When does it make sense to refinance your student loans?
Refinancing can streamline how many different payments you are juggling each month


With President Biden's plans for student loan relief still in limbo, some borrowers saddled with debt have begun seeking other options. One way to make student loan debt easier to manage — and potentially lower your interest rate and/or switch up your repayment term — is through student loan refinancing. Refinancing involves moving your existing student loans into one new loan, which can streamline how many different payments you are juggling each month.
This may sound appealing, particularly "with the Federal Reserve cutting its benchmark interest rate in September by half of a percentage point," ushering in a "new rate environment," said Money. However, while "several lenders are advertising rates that are slightly lower than they were at this time last year," on the whole, "refinance rates are still well above where they were a few years ago."
So should you or shouldn't you pursue refinancing? Here is what to consider.
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
When is refinancing your student loans worth considering?
There are a few scenarios where refinancing your student loans can make a lot of sense. You may want to pursue this option if:
You have private student loans. While technically you can refinance private or federal student loans, it makes the most sense with private 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," said NerdWallet.
You have solid credit and a steady income. To qualify for student loan refinancing, you will usually need a good to excellent credit score of at least 650 and a "steady income to meet your new loan's monthly payment," said LendingTree. Other factors that will impact your eligibility include your debt-to-income (DTI) ratio and your loan balance — "lenders set minimum and maximum borrowing amounts for refinance loans, and if your remaining balance is too small or too large, you may not qualify," said CNN Underscored.
You can get a lower interest rate. "Not every refinancing scenario will help you save money," but if you have run the numbers and see a "clear financial benefit," then you might consider moving forward, said CNN. Just be wary of securing lower payments by extending your repayment term, as this will lead to paying more overall.
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
When should you avoid student loan refinancing?
You may want to rethink refinancing your student loans if the following apply:
You have federal student loans. If you have federal student loans, think twice before refinancing, as "by doing so, you'll lose access to government protections like income-driven repayment plans, student loan forgiveness programs and deferment and forbearance," said LendingTree. For instance, if you have been working toward loan forgiveness and decide to refinance, you would "lose federal forgiveness eligibility and would have to repay the entire balance," said CNN.
You have declared bankruptcy or defaulted on your loans. "In many cases, borrowers with defaulted student loans are not eligible for refinancing," said CNN, and "similarly, most lenders won't consider your application if you have a bankruptcy on your credit reports."
You will not save by refinancing. "If your new loan has a higher interest rate than you currently pay, you may not see any financial benefit from refinancing," said CNN. You might also think twice if a lender charges steep fees that "outweigh the savings," said Bankrate. For instance, "if you have relatively little left to pay on your student loans, those fees could end up being more than what you’d save in interest."
What are other options for managing student loan debt?
Of course, refinancing is not your only option to get a handle on student loan debt. Alternatives include:
Loan consolidation: For those with federal loans, consolidation allows you to combine your loans without losing access to federal benefits and protections.
Employer assistance programs: "Some employers offer student loan repayment assistance as part of their benefits package," said Bankrate. To find out if yours is one of them, ask your HR department.
Income-driven repayment plans: Though only available for federal loans, these repayment plans allow you to "base your monthly payment on your income and family size" and potentially "even qualify for loan forgiveness after 20-25 years of payments," said Bankrate.
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
-
5 cracking cartoons about the new Cracker Barrel logo
Cartoons Artists take on MAGA designs, real issues, and more
-
Should you downsize for retirement? Here's what to consider.
The Explainer Moving to a smaller place may seem easier, but there are also some real benefits to staying put
-
What to do if you want to move but don't want to give up your low mortgage rate
the explainer 30-year mortgage rates are currently averaging 7% — and homeowners who secured rates closer to 3% during the pandemic are reluctant to sell their homes
-
Should you downsize for retirement? Here's what to consider.
The Explainer Moving to a smaller place may seem easier, but there are also some real benefits to staying put
-
What to do if you want to move but don't want to give up your low mortgage rate
the explainer 30-year mortgage rates are currently averaging 7% — and homeowners who secured rates closer to 3% during the pandemic are reluctant to sell their homes
-
Is hands-off investing the way to go?
The Explainer In many cases, your money might be better off left alone
-
What to know before turning to AI for financial advice
the explainer It can help you crunch the numbers — but it might also pocket your data
-
Should you add your child to your credit card?
The Explainer You can make them an authorized user on your account in order to help them build credit
-
How will the new Repayment Assistance Plan for student loans work?
the explainer The Repayment Assistance Plan (RAP) will replace existing income-driven repayment plans
-
What taxes do you pay on a home sale?
The Explainer Some people — though not many — will need to pay capital gains taxes upon selling their home
-
What is an upside-down car loan and how do you get out of it?
the explainer This happens when the outstanding balance on a car loan exceeds the vehicle's worth