The pros and cons of refinancing student loans (is it worth it?)

Refinancing student loans can save money for borrowers with strong credit and private loans, but is risky for federal loan holders due to the permanent loss of protections. Smart for strong-credit private borrowers; risky for most federal borrowers due to the loss of IDR and PSLF plans.

This guide covers the mechanics of refinancing, a decision framework to evaluate your specific loan portfolio, and the critical trade-offs you must weigh before signing new loan documents. By the end of this guide, you’ll be able to explain how refinancing works, weigh trade-offs vs. federal protections, and decide whether to refinance now, later, or not at all.

Context: what student loan refinancing is and how it works

Before evaluating whether you should refinance, it is vital to understand exactly what happens when you do. Refinancing means taking out a new loan with a private lender to pay off one or more existing student loans. This new loan comes with a new interest rate, a new repayment term, and a new monthly payment amount based on your creditworthiness and income profile.

A common point of confusion is the difference between federal consolidation and private refinancing. Federal consolidation combines multiple federal loans into a single federal Direct Consolidation Loan; the interest rate is a weighted average of your previous rates, so it does not save you money on interest. Refinancing, however, moves the debt entirely to a private lender. You can learn more about the differences in our federal loans guide.

When you refinance, the private lender pays off your current servicers. You then make payments solely to the new private lender. This process allows you to combine federal and private loans into one bill, or simply refinance existing private loans to get a better rate. The most critical aspect of this process for federal loan holders is irreversibility. Once a federal loan is paid off by a private refinance lender, it cannot be converted back into a federal loan. You permanently exit the federal student aid system for that specific debt.

To qualify, borrowers generally need a strong credit history, reliable income, and a reasonable debt-to-income ratio. If a student borrower cannot meet these criteria on their own, they may need a creditworthy cosigner to get approved. The terms you receive—specifically the interest rate—are directly tied to the financial strength of you and your cosigner.

Quick decision framework: should you consider refinancing?

Deciding to refinance requires weighing immediate financial benefits against long-term security. This is particularly true if you have federal loans. To help you make an initial assessment without getting lost in the details, use the framework below.

If you refinance federal loans, the trade-off is stark. You gain potential savings but lose specific safety nets.

Source: StudentAid.gov (federal benefits) and lender program disclosures, accessed January 2025.

Answer the following questions to see where you stand. If you answer “YES” to the first three and “NO” to the last three, you are likely a strong candidate for refinancing.

• Are ALL your loans private? (If yes, you have no federal benefits to lose.)
• Do you have a stable income you expect to maintain? (Lenders require proof of income and stability.)
• Is your credit score strong (typically 670+)? (Higher scores unlock the savings that make refinancing worthwhile.)
• Are you pursuing Public Service Loan Forgiveness? (Refinancing disqualifies you immediately.)
• Do you need income-driven repayment flexibility? (Private lenders rarely offer payments based on income.)
• Could you need forbearance in the future? (Private lenders offer limited or no forbearance compared to federal options.)

This framework provides a high-level view. In the following sections, we will explore these specific advantages and risks in greater detail so you can calculate the actual value for your situation.

Key advantages of refinancing student loans

The primary motivation for refinancing is financial efficiency. For borrowers with established credit and stable careers, refinancing can unlock significant savings and simplify financial management. The advantages below assume you qualify for competitive terms.

The most compelling reason to refinance is to secure a lower interest rate. Federal student loan rates are fixed by Congress and apply to every borrower regardless of credit score. According to StudentAid.gov, Direct Loan rates for undergraduates are 6.53% for the 2024-2025 academic year, while PLUS loans are 9.08%. Private lenders, however, underwrite loans based on risk. Borrowers with excellent credit (typically 750+) and solid income may qualify for fixed rates in the mid-4% to 5% range as of January 2025. Over the life of a large loan, a rate reduction of even 1-2% can save thousands of dollars.

