When Should You Refinance Student Loans?

The best time to refinance student loans is when you can qualify for a lower interest rate than you have now and you’re comfortable giving up any federal protections.

Broader rate trends can make a difference, too. Federal Reserve interest rate moves can push private refinance rates up or down over time. The Fed’s latest shift toward higher rates is worth keeping in mind if you’re considering a student loan refinance.

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When should I refinance my student loans?

Here are some situations when it could make sense to refinance your student loans: 

When should I avoid refinancing my student loans?

Not everyone benefits from refinancing student loans. If any of these situations apply to you, it may be smarter to hold off:

Key differences between refinancing federal vs. private student loans

Refinancing federal and private loans is not the same. Federal student loans offer benefits you may not want to sacrifice. 

“Federal loans come with protections people tend to undervalue until they need them,” says Josh Katz, a certified public accountant. “When you refinance federal loans with a private lender, those go away permanently.”

Borrowers with federal loans are eligible for different repayment plans, including an income-driven repayment plan that adjusts your monthly payments based on your income. Some borrowers may qualify for forgiveness programs, deferment and forbearance, and death and disability protections. 

The tradeoff may not be worth it if you anticipate needing any federal programs now or in the future. If you're only planning to refinance private student loans, you don't need to worry about losing federal benefits.

“Private loans are a cleaner decision,” says Katz. “There are fewer protections to begin with, so refinancing is usually just a math problem.”

Learn More: Should You Refinance Federal Student Loans?

How recent student loan policy changes impact refinancing

Federal student loan policy changes changed repayment flexibility and payment relief options, which could make refinancing more appealing for some borrowers who no longer benefit as much from federal protections.

Income-driven repayment plans

The Saving on a Valuable Education (SAVE) Plan ended in 2026, and the Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) plans are being phased out and will end by July 1, 2028. 

For federal loans first disbursed on or after July 1, 2026, borrowers are limited to the new Tiered Standard Plan and the Repayment Assistance Plan (RAP), which is now the only income-driven option. If you borrowed before July 1, 2026, you can continue to access the Income-Based Repayment (IBR) plan. However, if you’re enrolled in PAYE or ICR, you must switch to another plan by July 1, 2028, or you’ll be automatically switched to the RAP.

Deferment and forbearance

Unemployment and economic hardship deferment will no longer be available for student loans disbursed on or after July 1, 2027. Existing loans are still eligible, but if you borrow after that date, you can’t defer loan payments if you lose your job or experience hardship. You can still qualify for deferment for other reasons, including going back to school, enrolling in a graduate program, undergoing cancer treatment, or serving in active military duty.

Under the new federal rules, the length of time you can be in forbearance is shorter. Loans taken out on or after July 1, 2027, will be limited to up to nine months in forbearance within any 24-month period. Existing loans keep the current forbearance limits of no more than 12 months at a time.

If federal repayment options become less flexible, you may feel less incentive to keep your loans in the federal system. In that case, refinancing could help you secure a lower interest rate or repayment terms that better fit your financial situation.

How to qualify for a lower student loan refinance rate

“Shop around for the best interest rate available to you,” advises Mark Kantrowitz, a college financial aid expert and author. “It is a good idea to compare not just the monthly loan payments, but also the total payments over the life of the loan.”

There are several steps you can take to qualify for a lower student loan refinance rate:

1. Improve your credit score: A higher credit score can help you qualify for a lower rate. To raise your score, pay all your loans on time, keep your credit card balances low compared with your limits, and dispute any errors on your credit report. 
2. Stabilize your income: A high, steady income can also make you a strong candidate for refinancing and help you qualify for a lender's best rates. 
3. Reduce your debt-to-income (DTI) ratio: Lenders also look for a low DTI, as it suggests you can afford repayment on your loan. Aim to keep yours under 35%. 
4. Shop around: Many lenders let you prequalify, so you can compare rates and terms before applying. Prequalification typically uses a soft credit check, which won’t affect your credit score.
5. Consider applying with a cosigner: Adding a creditworthy cosigner could help you get a better rate, especially if your own credit is on the weaker side. In the last 12 months, more than 86% of cosigned refinance applications on Credible were approved.

How new loan terms affect your savings

When you refinance, you can choose new repayment terms, often between five and 20 years. The term you choose will affect your monthly payment and long-term savings. 

A shorter term will come with higher monthly payments, but you'll reduce your overall interest costs. A longer term, on the other hand, will make your monthly bills more affordable but increase your total interest costs. 

“A longer term gives you breathing room month to month, but you're paying for that comfort,” says Katz. “I always tell people to run both scenarios out to the total cost, not just the monthly payment.” 

Try to strike a balance between a monthly payment you can afford and keeping interest costs down. Keep in mind that most lenders don't charge prepayment penalties, so you could accelerate repayment in the future if your income increases.

How much money can I save by refinancing? 

The amount of money you can save by refinancing depends on several factors, including your loan balance, interest rate, and repayment terms. 

Say you refinance a $30,000 balance from a 12% rate to a 6% rate. On a 10-year repayment term, you'd reduce your monthly payment by about $97 and save about $11,682 on total interest charges. Compared with your original 12% loan on a 10-year term, a 6% loan with a five-year term increases the payment by about $150 and saves about $16,850 in interest. 

Compare your individual loans to determine your savings at different rates and terms.