How to decide if student loan refinancing is right for you

Although refinancing your student loan can help you save money, it might not be the best option for you. (iStock)

If you want to save money on your student loans – federal and private – student loan refinancing can be a good option. Taking out a new student loan with hopefully a lower rate and lower monthly payments can allow you to ditch your student loan debt faster.

This can free up more money to put toward your other financial goals. However, depending on whether you have private student loans or federal student loans and your unique financial situation, refinancing could be a bad idea.


Before you refinance your student loans, be sure to weigh the pros and cons and make sure you fully understand whether doing so will be right for your personal finance situation. If you’re interested in refinancing your student loan, visit Credible to compare student loan refinancing rates.

When is it a good idea to refinance student loans?

Here are some scenarios where refinancing your student loans could be a good idea:

1. You can secure a lower rate

When a student loan lender reviews your application, it considers factors such as your credit score, debt-to-income ratio and income. If you have a good to excellent credit score (670 or above) and a decent income, you might qualify for a rate that’s lower than your current one. This can help you reduce the amount of interest you pay during the life of the loan.

2. You can save money

In addition to securing a lower rate, refinancing your student loans could be a preferable choice if you can actually save money by refinancing them. For example, if your new student loan has a term that doesn’t stretch out your payments and increase the amount of interest you pay in the long run, it can be a smart move.

If you’re interested in refinancing your student loans, visit Credible to get prequalified for student loan refinancing.

When is it a bad idea to refinance student loans?

Here are some scenarios where refinancing your student loans could be a bad idea:

1. You can’t secure a lower rate or save money

If you have fair or bad credit and minimal income, this decreases your chances of being approved for a new loan. And even if you’re approved, you’re less likely to secure the best interest rate. When this is the case, it’s probably a good idea to first find out what's affecting your credit score, and then wait until it improves upon a soft credit pull to qualify for a more favorable rate.

Alternatively, you could try refinancing your loans with a cosigner who has a high credit score and decent income.

In addition, refinancing your student loans can be a bad idea if you don’t actually save money. This can happen when your new loan has a longer loan term, increasing the amount of interest you pay for the life of the loan.

2. You have federal student loans

Since federal student loans usually come with borrower protections and options for student loan forgiveness, it’s usually not a good idea to refinance them.

Federal student loans protections include income-based repayment options, forbearance and deferment options, and borrower defense. An income-based loan repayment plan gives you the flexibility to lower your monthly student loan payment if your income drops. Both forbearance and deferment give you the ability to pause your student loan payments.


Borrower defense allows some borrowers to have some or all of their loans forgiven if a school engaged in inappropriate content or misled them.

Currently, some federal loan payments are paused through September and the interest rate is zero percent. If your student loans are under this emergency forbearance, refinancing now isn’t a good idea.

Use a refinance calculator to estimate your potential savings

The savings you get from refinancing your student loan depends on how your current student loan’s rate and terms compares with your new student loan’s rate and terms. For example, if you refinanced a $10,000 student loan with a 6.8% interest rate and five-year term with a new loan that has a 4.25% interest rate and the same term, you could save an estimated $706 in interest payments.

If you’re curious about how much you could save by refinancing, use an online student loan calculator. Credible can also help you determine if now is the right time to refinance your mortgage.

The bottom line

Before you consider student loan refinance options, review your financial circumstances and do the math to see if it makes sense. If you can get a lower interest rate and save money, it can be a good idea. However, if you can’t secure a lower rate or have federal student loans, it might be a bad idea.

If you’re interested in refinancing your undergraduate or graduate school loans, visit Credible for more information.


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