According to Mark Kantrowitz, financial aid expert, “Private loans can offer variable interest rates, which may be lower than federal fixed rates initially.” While variable rates carry risk if the market changes, they can offer the lowest possible starting rate for aggressive repayers.

Many students graduate with multiple loans—sometimes 8 to 10 different distinct loans across four years of school. Even if they are all with one servicer, they may have different due dates and interest rates. Refinancing consolidates these into a single loan with one monthly payment, one due date, and one servicer. This administrative simplicity reduces the chance of missing a payment and damaging your credit score.

Refinancing allows you to restructure your debt timeline. You can choose a shorter term (e.g., 5 or 7 years) to get out of debt faster and pay significantly less interest, though this will increase your monthly payment. Conversely, you can choose a longer term (e.g., 15 or 20 years) to lower your monthly payment and improve cash flow, though this results in paying more interest over time.

Private lenders compete for your business, often offering benefits that federal loans do not. Many lenders offer an autopay discount (typically 0.25% off your interest rate) if you set up automatic withdrawals. Others provide specific perks like unemployment protection (usually for a limited time, such as 12 months total), career coaching, or cash bonuses for referring friends. Importantly, some lenders offer “cosigner release,” which allows you to remove a cosigner from the loan after a series of on-time payments, freeing that person from the financial obligation.

Major disadvantages and risks of refinancing

While the financial math of refinancing can be attractive, the structural risks—especially for federal loan borrowers—are significant. When you refinance federal loans, you are moving from a system designed with social safety nets to a private contract designed for profit.

Federal loans offer IDR plans (like the SAVE Plan or IBR) that cap your monthly payments at a percentage of your discretionary income. If your earnings drop or you lose your job, your payment can drop to as low as $0. If you refinance, you lose this flexibility. Private lenders generally require fixed monthly payments regardless of your financial situation. For borrowers in volatile industries or early in their careers, losing IDR protection is a major gamble.

If you work for a government entity or a qualifying non-profit, you may be eligible for Public Service Loan Forgiveness (PSLF), which forgives remaining federal loan balances tax-free after 120 qualifying monthly payments. Refinancing federal loans into a private loan immediately and irreversibly eliminates your eligibility for this program. Even if you intend to return to public service later, you cannot undo the refinance to regain PSLF status. You can read more in our loan forgiveness guide.

Federal loans offer generous forbearance and deferment options during economic hardship, returning to school, or military service. During the COVID-19 pandemic, for example, federal payments were paused for over three years with 0% interest. Private loans offered no such government-mandated pause. Furthermore, federal loans offer automatic discharge in the event of the borrower’s death or total and permanent disability. While some private lenders offer similar discharge policies, many do not, potentially leaving your estate or cosigner liable for the debt.

According to Jason Delisle, higher education policy expert at AEI, “Federal loans are more lenient… no late fees, unlike private loans.” This leniency is a built-in insurance policy that private contracts rarely match.

Refinancing requires a hard credit inquiry, which can temporarily lower your credit score by a few points. According to the Consumer Financial Protection Bureau (CFPB), shopping for rates within a short window (14-45 days) generally counts as a single inquiry, minimizing the impact. However, the bigger risk involves cosigners. If you refinance with a cosigner, that debt appears on their credit report, affecting their debt-to-income ratio and potentially hindering their ability to get a mortgage or car loan.

Federal vs. private loans: how loan type affects the decision

The “right” decision depends heavily on which type of loans you currently hold. The logic for refinancing a private loan is completely different from the logic for refinancing a federal loan.

This is generally the lowest-risk scenario. If you already have private student loans, you have already forgone federal protections. Therefore, the decision is purely mathematical. If you can find a lender offering a lower interest rate or better terms than your current private lender, there is virtually no downside to refinancing. You are simply swapping one private contract for a better one.

