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With student loan refinancing, your student loans are paid off with one new loan — which might get you a lower interest rate or reduced monthly payment. But if you’re looking into refinancing, you might be asking yourself if refinancing student loans is a good idea.
While refinancing could help streamline your repayment, whether it’s worth it or not depends on your situation.
Here are some common scenarios that could make refinancing a good choice or a bad idea:
| Scenario | Should you refinance student loans? |
|---|---|
| You have high-interest student loan debt | Yes, you should refinance |
| You want to pay off your debt early | Yes, you should refinance |
| You want to switch interest rate types | Yes, you should refinance |
| You have multiple loans and want to simplify your payments | Student loan refinancing probably makes sense |
| You have reliable income and good credit | Student loan refinancing probably makes sense |
| You’re eligible for student loan forgiveness | No, you shouldn't refinance |
| You have low or unsteady income | No, you shouldn't refinance |
| You have poor credit and no access to a creditworthy cosigner | No, you shouldn't refinance |
| Your loan already has a low interest rate | No, you shouldn't refinance |
When you should refinance your student loans
Student loan refinancing could be helpful in some situations.
Here are a few scenarios where refinancing could be a good idea:
1. You have high-interest student loan debt
Student loan refinancing could be a good move if you have high-interest student loan debt.
For example, borrowers who took out PLUS Loans between July 1, 2019, and June 30, 2020, have an interest rate of 7.08%. With such a high rate, your loan balance could rack up thousands in interest charges.
If you have good credit, you might qualify for a lower rate with refinancing, which could save you a significant amount of money over time.
If you’re wondering how competitive your loan is, the loan score tool below can help. Just enter your APR, credit score, monthly payment, and remaining balance (estimates are fine) to see how your loan stacks up.
Learn More: Borrowers Get 6-Month Break on Federal Student Loan Payments and Interest
2. You want to pay off your debt early
If you want to pay off your student loans faster, refinancing could help. When you refinance, you could qualify for a lower interest rate or even shorten your loan term.
This means you could pay off your loan months or even years ahead of schedule.
Check Out: Before Paying Off Your Student Loans Early, Read This
3. You want to switch interest rate types
If you have federal student loans, your loans have fixed interest rates. If you have private student loans, you might have variable or fixed interest rates. Depending on your situation, you might want to switch your interest rate type.
For example, maybe you’d like to get a fixed interest rate that won’t change over time — meaning your payment will also stay steady. Or maybe you’re planning to pay your loans off quickly and want a lower variable rate, even though your rate could fluctuate.
When you refinance your student loans, you can choose the interest rate type that works for you.
Learn More: Fixed or Variable Rate Student Loan: Which Is Right for You?
4. You have multiple loans and want to simplify your payments
If you’re making the minimum payments on your loans but are having trouble keeping track of all the different loans, lenders, and interest rates, student loan refinancing could help.
When you refinance, your loans are combined into one new loan — so you only have a single monthly payment with one lender to remember.
You can refinance federal student loans, private loans, or a mix of both types. You can also choose to refinance only part of your balance if you’d prefer.
A Direct Consolidation Loan combines your loans into one new federal loan. Your new interest rate is the weighted average of all your interest rates, rounded up to the nearest one-eighth of one percent.
Also, unlike private student loan refinancing, federal consolidation doesn’t require a credit check.
Learn More: Private Student Loan Consolidation
5. You have reliable income and good credit
To be eligible for refinancing, you’ll need to have reliable income and good credit. With both of these in place, you’ll be more likely to qualify for a competitive interest rate — and you should be able to afford the monthly payments afterward.
Keep in mind that if you have poor or no credit, having a creditworthy cosigner could help you qualify for refinancing — and might also get you a lower interest rate.
Learn More: Private Student Loan Repayment Options
When you shouldn’t refinance your student loans
While student loan refinancing might be a good idea if you want to pay off your student loan debt faster, it’s not right for everyone.
