When Should You Refinance Student Loans

It's smart to refinance private student loans as soon as you can get a better deal than you currently have.
Cecilia Clark
By Cecilia Clark 
Edited by Des Toups
When to Refinance Student Loans

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Generally, the sooner you refinance student loans, the better.

When you refinance, a lender pays off your existing loans with a new one at a lower interest rate. That can save you money in the long run — and from the very first payment.

When to refinance student loans depends on whether you’ll find a rate that makes a difference in your life. A $30,000 private student loan with an 8% interest rate, for example, will give you a $364 monthly payment over 10 years. Refinancing to a 10-year loan term at 5% interest will save you $5,494 in total and $46 per month — enough to make a dent in an electricity, cable or phone bill.

Refinancing private student loans can be an easier decision if your credit score and income can qualify you for lower interest rates.

But if you have federal student loans, refinancing will remove eligibility for programs like income-driven repayment, Public Service Loan Forgiveness or the current student loan forbearance that has paused federal loan payments and set interest rates to zero since March 2020.

When to refinance student loans

Not everyone can qualify to refinance student loans. You typically need a college degree, good credit and an income that lets you comfortably afford your expenses and debt payments. If you meet these requirements, consider refinancing in these circumstances:

  • The savings will make a difference. It’s not necessary to wait until you have perfect credit to refinance, as long as you can qualify for a better rate than you have now. See if the lender offers a student loan refinance bonus, to boost your savings even more.

  • You have private student loans. You pretty much have nothing to lose by refinancing private student loans because these loans aren’t eligible for federal loan programs that can lower your monthly payment or put you on track for loan forgiveness.

  • You have student loans with high variable rates. It can be difficult to predict payments with a variable rate loan, and even loans with low variable rates can get more expensive to repay. Before they rise, consider refinancing to lock in a fixed rate.

  • The rate environment is strong. Both fixed and variable private loan refinancing rates can change based on economic factors, like the Federal Reserve hiking or cutting rates. When rates are pushed down, you may want to take advantage of the situation by refinancing.

  • Your finances have improved. If refinancing doesn’t make sense right when you graduate, consider it once you’re on sturdier financial footing. And if you previously refinanced but just paid off some credit card debt or got a raise, for example, you may now get a better rate — you can refinance as often as you want.

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Readers also ask

You should refinance your student loans if you would save money, you can qualify and your finances are stable. To qualify for the lowest rates — and the biggest savings — you’ll need an excellent credit score, clean credit history and enough income to support your debts and expenses.

If you have federal loans and are struggling to make consistent payments, refinancing would disqualify you from more helpful programs. Instead, consider federal student loan consolidation or an income-driven repayment plan.

You can refinance student loans as often as you’d like. If you’ve already refinanced and your credit has recently improved, consider refinancing again to lock in a lower rate. There are no application or origination fees, so refinancing won’t cost you anything.

Yes, if you qualify for a lower interest rate. With a lower rate, you’ll have a lower monthly payment, freeing up cash for other expenses. You could also choose a shorter repayment schedule, which will help you become debt-free faster and save money in interest long-term.

When you shouldn’t refinance student loans

You generally can't or shouldn't refinance if:

  • You have federal loans and could see a drop in income. If there's a chance your income could decrease, don't refinance federal student loans. You'll miss out on federal student loan relief options, as well as government programs like income-driven repayment.

  • You're pursuing student loan forgiveness. Refinancing federal loans makes them ineligible for federal loan programs including Public Service Loan Forgiveness and Teacher Loan Forgiveness.

  • You recently declared bankruptcy. It's not impossible to refinance student loans if you've declared bankruptcy, but it's more difficult. Many lenders require that a certain amount of time — anywhere from four to 10 years — must have passed since your bankruptcy.

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