This is the highest-stakes scenario. You are trading the protections discussed above (IDR, PSLF, discharge) for a lower interest rate. This move is generally only recommended for borrowers with high, stable incomes, excellent credit, and zero intention of utilizing public service forgiveness programs. You must be certain that the interest savings outweigh the value of the federal safety net.

Many students graduate with both federal and private loans. You do not have to refinance everything. A smart strategy for many is to refinance only the private loans to get a better rate, while leaving the federal loans alone to maintain access to IDR and forgiveness programs. This hybrid approach optimizes your interest rates without stripping away your safety net.

According to StudentAid.gov, Parent PLUS loans currently carry the highest interest rates among federal options at 9.08% for loans disbursed in 2024-2025. Parents also have fewer repayment options than students; they are not eligible for most IDR plans (except ICR, which is less generous) and cannot transfer the debt to the child. Consequently, parents with strong credit often find refinancing PLUS loans into a private loan in the parent’s name—or refinancing it into the child’s name (if the lender allows)—to be a highly effective way to reduce costs. You can learn more in our Parent PLUS guide.

Ready to see if refinancing makes sense for your situation? Compare rates from multiple lenders in minutes to see potential savings. Compare rates from 8+ lenders Trusted by over 50,000 students and families.

Financial factors that determine if refinancing is worthwhile

Once you understand the risks, you need to run the numbers. Refinancing is a financial product, and like any investment, it should have a clear return. Here are the factors that determine if the math works in your favor.

The gap between your current weighted average interest rate and your new offer is the primary driver of savings. As a general rule of thumb, experts suggest looking for a rate reduction of at least 0.50% to 1.00% to make the process worthwhile. However, on large balances, even smaller reductions can be meaningful.

The higher your loan balance, the more a lower rate matters. For example, imagine you have a $30,000 private loan at 6.5% interest with a 10-year term. If you refinance to a 5.0% rate:

• Monthly Savings: Approximately $22 per month.
• Total Interest Savings: Approximately $2,600 over the life of the loan.

If you have a $100,000 balance (common for graduate or medical school debt), that same 1.5% rate reduction could save you over $8,500 in total interest.

Your credit score dictates the rate you are offered. Lenders typically reserve their lowest advertised rates for borrowers with scores of 750 or higher. Borrowers with scores in the 670–749 range can still qualify, but the rates may be higher. If your score is below 670, you may struggle to qualify without a cosigner, or the offered rate may not be lower than what you currently pay.

Finally, consider the “cost” of losing flexibility. If refinancing saves you $50 a month but you lose the ability to pause payments during a job hunt, is that worth it? Perform a mental break-even analysis: Does your emergency fund cover 3-6 months of the new private loan payments? If not, the “savings” from refinancing might be negated by the risk of default during a financial emergency.

When refinancing makes sense (and when to avoid it)

Based on the factors above, we can distill the decision into clear scenarios. Find the one that matches your life stage and financial health.

• You have only private loans. You have nothing to lose regarding federal protections, so you should aggressively chase the lowest rate.
• You have a stable, high income. You are confident you won’t need income-driven repayment options in the future.
• Your credit score has improved. If your score has jumped since you first took out the loans (e.g., from 650 to 720), you likely qualify for much cheaper debt now.
• You want to release a cosigner. You are now financially independent and want to remove a parent or guardian from your existing private loans.
• You are a parent with PLUS loans. You want to lower the high interest rate and don’t require the limited federal benefits available to parents.

• You are pursuing PSLF. Working in public service? Do not refinance federal loans. You will walk away from tax-free forgiveness.
• You rely on Income-Driven Repayment. If you need your payments tied to your income to make ends meet, stay with federal loans.
• Your income is unstable. If you work on commission, are a freelancer, or are in a volatile industry, federal protections are your safety net.
• You are close to IDR forgiveness. If you have been paying for 15+ years on an IDR plan, you may be close to having the balance forgiven. Refinancing resets the clock.