Here are some scenarios when refinancing probably isn’t worth it:
1. You’re eligible for student loan forgiveness
When you refinance, your federal loans are merged into one private loan. This means you’ll no longer be eligible for federal student loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF). And unfortunately, private student loan forgiveness isn’t an option.
If you meet the qualifications for PSLF or another forgiveness program, refinancing might not be the best idea.
Under PSLF, your loans could be forgiven tax-free after you work for an eligible employer for 10 years and make 120 qualifying monthly payments.
But if you refinance, you’ll lose your eligibility for PSLF, as well as other federal student loan forgiveness programs.
See: Student Loan Refinancing Risks
2. You have low or unsteady income
If you have federal student loans and your income is low or unstable, refinancing might not be a good idea. With federal student loans, you can take advantage of federal student loan repayment options.
For example, if you sign up for an income-driven repayment plan, your monthly payment will be based on your income. Depending on your situation, an income-driven repayment plan might significantly lower your student loan payments.
If you refinance, you’ll no longer be eligible for income-driven repayment plans.
Learn More: 11 Ways to Lower Your Student Loan Payments
3. You have poor credit and no access to a creditworthy cosigner
When you refinance your student loans, the lender will look at your income, credit score, and credit history to decide if you’re eligible for a loan. They’ll also use this information to determine your interest rate.
If you have poor credit and don’t have access to a creditworthy cosigner, you might not qualify for refinancing. Or you could end up with a higher interest rate than you hoped for, which would negate the benefits of refinancing.
Check Out: How to Refinance Student Loans With Bad Credit
4. Your loan already has a low interest rate
If you have a low interest rate on your student loan, you might not be able to lower it more through refinancing.
However, it’s still a good idea to check your refinancing rates to make sure. With Credible, you can compare your rates from multiple lenders in two minutes.
See Your Refinancing Options
Credible is 100% free!
Find out: Cost to Refinance Student Loans: Fees & Discounts Explained
Frequently asked questions
What is the difference between federal consolidation vs. refinancing?
Federal consolidation is only available to federal student loan borrowers.
With federal student loan consolidation, your federal loans are combined into a Direct Consolidation Loan, and your interest rate is the weighted average of your loans’ current interest rates, rounded up to the nearest one-eighth of a percent. You also have the option of extending your repayment term up to 30 years.
With refinancing, you can consolidate both federal and private student loans through a private lender. Your loans are combined into one, and you’ll get a new interest rate, monthly payment, and repayment term. If you have good credit, you might qualify for a lower interest rate than you currently have.
Remember that if you refinance, your federal loans become private loans, so you lose federal benefits like access to income-driven repayment plans and loan forgiveness.
Learn More: How to Consolidate Your Student Loans
What types of loans are eligible?
Both federal and private student loans are eligible for student loan refinancing. Parent student loans are also eligible. In some cases, you might even be able to transfer parent loans into your child’s name.
Most lenders require that you finish school to be eligible for refinancing, but some lenders will let you refinance without a degree.
Are there fees that come with refinancing student loans?
You might have to pay fees depending on the lender. Some common fees include:
- Origination fees
- Loan application fees
- Prepayment penalties
- Late fees for missed payments
If you refinance with Credible, you won’t have to worry about origination fees, application fees, or prepayment penalties — none of our partner lenders charge them. This means you could save money with refinancing right from the start.
What credit score do I need?
Most lenders have a minimum credit score that you’ll need to qualify for refinancing. For example, most of Credible’s partner lenders look for a credit score between 670 and 700 to refinance your student loans.
If your credit score isn’t that high or if you have a limited credit history, having a cosigner might help you qualify for a loan.
Do I need a cosigner?
As long as you have decent credit and verifiable income, a cosigner isn’t required to refinance your student loans. But if you have a limited or poor credited history or have insufficient income, a cosigner could help you qualify.
Also keep in mind that even if you don’t need a cosigner, having one could help you qualify for a lower interest rate than you’d get on your own.
