In the best cases, refinancing your student loans can help you save on interest in both the short and long term. But it might not be the right choice for everyone — or the right time. Knowing when to apply and when to hold off is key.
Consider this before you refinance federal student loans
Most student loan relief — like postponing of payments through the CARES Act — is only available on federal student loans. While you may be able to snag a lower interest rate by refinancing with a private lender, you’ll lose access to many of the benefits offered by the government.
Instead, consider looking into federal student loan consolidation to combine payments and potentially lower interest rates on some of your loans.
Am I ready to refinance my student loans?
While the timing depends on your career, current debt and other financial factors, you may be ready to refinance if you meet most or all of these points.
Stable income and employment
Good to excellent credit
Multiple loans with high rates
Moderate debt-to-income ratio
Should I refinance my student loans?
Make sure you’re in the right position to get better terms through refinancing before you spend hours researching and comparing lenders.
You could benefit from refinancing your student loans if you have …
Private or federal student loans — or both
A steady full-time job
You might be able to qualify for more favorable rates and terms by refinancing. Your credit score is solid, and you have a strong, steady source of income to make you a strong applicant.
Think carefully about refinancing if you have federal student loans: You stand to lose key benefits like access to forgiveness programs and income-driven repayment plans. Instead, you might want to sign up for a repayment plan that comes with a shorter term to help you save on interest over the life of your loan.
You could benefit from refinancing with a cosigner if you have …
Private or federal student loans — or both
A new job
Fair or better credit
Higher student debt load than annual salary
There’s a chance you could qualify for refinancing on your own. But taking on a cosigner with stronger credit, less debt or a longer work history might strengthen your application, resulting in stronger refinancing terms.
Got federal loans? Think carefully about refinancing. You could be giving up valuable benefits. If you’re looking to lower your monthly repayments, you might want to sign up for an income-driven repayment plan instead of refinancing.
You might want to hold off on refinancing if you have …
Federal student loans only
Higher student debt load than annual salary
You might want to wait until you have a stronger credit score, higher income or more work experience before considering refinancing.
But even then, you might not get much out of refinancing your federal loans since they tend to come with lower interest rates than private loans. Plus, you’ll lose access to several benefits that could help make your student loan debt more manageable. Consider signing up for a different repayment plan instead of refinancing.
Pros and cons of refinancing
For borrowers with steady income and good credit, there are benefits to refinancing. However, you may still end up paying more.
Potentially lower rates and fees
Combine multiple loans into one monthly payment
Change your loan servicer
Take advantage of lender benefits
Lose federal repayment protections and forgiveness
The best time to refinance is when you meet all of the following criteria:
You have excellent credit. The best deals are available to borrowers with a credit score of 740 or higher.
You’ve worked at the same job for a while. Lenders sometimes look at your employment history when you refinance. Having a steady job for a few years can help you qualify for a better deal.
Your debt-to-income (DTI) ratio is below 20%. Your monthly bills — including student loan repayments — shouldn’t be more than 20% of your monthly salary before taxes if you want the best rates.
You’re done with higher education. Refinanced loans generally aren’t as flexible as federal loans when it comes to deferring repayments while you’re in school. You might want to hold off until after you’ve completed your degree.
Who can benefit from refinancing?
The following types of borrowers might get the most out of refinancing their student loans:
Doctors, lawyers and other high-earners. Your job can influence the rates and terms you qualify for when you refinance. If you work in a traditionally high-salary profession, you might get a lower rate.
Private loan holders. Federal loans tend to have lower rates than private loans, especially if nobody in your family has good credit.
Graduate PLUS Loan holders. Graduate PLUS Loans come with the highest interest rates of all federal loans, making refinancing a better deal than it might be with other federal loans.
New residents. Student loans for international students tend to have higher rates. If you’ve recently become a permanent US resident, you might qualify for lower rates by refinancing.
Anyone unhappy with their servicer. Refinancing is the only way to change the company that handles your repayments with private loans — and the only option that can get you a lower rate with federal loans.
Who might want to hold off?
Borrowers might want to avoid refinancing for the time being if any of these apply:
Recent graduates. You likely don’t have the credit or income to get a better deal on your own — or in some cases at all. Many refinancing companies have income requirements for both borrowers and cosigners.
Bad-credit borrowers. Even with a cosigner, you could have a difficult time qualifying for a better rate — if at all. Many lenders also have minimum credit requirements for both borrowers and cosigners.
Public Service Loan Forgiveness (PSLF) applicants. Refinancing will make your loans ineligible for PSLF — and many other federal forgiveness programs.
Low-income borrowers. If your debt repayments are more than 20% of your monthly bills, you likely won’t get a better deal and might struggle to afford repayments.
Anyone on an income-driven repayment (IDR) plan. Private lenders generally don’t offer IDR plans. And any unpaid interest will be added to your new loan balance — making your loans more expensive in the short and long run.
3 alternatives to refinancing
If you have federal loans or don’t qualify for refinancing with a private lender, consider these options instead:
Switch repayment plans. There are a variety of repayment plans for federal student loans — including plans driven by your income — that can reduce your monthly payments without forcing you to give up federal benefits.
Borrow a Direct Consolidation Loan. If you have multiple federal student loans, a Direct Consolidation Loan combines them into one payment and averages your interest rates. It likely won’t lower your monthly repayments, but it can make it easier to manage your debt.
Reach out to your lender. If you have a private loan, reach out to its customer service team if you’re struggling to make payments. More often than not, your lender will have deferment or forbearance options in place to help you when you aren’t financially stable.
Refinancing could be a smart financial move after you’ve made headway in your career. But it might not be a wise choice if you’re fresh out of school. You can learn more about how it works by reading our guide to student loan refinancing.
Frequently asked questions
There’s no limit to how many times you can refinance your student loans.
It depends on what your goals are. If you want to get a lower rate, consolidation won’t help — you might even get a slightly higher rate.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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