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Student loan refinancing can help lower monthly payments, lower interest rates, and streamline your repayment.

But before you decide if refinancing your student loans is right for you, make sure you understand when it’s a good idea and when it might not be.

Is refinancing your student loans a good idea? 5 scenarios to consider

Not everyone’s finances or goals are the same, so whether refinancing is right for you really depends on your own situation. See which scenario you’re in to see if you should refinance your federal loans and private loans:

Scenario 1: Your monthly payments are too high

Maybe you’ve missed a student loan payment or two because you can’t afford the monthly payments. If this is the case, you could consider refinancing to lower your monthly payments. Before making a decision, compare student loan refinancing lenders and see which ones can offer you lower monthly payments than what you’re paying now.

But it’s also good to remember that refinancing doesn’t always guarantee lower monthly payments. Depending on the loan options you qualify for, your new interest rate might be too high and could mean you’re paying more than you were if you didn’t refinance. If that’s the case, it’s not worth refinancing.

But typically, refinancing could save you thousands. Credible makes checking student loan refinancing rates across multiple lenders easy. Check your rates now in two minutes without impacting your credit score.

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Scenario 2: Your interest rates are too high

You might be able to make your minimum monthly payments on time, but your interest rate isn’t helping lower your loan balance. Plus, sky-high interest means you’ll pay more over the life of the loan.

Most of the time, refinancing will give you a lower rate — but it doesn’t always. This is because when you refinance with a private lender, your interest rate is determined by your credit score. If you don’t have good credit, you might not qualify for rates that are lower than your current loans. This not only boosts your monthly payment, but how much you’ll end up paying over the life of the loan.

Only consider refinancing in this case if you’re able to secure a lower interest rate than your current loans. If there aren’t any lenders that can offer you that, you might want to put off refinancing your student loan debt until that’s possible.

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Scenario 3: You can afford higher monthly payments

You’re not happy with the idea of paying the minimum amount every month for a decade (or longer). The longer your loan terms, the more money you’ll end up paying over the life of the loan in interest — and that doesn’t sound good to you. Instead, your go-getter attitude wants to pay off your loans as soon as possible.

If you refinance your loan, you can set up payments to ensure they’re paid off by a specific date — like in just five years. This means your monthly payments will be higher, though, so make sure you have a steady income and stable job or else you might not be able to afford it.

Scenario 4: You have too many loans to keep track of

You’re making the minimum payments on all your loans, but having trouble keeping track of all the different loans, lenders, and interest rates. Student loan refinancing can help keep your loans organized and make sure you never miss a payment by combining multiple loans into one new loan so you only have a single monthly payment to keep track of.

It’s a good idea to refinance if you have many different types of loans with different lenders — both federal student loans and private student loans. But if you only have federal loans, you could consider federal loan consolidation instead. A Direct Consolidation Loan combines your loans and your new interest rate is the weighted average of all your interest rates.

While refinancing and consolidation are similar, they aren’t quite the same. Consolidation is with the federal government, while refinancing is available through private lenders. Your credit history determines your interest rate for refinancing; consolidation doesn’t check your credit report.

Learn more: Guide to Student Loan Consolidation

Scenario 5: You’re considering student loan forgiveness

You’re not in the highest-earning job you’d like, but you’re working in a career or job that offers student loan forgiveness. For example, with Public Service Loan Forgiveness, your student loan balance is forgiven after paying your loans for a decade if you work in a specific job sector.

Refinancing disqualifies you from receiving loan forgiveness and also means you can’t apply for any income-driven repayment plans. So if you meet the qualifications for forgiveness or an IDR plan like income-based repayment, refinancing might not be the best idea.

Is it time to refinance your student loans?

Refinancing isn’t always the best answer for everyone. Consider all your options before you decide to refinance your student debt.

As you compare different student loan repayment options, think about what would be best for your needs right now. If you’re looking to lower monthly payments, interest rates, or how much you pay over your loan terms, refinancing might be a good idea.

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About the author
Dori Zinn
Dori Zinn

Dori Zinn is a student loan authority and a contributor to Credible. Her work has appeared in Huffington Post, Bankate, Inc, Quartz, and more.

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