When you refinance, a private lender pays off your existing student loans and issues you a new loan with new terms — ideally at a lower interest rate. Refinancing can save you money over time.
To qualify for refinancing, you typically need a college degree, good credit, a history of on-time payments and an income that covers your expenses and debt payments. As long as you meet a lender’s eligibility criteria, you can refinance private student loans as many times as you want. However, refinancing isn’t always your best option.
Here's when refinancing makes sense — and when it doesn't.
Should you refinance federal student loans?
It depends on your situation. You can only refinance student loans with a private lender. This means once you refinance federal loans, you can’t refinance them back to federal student loans. Refinancing federal loans with a private lender means giving up access to federal benefits like income-driven repayment plans and loan forgiveness.
The main reason to refinance federal loans is to save money. If you don't need federal benefits, like income-driven repayment options or Public Service Loan Forgiveness, and can qualify for a lower interest rate than you're paying now, refinancing could save you a significant amount over the life of your loan.
Refinancing federal loans also lets you:
- Make a single loan payment each month. If you also have private student loans, you can refinance them together with federal loans.
- Switch student loan servicers. You'll get a new private loan servicer through your refinancing lender, which you may want if you've been unhappy with your federal loan servicer.
Sometimes it makes sense to refinance only part of your federal loans. You could refinance your higher-interest grad PLUS loans, for example, but keep your undergraduate direct loans as they are. That preserves some federal protections in case your finances change unexpectedly.
If you’re debating whether or not to refinance your federal student loans, ask yourself:
- Will your job be at risk in the coming months?
- Would you struggle to afford all your financial obligations if your employment changes?
- Do you qualify for other federal loan forgiveness programs?
If you answered “yes” to any of these, refinancing may not be the right move.
» CALCULATE: See your savings with refinanced student loans
Should you refinance private student loans?
It depends on your financial needs. For many borrowers, the right time to refinance private student loans is after landing a good-paying job and building the credit history needed to qualify for a lower rate. The sooner you lock in that lower rate, the more you'll save over the life of the loan.
If you have both private and federal student loans, you can consider refinancing only the private ones. That keeps your federal benefits intact in case you need them later.
Refinancing private student loans is usually a good move if you can get a better rate or terms. But refinancing may not be worth it right now if:
- Market interest rates are high. You may not be able to beat the rate you already have.
- Your credit score or income is shaky. Lenders reserve their best rates for strong applicants.
- You can't find a reliable co-signer. If you don't qualify on your own, a creditworthy co-signer can help you get approved — but only if you have one.
- You’ve refinanced multiple times before. Every time you refinance, you could be extending the length of your loan, which could cost you more money in the long run.
Compare rates from multiple lenders before you decide to refinance. Most let you check your estimated rate with a soft credit pull, which won't affect your credit score.
Below are some example situations you might want to consider before refinancing your student loans. You can consult with a lender to learn more about what refinancing options are available to you.<br><br>
» FOR PARENTS: Best parent PLUS loan refinance lenders
Should you refinance or consolidate your federal student loans?
Another thing to keep in mind is the opportunity to consolidate your loans. Consolidation bundles multiple federal loans into a new federal loan to let you make a single payment or qualify for government programs. If you have federal student loans and want to keep some of the benefits, you can consolidate federal student loans instead of refinancing.
Student loan consolidation | Student loan refinancing | |
|---|---|---|
What does it do? | Combines multiple federal loans into one federal loan. | Combines private and/or federal loans into one private loan. |
Which loans can I combine? | Federal loans only. | Private and/or federal loans. |
Can I lower my rates? | No. | Yes. |
Can I access federal loan protections, repayment options and forgiveness programs? | Yes. | No. |
Will I pay just one monthly bill? | Yes. | Yes. |
While federal consolidation won’t lower your interest rate, you can gain federal protections and benefits when consolidating non-direct loans into a direct loan. The new loan’s interest rate is a weighted average based on your current loan amount and interest rates. To get a federal student loan consolidation, apply on the Federal Student Aid website.
» NEXT STEPS: How to refinance your student loans
