficult. Many lenders, such as Earnest, state that no bankruptcies can be on your credit report to be eligible. Others, including Citizens Bank and SoFi, might allow an application, but approval is rare unless you’ve rebuilt your credit. What to do instead If you’re dealing with private loans, consider involving a cosigner. A cosigner with good credit can enhance your credibility with the lender. By agreeing to repay the loan if you default, the cosigner reduces the lender’s risk. This can open doors to refinancing opportunities, helping you secure better terms or even get approved. Remember: Using a cosigner involves significant trust and responsibility. It’s a decision that requires careful consideration and open communication with the person you’re asking to be your cosigner. ❌ You have bad credit Bad credit can be a roadblock to student loan refinancing. If you don’t meet lenders’ minimum credit score requirements, qualifying for a lower rate can be almost impossible. In this scenario, refinancing might not be beneficial. What to do instead Build up your credit score: On-time payments and responsible credit management can improve your credit score. Apply with a cosigner: If you’re struggling with a low credit score, a cosigner with good credit can help you meet the lender’s requirements. Consider alternative lenders: If you’re set on refinancing, look for lenders with more lenient interest rate requirements, such as credit unions. LendKey, for example, is a marketplace that connects credit unions and banks to your specific situation. ❌ You plan on taking out another loan soon If you plan to take out another major loan soon, such as a mortgage, refinancing student loans might pose a challenge. The process involves a hard inquiry on your credit, and closing several credit lines to open a new one may hurt your credit score. This could hinder your ability to secure the best rates on a loan. What to do instead Wait to refinance: If you have an impending mortgage or other large loan, consider holding off on refinancing your student loans to ensure the best possible rate on that new loan. Explore other options: There are ways to save on student loan repayment without refinancing. Focus on strategies to pay off student loans faster, reducing interest costs. Read More Pros and Cons of Refinancing Student Loans How much can you save by refinancing? Refinancing student loans most often centers on the prospect of saving money. A lower interest rate can cut down the overall cost of the loan, making refinancing a sensible option. Use our refinancing calculator to estimate how much you can save with a lower interest rate. Refer to our student loan refinancing calculator page for comprehensive instructions for using the calculator, including how to calculate the interest rate when dealing with multiple loans. Current Student Loan Information Current Loan Balance Current Interest Rate Remaining Loan Term New Student Loan Information New Interest Rate (APR) New Loan Term Calculator Results Current New Savings Interest Rate Monthly Payment per month Term Length years years years Total Interest Total Cost By refinancing your student loans, you could lower your monthly payments by . By refinancing your student loans, your monthly payments will be higher. You could save overall on your student loans You will pay more on your student loans and pay them off years ahead of schedule. and pay them off years behind schedule.