If you have a high interest rate on your student loans or you’re paying down multiple loans, student loan refinancing can potentially help you save money and simplify your repayment plan. But the decision to refinance student loans isn’t always clear-cut, and in many cases, it can do more harm than good in the long run.
Understanding how a student loan refinance works and the different ways it can impact you is crucial to making an informed decision about your situation and financial goals. Here’s everything you need to know.
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Student loan refinancing involves paying off one or more existing student loans with a new one through a private lender. Depending on your situation, refinancing student loans can help you secure a lower interest rate, reduce your monthly payment, adjust your repayment term, or simplify your monthly payments.
In particular, you may benefit from a student loan refinance if you have private student loans with high interest rates and few relief options for struggling borrowers.
However, if you have federal student loans through the U.S. Department of Education, you may already have a relatively low interest rate. What’s more, the federal government offers relief programs to help you reduce your monthly payments, temporarily pause your payments, or even obtain forgiveness for your debt.
That’s not to say federal loan borrowers should never refinance a student loan, but there are fewer situations where it might make sense compared to private loan borrowers.
Keep in mind: You’ll typically need good to excellent credit to lock in favorable terms on a student loan refinance. If not, you may need a creditworthy co-signer to help you get approved and secure better terms than you currently have.
There are a few different factors to consider to determine whether you should refinance student loans.
Current interest rates and loan terms
One of the primary benefits of student loan refinancing is the opportunity to get a lower interest rate than what you’re currently paying. Review your existing student loans and check current refinance rates to help you gauge whether it might be worth it.
Additionally, student loan refinance lenders typically offer repayment terms ranging from five to 25 years. Depending on your current repayment term, refinancing could help you pay down your debt more quickly with a shorter term or obtain a lower payment with a longer one.
Financial goals and monthly budget
Your current financial situation and objectives will also indicate whether refinancing is a good idea. For example, paying down your debt more quickly can free up cash flow in your budget to put toward other important financial goals. It can also reduce your debt-to-income ratio, making it easier to qualify for a car loan or mortgage in the future.
If your budget is tight, swapping out your current monthly payment for a lower one could alleviate some financial pressure — though a longer term translates to higher total interest charges over the life of the loan.
Carefully consider your budgetary needs and what you want to do with your money in the long run to help evaluate your options.
Job stability and income outlook
Student loan refinancing is available only through private lenders, which typically offer few options for borrowers experiencing financial difficulties. While short-term forbearance might be available, most private lenders don’t offer income-driven repayment plans, long-term forbearance and deferment options, or forgiveness programs.
If your job situation isn’t as stable as you’d like or you’re unsure about the trajectory of your career and salary, refinancing might not be the right move unless you already have private student loans. In that case, you won’t be giving up a lot of relief options.
As with any financial decision, there are advantages and disadvantages to consider before you refinance student loans, especially if you have federal student loans. Here are some factors to keep in mind.
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Lower interest rates and potential savings: If your credit is in good shape or you have a creditworthy co-signer, you may be able to secure a lower interest rate, which can help reduce your monthly payment and save money on interest costs.
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Streamlined repayment with a single monthly bill: If you’re making multiple monthly payments on several separate accounts, refinancing your balances into one loan can simplify the payment process and make your progress easier to track.
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Opportunity to change repayment plans: If you opt for a shorter repayment plan on the new loan, you can enjoy even more interest savings, though your monthly payment may increase. In contrast, selecting a longer term can reduce your monthly payment, but it’ll also typically increase your total interest charges.
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Loss of federal loan benefits and protections: If you have federal student loans, refinancing will cause you to lose access to a suite of benefits, including income-driven repayment plans, generous forbearance and deferment options, and more.
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Variable interest rates vs. fixed interest rates: In some cases, the lowest refinance rates are variable. Variable rates may start out lower than fixed rates, but they fluctuate over time. If market rates go up, so will your interest rate and monthly payment. If you have federal student loans, your interest rate is fixed for the life of the loan.
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Impact on loan forgiveness and repayment assistance programs: The federal government offers student loan forgiveness through a handful of programs, and many of the student loan repayment assistance programs offered by federal and state agencies may require you to have federal loans. If you refinance, you’ll permanently lose access to these valuable programs.
Refinancing student loans is a straightforward process, but it’s important to properly prepare:
Check your credit: Student loan refinance lenders typically require a credit score in the mid-600s or higher to get approved. But if you want to get the best terms, you’ll likely need to have a score in the mid-700s or higher. Check your credit score using a free credit monitoring service to get an idea of where you stand. If your score is relatively low, consider taking steps to improve it or ask a loved one to co-sign your loan.
