The Advantages and Disadvantages of Student Loan Refinancing

By Lisa Moran · May 25, 2022 · 8 minute read

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The Advantages and Disadvantages of Student Loan Refinancing

Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.

Refinancing student loans — when a private lender pays off your existing loans and issues you a new loan with new terms — can lower the interest rate you’re currently paying or reduce your monthly payments.

There are pros and cons of refinancing student loans. While it may save you money, you can lose access to federal loan benefits and protections if you refinance federal student loans. Here’s what to consider to decide if this option is right for you.

The Pros of Student Loan Refinancing

Americans currently owe a total of over $1.7 trillion in student debt, with the average student borrower having $28,400 in loans to pay off, according to The College Board.

If you have student debt, refinancing is one way you can change your repayment terms, which may make it easier or more affordable to pay off your student loans.

Student loan refinancing is when your existing loans are paid off by a new loan from a private lender, such as a bank, online lender, or other financial institution. The new loan may have a new term, a better interest rate, and adjusted monthly payments.

But there are pros and cons of refinancing student loans. Here are some of the most common benefits of refinancing student loans.

Getting a Single Monthly Payment

Paying your bills consistently and on time is key if you want to improve your credit or maintain good credit. Payment history is an important factor in your credit score so you don’t want to miss payments.

One of the benefits of refinancing student loans is combining your existing loans into one, streamlining your bills to a single payment each month. With a single monthly student loan bill, it may be easier to stay organized, make your payments on time, and stick to your debt reduction plan.

Lowering Your Interest Rate

Another potential benefit of refinancing student loans is securing a lower interest rate than the ones your loans currently have. If you’re paying a high interest rate, refinancing could be worth considering.

Since graduating, you may have improved your earning potential. If you took the opportunity to build credit while you were in college, you could qualify for a lower interest rate when you refinance.

And, when you refinance to a lower interest rate, you could end up reducing the amount of money you spend over the life of the loan.

Lowering Your Monthly Payment

When you refinance your existing student loans, you’re given the option to adjust your repayment term. That means you could potentially lower your monthly payments by extending the term of your loan.

Note that extending the term of your loan could mean you will pay more money in interest over the life of the loan.

Choosing Between Variable and Fixed Rate Loans

When you refinance your loans, you might have the option to choose a fixed or variable rate loan. If you prefer the security of a stable rate over a longer period of time, you might consider choosing a fixed rate loan.

If you plan on repaying your student loans ahead of the term, you might consider choosing a variable rate, which may start lower than the fixed rate loans, but could increase over time.

Applying With a Cosigner — or Releasing One From Your Loan

If you’ve recently graduated and haven’t built up much credit, you may benefit from applying with a cosigner. A cosigner accepts legal responsibility for your loan in the event that you’re not able to pay it.

If your cosigner has better credit and a higher income than you do, they may look more favorable to the lender, which could ultimately help you qualify for a lower interest rate. Even if you aren’t required to borrow with a student loan cosigner, some lenders might still give you the option to have one on the loan.

On the flip side, refinancing also gives you the opportunity to release a cosigner from your existing student loan. Not all lenders allow you to remove a cosigner from your loan and those that do often have a set of eligibility requirements in order to apply for one, such as a year or two of on-time payments, a credit check, or proof of employment.

When you refinance, you have completely new terms and any previous student loan cosigner is no longer responsible.

The Cons of Student Loan Refinancing

While refinancing your student loans might end up lowering your interest rate or making payments easier to manage, it’s not the right decision for everyone. As mentioned earlier, there are pros and cons of refinancing student loans. Here are some of the disadvantages of refinancing student loans:

Losing Access to Federal Repayment Plans

When you refinance your federal student loans with a private lender, you lose access to federal repayment plans. This includes the Standard, Graduated, and Extended Repayment plans. This could be especially important if you are planning on taking advantage of any federal income-driven repayment plans, as you would no longer be eligible.

You also won’t have the opportunity to qualify for programs such as Public Service Loan Forgiveness program, which forgives the loans of graduates working in the public sector after 10 years. It’s important to review your student loans in detail and determine which federal plans you may want to take advantage of before you consider refinancing federal student loans.

No Longer Eligible for Federal Repayment Protections

If you refinance your federal student loans with a private lender, you won’t be eligible for repayment protections like student loan deferment or forbearance. Both deferment and forbearance might give you the opportunity to temporarily pause or lower your monthly payments.

When your loan is in deferment you may or may not be responsible for paying the accrued interest on the loan. However, if your loan is in forbearance you will be responsible for paying the accrued interest on the loan.

Some refinancing lenders, including SoFi, do offer unemployment protection which allows qualifying borrowers to pause their monthly loan payments in the event they unexpectedly lose their job.

Losing Any Remaining Grace Periods

Most federal student loans have a grace period — usually the first six months after you graduate — where you don’t have to make any loan payments. If you refinance your loan shortly after graduation, you might lose out on that benefit if the private lender doesn’t honor existing grace periods.

Difficult to Qualify

Unlike most federal loans, you’ll need to show you’re creditworthy to secure a student loan refinance with a private lender — or have a cosigner with good credit who is willing to take full responsibility for your loan if you’re not able to.

The better your credit history, the more likely you are to qualify for competitive interest rates. Eligibility requirements vary from lender to lender, so it’s a good idea to shop around and compare your options. SoFi, for example, evaluates factors including employment and/or income, credit score, and financial history.

Refinancing Can Cause Repayment to Take Longer

When you refinance a student loan, you can change the terms of your loan, such as the interest rate or the term of the loan. If you increase the term of your loan, it will take longer to repay it. And even though you may lower your monthly payments, you’ll likely pay more total interest over time.

Federal Student Loan Consolidation

Student loan consolidation is different from refinancing. A Direct Consolidation Loan allows you to combine multiple federal student loans into one federal loan, resulting in a single monthly payment.

When you consolidate your loans into a Direct Consolidation Loan, you won’t necessarily lower your interest rate. The new interest rate will be a weighted average of the interest rates on your previously existing loans, rounded up to the nearest one-eighth of 1%.

When you consolidate your federal loans through the federal government, however, you should still have access to most federal loan benefits like income-based repayment, deferment, and forbearance.

Student Loan Refinancing With SoFi

Everyone’s financial situation is different and it’s important that you make the best decisions for your individual circumstances. When you refinance, lenders will review your current financial situation, earning potential, and credit score (among other financial factors) to determine your new interest rate.

If you’ve decided to move forward with student loan refinancing, consider SoFi, the leading student loan refinancing provider. When you refinance with SoFi, there are no origination fees or prepayment penalties. See what you could save by refinancing with the SoFi student loan refinance calculator.

Refinancing your student loans with SoFi could lead to a lower interest rate. See what your rate would be in less than two minutes.


How hard is it to qualify for student loan refinancing?

Private lenders take into account a range of factors when considering eligibility for student loan refinancing, such as your credit history, debt-to-income ratio, and employment. Applying with a qualified cosigner can help.

Do refinanced student loans have lower interest rates?

When you refinance your student loans, a private lender pays off your existing loans and issues you a new loan with new terms. One of the potential benefits of refinancing is that you may be able to secure a lower interest rate than your existing loans.

Can you refinance student loans with a cosigner?

Applying for a student loan finance with a creditworthy cosigner may help you qualify if you don’t meet a lender’s eligibility requirements for refinancing. Having a cosigner may also help you secure more competitive terms, such as a lower interest rate.

Can refinanced student loans still be forgiven?

No, refinanced student loans are not eligible for federal loan forgiveness programs. Once you refinance a federal student loan, you lose access to federal benefits and protections, such as forgiveness.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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