[Expert Q&A] Should I Refinance My Student Loans? 5 Times You Should Consider It and 5 When You Shouldn’t

Student loan refinance debt represents 1.6% of total student loan debt in the U.S. That might sound small, but it’s a massive $29.3 billion. With that high of a dollar amount, a significant number of college graduates have found value in refinancing student loans. But is it the right move for you?

As a Certified Financial Education Instructor (CFEI®), I sometimes recommend refinancing student loans, but only under specific circumstances—particularly if you qualify for a much lower interest rate, won’t qualify for public loan forgiveness, and don’t need income-driven repayments. Below, I’ll walk you through scenarios in which I’d typically advise considering a student loan refinance—and when it’s better to stay the course with the student loans you already have.

Table of Contents

1. What is student loan refinancing?
2. What happens when you refinance a student loan?
3. 5 times when refinancing your student loan is a good idea
   1. ✅ 1. You can get a lower interest rate
   2. ✅ 2. You aren’t eligible for student loan forgiveness
   3. ✅ 3. You already have private loans
   4. ✅ 4. You want smaller monthly payments
   5. ✅ 5. You have variable-interest loans
4. 5 reasons to rethink refinancing your student loans
   1. ❌ 1. You might need federal loan benefits
   2. ❌ 2. You work in public service
   3. ❌ 3. You have bad or fair credit
   4. ❌ 4. You have low-interest loans
   5. ❌ 5. Your only motivation is consolidating multiple loans into one

What is student loan refinancing?

Student loan refinancing involves taking out a new loan from a private lender to replace your current student loans, whether federal, private, or both. The goal is typically to secure a lower interest rate, reduce monthly payments, or adjust your repayment terms. 

By refinancing, you may save money on interest over the life of the loan or pay off your debt faster. However, refinancing federal loans means losing access to benefits such as income-driven repayment plans and forgiveness programs. To explore how refinancing works and whether it’s right for you, check out our guide to student loan refinancing. 

Be sure to view the 10 must-know pros and cons of refinancing student loans.

Read More

Make the most of your refinance by working with one of the best student loan refinance companies.

What happens when you refinance a student loan?

Here’s what happens when you refinance a student loan: A private lender will pay off all your student loans (those included in the refinance) on your behalf. That debt will transfer to the new lender, and you’ll have a single monthly payment over a set number of years to pay off the loans.

Under the right circumstances, refinancing a student loan can offer a number of benefits, such as less money spent on interest or smaller monthly payments. But you should always consider the trade-offs: For instance, when you refinance to a private lender, you’ll no longer be eligible for federal student loan benefits, such as income-driven repayment plans and loan forgiveness. 

5 times when refinancing your student loan is a good idea

When should you refinance your student loan? It might make sense in a handful of scenarios, including when:

✅ 1. You can get a lower interest rate

The main reason to refinance your student loans is to lock in a lower interest rate. Generally, you’ll need a strong credit score and solid income to find a private student loan with a lower interest rate than what you currently have.

How much money a student loan refinance can save you depends on just how big of a difference there is between your existing interest rates and the new rate you qualify for—but keep in mind that the repayment term of the refinanced loan, plus any refinance fees, also affect your total savings.

Use our student loan refinance calculator to see how much you can save by refinancing to a lower interest rate.

Tip

Use a comparison shopping tool—Credible is our favorite—to see your prequalified refinance rates with several lenders at once.

Most of my clients want to refinance their loans because they qualify for a more favorable offer, which is typically from private student loan providers. The other most common reason I encounter is wanting to remove a cosigner.

✅ 2. You aren’t eligible for student loan forgiveness

Graduates who work in government service or a nonprofit may be eligible for public service loan forgiveness (PSLF) after 10 years of service, but the option for forgiveness gets eliminated when you refinance.

Similarly, people on income-based repayment (IBR) plans qualify for student loan forgiveness after 20 or 25 years. That sounds like a long time, but IBR plans may have low monthly payments, depending on your income. Over 20 to 25 years, you still might not pay that much toward your loans.

However, if you won’t qualify for any of these student loan forgiveness programs, you have much less to lose by refinancing to a private student loan.

✅ 3. You already have private loans

Your private student loans aren’t eligible for any federal student loan benefits, so you have fewer reasons not to refinance them. If you find a better deal (a lower fixed interest rate) through a student loan refinancer, absolutely make the switch.

✅ 4. You want smaller monthly payments

If your monthly loan payment is unmanageable within your current budget, you may want to consider refinancing. I would advise looking into income-based repayment plans on your federal loans first because you might be able to access student loan forgiveness down the road—and deferment and forbearance are possible if times get tougher.