Review your current situation and goals: Take some time to evaluate your loan terms, budget, and financial goals to determine whether refinancing can help you.
Shop around: Each lender has its own criteria for determining creditworthiness, and some lenders offer lower interest rates than others. As a result, it’s crucial that you get prequalified with several lenders and compare student loan refinance rates and other terms. Lenders typically allow you to get prequalified with just a soft credit check, which won’t impact your credit score.
Submit an application online: Once you’ve determined which lender has the best offer, apply through its website. You’ll typically need to provide information about yourself and your existing loans during the process. You may also be required to provide documentation to prove your identity and income.
Review the loan terms: After the lender underwrites your application, it’ll determine whether you qualify and what your loan terms will be. Keep in mind that the final offer may differ from the initial quote. Before you accept the loan, carefully read the agreement to know exactly what you’re getting, including whether the lender offers relief options for struggling borrowers. If you agree, sign the contract and accept the loan.
Set up monthly payments: The student loan refinance process can take several weeks to complete, so it’s important to continue making payments on your existing loans until their balances are zeroed out. Once you receive confirmation from your new lender, log in to your new online account and set up automatic payments to avoid accidentally missing a bill.
Timelines and considerations in the refinancing process
The refinancing process for your student loans will vary depending on the lender you choose and your situation. In general, though, it typically takes a few weeks to complete from start to finish.
One way to speed up the process is to submit any necessary documentation promptly. Some of the documents you may be asked to provide include:
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Recent pay stub or another form of proof of employment and income
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Tax returns (if self-employed)
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Government-issued photo identification
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Most recent billing statement or payoff letter for each loan
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Bank account information
If you’re still unsure whether refinancing is the right move, here are some situations where it may or may not make sense. While some of these scenarios may be familiar, it’s ultimately up to you to understand your situation and research your options to determine your next steps.
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Securing a lower interest rate: If you have private student loans with a high interest rate, there likely isn’t a lot of downside to refinancing with another lender to lock in a lower rate. Even if you have federal student loans, it may make sense to refinance if you have high-interest loans and don’t anticipate needing access to federal benefits or relief options.
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Simplifying loan management with consolidation: If multiple monthly payments complicate your repayment process, refinancing can streamline your payments. If you have federal loans, keep in mind that you can also accomplish this with the Direct Loan Consolidation program without losing access to federal benefits.
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Improving overall loan terms and repayment plan: If your current repayment plan isn’t working for you, refinancing may be a good way to get the terms you’re looking for. Again, though, if you have federal student loans, consider federal programs before refinancing with a private lender.
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Eligibility for loan forgiveness programs: If you’re currently eligible for a student loan forgiveness or repayment assistance program, it might make sense to keep your federal loans where they are so you can benefit from these valuable perks.
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Uncertain financial situation or job instability: If you’re not sure what your financial situation will look like over the next several years, maintaining access to federal loan relief programs may be more valuable to you than the benefits of refinancing. If you have private student loans, however, scoring a lower interest rate or monthly payment could be beneficial.
Related: How to get student loans out of default
Review your refinancing options:
The One Big Beautiful Bill Act (OBBBA) made sweeping changes to the federal student loan program, some of which may influence how you decide to tackle your student loan debt.
Here’s a quick summary of some of the biggest adjustments to expect.
Borrowers with Parent PLUS Loans can currently qualify for Public Service Loan Forgiveness (PSLF) if they consolidate their loans and enroll in the Income-Contingent Repayment (ICR) plan.
But starting July 1, 2026, the OBBBA will phase out the ICR plan. Parent borrowers who consolidate their loans before that date can switch to the Income-Based Repayment (IBR) plan — provided they’ve made at least one full payment under ICR — up until July 1, 2028. These borrowers may still be able to work toward PSLF.
After July 1, 2026, though, any newly issued Parent PLUS Loans won’t qualify for income-driven repayment plans at all, cutting off access to forgiveness options. Worse, if you take out a new Parent PLUS Loan after that date, it could disqualify your previously eligible loans by moving all of them into the standard repayment plan.
The Education Department currently offers four income-driven repayment plans, but the OBBBA reduces that to just one plan: the Repayment Assistance Plan (RAP), which will go into effect on July 1, 2026.
The RAP may reduce your monthly payments to between 1% and 10% of your income, with your payment based on your adjusted gross income. There’s also a minimum monthly payment of $10, and unpaid interest will be waived.
Depending on what your payment looks like and whether or not you qualify for interest waivers, refinancing with a private lender may or may not make sense.
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