Sometimes the answer is simply “wait.” If you are a recent graduate building your credit or starting a new job, it may be wise to wait 6–12 months. Establishing a track record of on-time payments and stable income will help you qualify for better rates later.

Key questions to ask before refinancing

Before you fill out an application, run through this final checklist. If you can answer these questions with confidence, you are ready to make a decision.

• What is my current weighted average interest rate across all the loans I want to refinance?
• What rate could I realistically qualify for today based on my credit profile?
• How much total interest will I save over the life of the loan?
• Can I comfortably afford the monthly payments if I choose a shorter loan term?

• How stable is my current income and industry?
• Am I currently working toward or considering public service employment (government, non-profit)?
• Do I have an emergency fund that could cover my loan payments for 3-6 months if I lose my job?

• Am I willing to permanently give up access to IDR plans and PSLF eligibility?
• Have I calculated if the interest savings outweigh the value of federal death and disability discharge protections?
• Do I plan to go back to graduate school? (Federal loans can be deferred easily; private loans have stricter limits.)

Frequently asked questions about refinancing student loans

Yes, you can refinance federal student loans with a private lender. However, doing so converts them into private loans. You will permanently lose access to federal benefits like Income-Driven Repayment (IDR), Public Service Loan Forgiveness (PSLF), and generous forbearance options. You should only do this if you are certain you will not need these protections.

There is no limit to how many times you can refinance student loans. If interest rates drop or your credit score improves significantly, you can refinance again to lock in a better deal. Keep in mind that each application typically involves a hard credit inquiry.

Applying for refinancing usually triggers a hard credit inquiry, which may lower your score by a few points temporarily. However, if you are approved and make on-time payments on the new loan, refinancing can help build your credit history and improve your score over the long term.

Most private lenders look for a credit score of at least 670 to qualify, though the most competitive interest rates are generally reserved for borrowers with scores of 750 or higher. If your score is lower, you may still qualify if you apply with a creditworthy cosigner.

Yes, provided you meet the lender’s income and credit requirements on your own. Many recent graduates need a cosigner because they haven’t built enough credit history yet. If you already have a cosigner, refinancing can be a way to release them from the loan if your financial profile has improved.

Typically, yes. On a loan balance of $30,000, reducing your interest rate by 1% can save you approximately $1,500 to $3,000 over a 10-year term, depending on your specific repayment schedule. You can use online calculators to see exactly how much a 1% drop saves on your specific balance.

Refinancing is a powerful tool, but it isn’t a one-size-fits-all solution. It requires an honest look at your financial stability and career goals. Here are the key rules to guide your final decision:

• Private loan holders face the fewest risks and should focus on securing the lowest possible rate and best terms.
• Federal loan holders should only refinance if they have stable income, strong credit, and are certain they won’t need IDR, PSLF, or federal forbearance.
• Refinancing saves money by lowering interest rates, but it increases risk by removing federal safety nets.
• Strong credit (670+) and a low debt-to-income ratio are essential for qualifying for rates that make the switch worthwhile.
• When in doubt, wait. You can always refinance later, but you can never reverse a federal-to-private refinance.

The right choice depends entirely on your unique financial picture. If the math works and the risks are managed, refinancing can be a strategic step toward becoming debt-free faster.

Ready to explore your refinancing options? Compare personalized rates from top lenders to see your potential savings. Compare rates from 8+ lenders Trusted by over 50,000 students and families.

For more information on managing your debt, visit our comprehensive student loans guide.

References and resources

• StudentAid.gov – Official source for federal loan rates, IDR plans, and PSLF information.
• Consumer Financial Protection Bureau (CFPB) – Guidance on student loan refinancing and borrower rights.
• Federal Student Aid Ombudsman – Assistance for resolving disputes with federal loan servicers.
• College Finance FAFSA Guide – Understanding financial aid basics.
• College Finance Federal Loans Guide – Deep dive into federal borrowing options.
• College Finance Private Loans Guide – Evaluating private lenders and terms.

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