However, if you make good money but simply have too many other bills or discretionary expenses (including vacations, expensive hobbies, or luxury purchases), you’re less likely to qualify for IDR plans. A student loan refinance, either with a lower interest rate or a much longer repayment term, is another way to get your monthly payment size down.

✅ 5. You have variable-interest loans

If any of your private student loans have variable interest rates, and you’re concerned those rates will go up during your repayment period, it may be worth refinancing to a fixed rate. A fixed rate means a stable monthly payment you can budget for more easily.

Our team’s highest-rated student loan refinance lender offering fixed rates is SoFi—it’s an excellent place to begin shopping. With SoFi, you can check your rate without affecting your credit.

5 reasons to rethink refinancing your student loans

Refinancing student loans can make sense in several scenarios, but there are also times I suggest you leave your loans, particularly federal loans, as they are now. Rethink refinancing student loans if:

❌ 1. You might need federal loan benefits

If you have federal student loans, think carefully before refinancing. In many cases, I advise staying the course with your federal loans if you can manage the monthly payments because of the benefits that come with federal loans, including:

• Income-driven repayments
• Deferment
• Forbearance

For instance, an IDR plan can be a terrific option if you launch a career in a historically low-salary industry, such as education or nonprofits. 

I don’t love to remind married people who largely depend on their spouse’s income that they could, at some point during their federal loan repayment, become divorced or widowed, but it’s a real possibility to consider—and having access to an income-driven repayment plan could be a game-changer in such a scenario.

Federal loans also have deferment and forbearance options that can make a huge difference, including if you:

• Get called into service as a member of the military
• Lose your job
• Go on medical or family leave

If my client wants to pay off their loan faster and has a stable income, I recommend refinancing their student loans with more favorable terms. If my client is facing financial insecurity or uncertainty, I recommend they keep their federal loans so they have access to the repayment plan options when facing financial hardship. 

❌ 2. You work in public service

Another benefit of federal loans is that they’re eligible for public service loan forgiveness (PSLF). If you work for the government or a nonprofit and make 120 payments toward your student loan debt, you can have the rest of your federal debt forgiven. But if you refinance that debt at any point with a private loan, it’s no longer eligible for PSLF.

That said, the future of federal loan forgiveness under President Trump is unclear. In both 2018 and 2019, his proposed budget would have ended the PSLF program; both proposals ultimately failed.

However, now that Trump has returned to office—and with reports of an executive order in the works to eliminate the Department of Education, there’s no telling what cuts to federal student aid (and forgiveness programs) could be coming in the next four years.

That said, I strongly advise keeping your federal loans if you’re eligible for PSLF, but follow along closely during this administration. My advice could shift if the PSLF program is eliminated.

❌ 3. You have bad or fair credit

If you have poor or even fair credit, it’s unlikely that you’ll qualify for a refinance. Though it varies by lender, the credit score needed for a student loan refinance is typically 670 or higher.

Even if you qualify, it’s unlikely you’ll qualify for a lower interest rate than the one you already have, especially if you have federal student loans.

❌ 4. You have low-interest loans

For many grads, the main reason to refinance a student loan is to lock in a lower interest rate. But if your loans are already low-interest, it’s unlikely you’ll find something better.

Even if the interest rates are comparable or the refinance rate is a little lower, refinancing might not save you money at all if the refinance fees are steep or the term length is longer than your current loan.

Use our student loan refinance calculator to determine how much you’d save by refinancing.

❌ 5. Your only motivation is consolidating multiple loans into one

One benefit of refinancing your student loans is that you can consolidate multiple loans with various monthly payments into a single loan with one monthly payment. But student loan consolidation is not reason enough to refinance; it’s just a bonus.

If managing multiple loan payments is your only reason to pursue refinancing, I recommend you instead consider consolidating your federal loans with a Direct Consolidation Loan—but only if it will also lower your overall interest rate (you’ll consolidate various loans with different rates into one loan with a single rate) or make the total amount you spend each month more manageable.

Why go this route instead? You’ll still be eligible for federal student loan benefits.

Note: Direct Parent PLUS loans are not eligible for consolidation.

Read More

10 Must-Know Pros and Cons of Refinancing Student Loans 

Recap: Should you refinance your student loans?

Situation	Yes/No
You can get a lower interest rate or eliminate a variable rate	Yes
You’re struggling with monthly payments and can make them smaller by refinancing	Yes
You’re eligible for public service loan forgiveness	No
You merely want to reduce the number of loans you have	No
You might rely on income-driven repayments, deferment, or forbearance at some point	No
You have private loans	Yes
You have bad credit	No

Read More

Refinancing right for you? Compare the best student loan refinancing companies before making a decision.