When to Refinance a Student Loan

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Point of Interest

Refinancing your student loans is often the best way to lower your interest rate or monthly payments for both federal and private loans.

Americans owe a lot in student loans, with a combined total of over $1.4 trillion dollars in student loan debt. Breaking that number down shows that the average student owes about $35,359 on their student loans.

For the young, bright-eyed college grad looking to start a career and adult life, this means making a $350 payment each month over the next 10-years. That’s $350 taken from money that could go to rent, bills, savings accounts, or anything else life has to offer.

These large student loan payments can easily strain budgets and make life harder for people who owe on their loans. If student loans are impacting your life and you often find yourself asking, “Should I refinance my student loans?” then it may be time to explore refinancing options. In many cases, refinancing your student loans will give you a bit more financial leeway and budget control.

What does it mean to refinance a student loan?

Most people refinance their student loans with a goal of getting a lower interest rate, but you can also refinance to lower your monthly payments or extend your loan terms, too.

To do this, you simply get a new private loan to replace your current student loan or loans. When completing this process, the typical hoop-jumping for getting any loan will be required. You must qualify, and qualifying means having your credit and employment history checked.

Tip: While federal loans are the most popular way for students to cover education expenses, the government doesn’t always have the lowest rates. The best student loan refinancing rates can often beat your federal loans and are always worth looking into.

For a lot of people, refinancing means saving money on interest and getting better control over their finances. Finding the right lender and best loan terms are paramount to that happening. Thankfully, there are plenty of student loan refinance options to compare and choose from.

When to refinance your student loans

Whether you have federal or private student loans, you should refinance when:

  • Your interest rate is too high
  • You’re having trouble making your monthly payments
  • You need more flexible loan terms

It’s often a combination of these factors that lead people down the road to refinancing. After all, with the average student debt being so high, a slightly lower interest rate or a lesser monthly payment can alleviate some financial burden and free up money to help meet other goals, like building a savings or retirement fund.

No matter what your motive is, as a general rule, refinancing is best done as soon as possible. That doesn’t mean you should rush to the nearest loan provider when you get a whiff of a better rate, though. Slow down. Once you refinance, you’re locked into a whole new set of terms, so take the time to shop around.

When to avoid refinancing your student loans

Refinancing student loans means working with a private lender. The federal government does not offer loans for refinancing, so one thing to keep in mind is that when you refinance through a private lender, you lose all the protections that your federal loans had. Federal-based income-based repayment plans, forbearances, economic hardship deferment and loan forgiveness are gone after refinancing.

Finances can be fickle when you’re right out of college. Finding a job and settling down in a place is a challenge for anyone. If you’re worried about your financial stability and the majority of your loans are with the government, then avoid refinancing. If you have private loans, you’re not missing out on anything.

Tip: Certain career fields or work qualify for loan forgiveness, in which the government will cancel your federal loan obligations if you meet certain criteria. Exploring these offerings is a smart thing to do before considering refinancing.

No matter where your loans come from, if you have bad credit, then refinancing will probably not be worth it. Bad credit makes it hard to lock down worthwhile rates. Plus, the application process will ding your credit score, too – which will not do you any favors if you’re trying to improve your credit.

Pros and cons of refinancing your student loans

Choosing to refinance your student loans is no minor decision. The opportunity to save a lot of money is alluring, but there are costs that you absolutely need to weigh before taking the plunge.


  • Lower interest rates — Even an interest rate that’s just a few points lower than your old one can save you a lot of money in the long run.
  • Lower monthly payments — A smaller payment each month can help you out substantially with other bills and necessities, especially when you’re right out of college and your financial responsibilities increase from what they were.
  • Faster loan pay-off — If you get a lower interest rate, you’ll owe less money in total, which means you may be able to pay off your loans faster than expected.
  • Flexible loan terms — Maybe you need more time to pay off your loans, or maybe you need less. Either way, refinancing allows you to tweak your terms to fit your life.


  • Losing federal protections — Things like the grace period, repayment plans and economic hardship protections are all gone when you switch from federally-backed loans to private lenders.
  • No loan forgiveness — The government offers several programs that will forgive your loans if certain criteria are met. You lose these program options when you refinance.
  • You must qualify — Not everyone will be able to qualify for refinancing due to poor credit or weak employment history.

Alternatives to refinancing your student loans

While refinancing is a great way to manage your student loans, it’s not the only option you have. There are a few other things you can do to help take control of your debt.

Debt consolidation

Debt consolidation is a popular method people with student loans use to get a better handle on their loans. If you have multiple debts (credit card, other loans, etc.), you can combine them under one loan and one interest rate.

Tip: Due to the complexity of everyone’s personal situation, using a debt consolidation calculator is a great way to see exactly how this method can help you.

Paying less on interest charges over time is still the goal, but as an added benefit, consolidation also makes managing your debt far more convenient. When you have one repayment plan, it’s easier to keep track of your payments and how much you owe.

Deferment or forbearance

Deferment or forbearance is a temporary alternative to refinancing. If you have government loans and you are experiencing economic hardship, you may have the option to put off your loan payments for a brief period until you can get back on your feet.

Sometimes people use these terms interchangeably — this is wrong.

During a period of deferment, interest doesn’t accrue. The opposite is true with a forbearance; interest will accumulate even during a payment pause.

Apply for refinancing with a cosigner

If you lack the credit or work history to qualify for a decent refinancing rate on your own (or you can’t get approved), you may have the option to apply with a cosigner. A cosigner boosts your chances of approval and your chances of getting a great rate.

Even if you can get approval, it still might be worth piggy-backing off of someone else’s credit history, since most college grads don’t have an extensive credit history. The catch is that the cosigner becomes liable for the debt if you default, which is why this role is usually filled by family members or close friends.

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Evan Manwell

Evan Manwell is a personal finance writer based out of Portland Oregon. He has worked closely with both banks and credit unions to write about personal loans, credit cards, student loans, cryptocurrencies, and advances in fintech.