Should You Refinance Private Student Loans? Pros and Cons

Refinancing your student loans can be a smart way to lower your interest rate, reduce monthly payments, or simplify your repayment plan. In fact, a U.S. News survey found that two-thirds of private student loan borrowers who refinanced reported improvements in their finances.

However, refinancing isn't always the best option. While it can help you save money or achieve financial flexibility, it might not align with your goals — especially if you have federal loans and rely on benefits like income-driven repayment or loan forgiveness.

Here's a closer look at the pros and cons to help you decide if refinancing your student loans is the right move for you.

How does private student loan refinancing work?

Refinancing private student loans involves replacing your current loan with a new one through a private lender. Borrowers generally refinance their loans to lower their interest rate, reduce their monthly payment, or modify their repayment period. The process involves researching and comparing lenders, then applying for the loan that offers you the most favorable rates and terms. If approved, the new loan will pay off your existing student loans, leaving you with a new, single loan to manage.

You can refinance both private and federal loans, but refinancing federal loans with a private lender means losing access to benefits like income-driven repayment plans, financial relief options, and loan forgiveness programs. However, if you're refinancing private loans, there's no risk of losing federal protections.

Current student loan refinance rates

Pros of refinancing private student loans

Refinancing private student loans can offer several benefits, especially if you're looking to reduce costs or simplify repayment.

“With the recent decline in interest rates, you may be able to find a lower interest rate than your existing loan,” says Domenick D'Andrea, financial adviser and co-founder of DanDarah Wealth Management. “A lower interest rate can help you pay your loans back quicker or lower your monthly payments.”

Extending your loan term is another potential benefit, as it lowers your monthly payment and provides more flexibility in your budget. However, D'Andrea notes that taking longer to repay your loan means paying interest for longer, which could negate the savings from the reduced rate.

Refinancing can also simplify the repayment process. “In refinancing your loans, you could consolidate them into one monthly payment, which could help in your monthly budgeting,” D'Andrea says. Having one payment to make instead of several simply makes things easier.

Another advantage is the opportunity to release a cosigner from your loan. “If your credit or income has improved since you first applied, refinancing could allow you to qualify on your own,” D'Andrea adds. This means your cosigner is no longer tied to the debt, relieving them of any financial or credit-related obligations.

Cons of refinancing private student loans

Refinancing private student loans isn't always the best move, and there are some downsides to consider.

One big drawback is that qualifying for refinancing isn't guaranteed. “If lenders deem your creditworthiness insufficient, you may not qualify for refinancing without a cosigner,” says D'Andrea.

If your credit isn't great and you don't have a cosigner, your options will be limited. While some lenders do offer refinancing for borrowers with bad credit, you'll likely have fewer choices and higher interest rates.

Refinancing can also mean giving up benefits you might currently have. For example, your lender may offer more generous deferment or forbearance options than a new lender would. Switching lenders could mean those perks disappear.

Finally, extending your repayment term might lower your monthly payment, but it can also mean paying more overall. Since you'll be in debt longer, you'll spend more on interest over time. Before refinancing, make sure to look at the total cost — not just the immediate savings.

See Also: How Your Student Debt Can Grow

When to refinance private student loans

Refinancing private student loans can be a smart move in certain situations:

• You qualify for a better interest rate: Whether on your own or with a cosigner, a lower rate could reduce your monthly payments or save you money over the life of your loan.
• You want to adjust your repayment timeline: Shortening your term can help you pay off debt faster, while extending it lowers monthly payments — but make sure you're aware of the total cost.
• You find better borrower benefits: Some refinance lenders offer more flexible options for deferment or forbearance than your current lender.
• You want to simplify repayment: If you're juggling multiple loans, refinancing can combine them into one, making it easier to manage your payments.

To determine if refinancing is right for you, it's essential to compare loan offers. “Depending on the interest rate climate, the timing of refinancing may or may not be advantageous,” says Hillary Saylor Schulze, director of student financial services counseling at Alvernia University.

Tips for refinancing private student loans

If you're thinking about refinancing your private student loans, these tips can help you find the right loan and ensure it's a smart move for your financial situation:

• Improve your credit before applying: Focus on paying down debt, avoiding new credit applications, and building a strong payment history. A higher credit score will improve your chances of qualifying for a more favorable rate.
• Shop around for the best rates: Use comparison tools to easily evaluate rates and terms from the best student loan refinance lenders.
• Prequalify with multiple lenders: Look for lenders that let you see rates without a hard credit inquiry, as too many hard credit pulls can hurt your credit score.
• Understand fixed vs. variable rates: Fixed-rate loans have consistent payments, while variable-rate loans can fluctuate with market rates. While variable rates often start lower, they can rise, making them riskier over time.
• Know the lender's deferment and forbearance options: Find out if you can pause payments in times of financial hardship, and if so, understand how interest will accrue during that time.
• Review qualification requirements: Check your lender's credit and income criteria. If you don't meet them, applying with a cosigner can improve your chances of approval.

Consider the total cost: Don't just focus on monthly payments. Look at the total repayment amount over time to ensure refinancing will save you money. You can use a student loan calculator to estimate your potential savings.