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

Student loan refinancing works by allowing you to replace one or multiple student loans with a new one, often with different terms. This can lead to lower interest rates, reduced monthly payments, or a more suitable repayment term. 

Refinancing can save money over the life of the loan and offer a financial strategy tailored to current needs. But it’s not for everyone. Evaluate  several considerations and potential trade-offs before deciding to refinance. 

We’ll explore the factors that can make refinancing a beneficial or unfavorable option, helping you make an informed decision based on your unique situation.

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 that highlights 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 loansYou have federal loans and may need the benefits
You have stable incomeYour loans are in default or you’ve missed payments
You have a good credit scoreYou’ve declared bankruptcy
You would save moneyYou have bad credit
You have variable interest ratesYou 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.

How does student loan refinancing work? infographic

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. They provide detailed insights to guide your decision-making.

✅ 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 stable income 

Having stable income is a crucial factor when considering refinancing student loans. Stable income means a consistent and reliable flow of money, usually 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 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:

  • Citizens Bank requires the borrower and cosigner to have a minimum income of $12,000.
  • ELFI requires $35,000.
  • SoFi doesn’t have a minimum but requires you to show you have extra funds after monthly expenses.
  • Earnest requires evidence 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 typically qualify for a lower interest rate, especially on private student loans.

Gauge showing a score of 670 - 799 as a good credit score

This lower rate can translate into significant savings over the life of your loan. For instance:

  • SoFi sets a minimum credit score of 650 for refinancing.
  • Earnest requires a minimum score of 680.

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 ones.

Image showing an example of consolidating three private student loans into one to show how private student loan consolidation, or student loan refinancing, works.

Specific loans, including Federal PLUS Loans and private student loans, often carry high interest rates. These could be prime candidates for refinancing.

You might have secured those higher rates when you didn’t have much credit history, leading to a lower score. But if you’ve managed to raise your credit score through consistent on-time payments, it may be the right time to explore refinancing.

To make this decision, understanding your potential savings is key. Use the calculator below to determine whether refinancing would lead to financial benefits for you.

✅ You have variable interest rates

Variable interest rates on private loans fluctuate with market conditions, as you can see 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.

Graph depicting fluctuation of variable interest rate vs. fixed rate

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 opt to 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.

When you shouldn’t refinance your student loans

Refinancing student loans isn’t always 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: It’s time to reach out to your lender. Many lenders provide options to help you regain control of your loan situation.

  • Extending repayment terms: By extending the terms, you can lower 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, even though they may add to the overall cost of your loan. Weighing these options against the severity of your financial situation is key to making 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. 

Specific lenders, such as Earnest, state 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 (e.g., a mortgage)

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.

How much can you save by refinancing?

Refinancing student loans mainly centers on the prospect of saving money. Achieving 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 by shifting to a more favorable 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 . You could save overall on your student loans and pay them off years ahead of schedule.