Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.
Americans currently owe a total of over $1.63 trillion in federal student debt, with the average student borrower graduating with $29,100 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. 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
Refinancing student loans has a number of potential benefits that could make it easier to repay your student loan debt. Here are some of the most common pros of refinancing student loans.
Lowering Your Interest Rate
Perhaps the biggest benefit of refinancing student loans is the potential to secure a lower interest rate than the ones your loans currently have. If you’re paying a high interest rate, refinancing could be worth considering, especially in a low-rate environment
Rates vary by lender, but most offer the best rates to borrowers with strong credit and a steady source of income. If you’re earning a stable income and have a good FICO score of 670 or higher, you may qualify for a competitive student loan refinance rate.
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 rate can also result in a more affordable monthly payment.
Reducing Your Monthly Payment
When you refinance your existing student loans, you’re given the option to adjust your repayment term. You can often choose terms anywhere from five to 20 years, depending on the lender.
Extending the term of your loan could result in more affordable monthly payments. That said, you may pay more interest over the life of the loan if you refinance with an extended term. When choosing a new repayment term, try to strike a balance between a monthly payment you can afford and a repayment term that won’t rack up a burdensome amount in interest charges.
💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.
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.
If you owe multiple student loans, refinancing can help you combine them 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.
Keep in mind that you don’t have to refinance multiple student loans. You can choose to refinance a single loan if it would yield you a better interest rate. And if you do owe several loans, you can cherry-pick which ones you would like to refinance (if any) and leave the others as they are — the choice is up to you.
What’s more, federal loan borrowers also have the option of federal loan consolidation, which involves combining federal loans into a single Direct consolidation loan. This process won’t lower your interest rate, but it will keep your loans federal and help simplify repayment. Note that private student loans are not eligible for federal loan consolidation.
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, 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. Variable rates often start lower than fixed rates, 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.
If you can refinance a co-signed student loan in your own name, you can assume full responsibility for the loan and let your student loan cosigner off the hook. Some lenders also let students take over Parent PLUS loans from their parents through refinancing, if they can meet eligibility requirements on their own.
💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.
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 both pros and cons of refinancing student loans. Here are some of the possible 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.
The government offers four income-driven plans: PAYE, Income-Based Repayment, Income-Contingent Repayment, and the new SAVE plan. The SAVE plan offers the most affordable structure for borrowers to date, and it’s worth exploring if you’re having trouble paying your student loan bills on your current plan.
Since refinancing federal student loans replaces them with a private loan, you’ll also lose the opportunity to qualify for programs such as the 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.
Starting in the spring of 2020, the Department of Education offered emergency forbearance at 0% interest on all federal student loans. However, that forbearance came to an end in the fall of 2023. President Biden’s federal loan forgiveness initiative was also struck down by the Supreme Court, so that offer is no longer an option for borrowers.
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 that 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 previous 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 decide to move forward with student loan refinancing, consider SoFi. 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.
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 you qualify or access better rates if you can’t meet a lender’s credit requirements on your own.
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. The best rates typically go to borrowers with strong credit or a creditworthy cosigner.
Can you refinance student loans with a cosigner?
Applying for student loan refinance 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 a more competitive 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 a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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