Should I Refinance My Student Loans?

A student loan refinance could help you save interest and make your monthly payments easier to manage. Generally, though, refinancing is a better fit if you have private student loans and a robust credit profile.

Before refinancing your student loans, here are some ways to determine if it’s a smart move for you.

On this page

When should I refinance my student loans?

Student loan refinancing involves a private lender paying off your current student loans and issuing you a new loan. The right time to refinance will depend on your situation and current interest rates.

Here are some reasons you might consider a student loan refinance:

• You have private student loans. Private student loans typically don’t have specific benefits or protections, meaning it’s easy to switch lenders anytime. It’s best to avoid refinancing federal student loans if you want to take advantage of government benefits (more on this below).
• You have a good credit score and stable finances. A good to excellent credit score of at least 650 is usually needed to refinance your student loans. You’ll also need a steady income to meet your new loan’s monthly payment. If you fall short, consider applying with a creditworthy cosigner.
• You qualify for a lower rate. Many lenders allow you to enter a few details to view potential offers without impacting your credit.

Ultimately, the best time to refinance your student loans is when you qualify for a lower rate. Compare lenders with our student loan refinance calculator and see how much you could save.

You can also refinance multiple times, allowing you to switch whenever you find a better offer. Some lenders, however, might charge refinancing fees, which could negate your savings.

When should I NOT refinance student loans?

While refinancing can save time and money, it’s not always the best debt solution.

Here are some reasons to avoid a student loan refinance:

• You don’t qualify for a lower interest rate. The main benefit of refinancing is lowering your student loan interest rate. If you don’t see or qualify for a better rate, it’s best to stick with your current lender.
• You have federal student loans. Be wary of refinancing federal student loans — by doing so, you’ll lose access to government protections like income-driven repayment plans, student loan forgiveness programs and deferment and forbearance.
• You have defaulted student loans or recently filed for bankruptcy. Most lenders require your loans to be in good standing before approving a refinance. That means you can’t typically refinance a student loan in default or have bankruptcy on your credit report. You can, however, consider refinancing after recovering from a student loan default.
• The refinance fees are too high. Some lenders charge origination or application fees to refinance your student loans. While more lenders offer fee-free refinances, you should read the small print before proceeding to ensure that you’ll save money in the long run.

How much will I save by refinancing?

Student loan refinancing can potentially save you thousands of dollars throughout the loan’s duration, depending on your balance, credit profile and new refinance rate.

For example, let’s say you have $30,000 in student loans with a 7% interest rate and a 10-year term. Your monthly payments would be $348.

If you refinance to a 5% rate, you could trim one year off your repayment time while keeping a similar monthly payment of $346. Plus, you’d save $4,483 in interest by refinancing to the lower rate.

Am I eligible to refinance my student loans?

Student loan refinancing companies tend to have stricter eligibility terms than federal student loans. Before you go through the hassle of applying, research the requirements for each lender.

While refinance requirements can vary, lenders will typically look at the following:

• Credit score: Your FICO Score helps determine your creditworthiness. Many lenders prefer a score of 650 or higher. It may be wise to try to boost your credit score before applying to improve your chances of getting the best rate.
• Debt-to-income ratio: Your debt-to-income (DTI) ratio shows lenders how much income goes to your monthly bills — the lower the ratio, the better. Many lenders require a DTI ratio below 50%.
• Monthly income: Lenders want to know if you can manage the monthly payments. You’ll likely need to provide recent pay stubs or tax returns for income verification.
• School details: Lenders typically require that the original student loan funds were used at a qualifying Title IV-accredited school in the United States. Further, most lenders require degree completion to refinance your loans, although Citizens Bank offers to finance borrowers who didn’t graduate.

Read our complete guide on how to refinance student loans for more details.

Alternatives to student loan refinancing

Looking for additional ways to manage your student loan debt? Here are some options, including some for your federal student loans.

• Student loan forgiveness: Eligible students can apply to have part or all of their student loans forgiven with programs such as Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness and military loan forgiveness.
• Direct Consolidation Loan: Combine your federal student loans into a Direct Consolidation Loan while retaining federally-sponsored benefits, such as access to income-driven repayment and student loan forgiveness.
• Employers offering student loan repayment assistance: Check out our list of 20 companies offering student loan repayment assistance.