Should You Refinance Your Student Loans?

By: Sheryl Nance-Nash

With borrowers owing some $1.52 trillion in student loan debt, it’s not surprising that some people are looking for a way to ease the pain. Refinancing student loans can be an option to help.

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Refinancing your loan allows you to replace an existing loan with a new loan, preferably one with better terms. Typically, refinancing can secure you a better interest rate, which in turn gives you a lower monthly payment.

The purpose of refinancing student loans is to get out of a higher interest loan and to save money in the long term with a new loan.

“Many graduates benefit from refinancing because their credit scores have improved since they first applied for the loan which in turn widens their options to lower rates,” says Chelsea Hudson, a personal finance expert with TopCashback.com

But like all financial decisions, there is a lot to consider when paying for college.

The Pros

There are several reasons to prompt you to refinance your student loans, explains Roslyn Lash, an accredited financial counselor and author of The 7 Fruits of Budgeting, “If you have a variable rate loan that will adjust to a rate that exceeds the prevailing rate; you have a private student loan with high-interest rate, or your financial situation has improved which may qualify you for better loan terms.”

The benefits can be significant. You may be able to lock in a lower interest rate and improve your cash flow if you’re able to reduce your monthly payments, points out Joseph Geld, a certified financial planner with HWA Financial Group.

Another plus is having one monthly payment. “If you have several loans, payment history and different terms can get confusing. Refinancing puts your student loans under one umbrella, making monthly payments simple and hassle-free,” says Hudson. You can also drop a cosigner.

“Many college students aren’t approved for loans without a cosigner. By refinancing you might be eligible to sign for the loans on your own without the need of a cosigner. Dropping a cosigner might seem like a small perk, but this often relieves any financial tensions between you and your cosigner,” she adds.

If you have $50,000 in student debt with a 7 percent interest rate, refinancing with a 5 percent interest rate could save you $6,000 over the life of your loan. “That’s money you can put toward another goal, like buying a house,” says David Green, chief product officer of Earnest.

Best Student Loan Refinancing Providers 2019

4.69% - 8.10% APR Range
180-240 Months Loan Term
Variable Min credit score

3.94% - 9.80% APR Range
120-240 Months Loan Term
Variable Min credit score

4.45%-7.69% APR Range
120-180 Months Loan Term
Variable Min credit score

3.89%-8.02% APR Range
60-240 Months Loan Term
Variable Min credit score

The Cons

“When it comes to refinancing student loans always consider the following; refinancing is not a one size fits all. Before refinancing your student loans, make sure that you are aware of the risks of switching from federally funded loans to a private lender.

For example, deferment is lost when refinancing,” says Josh Hastings who runs the personal finance website MoneyLifeWax.com.

You’ll also lose the repayment plans provided by the U.S. Department of Education and will no longer be eligible for federal loan forgiveness programs.

Know too, that lenders have specific requirements you must meet – a solid credit score, steady income, an undergraduate or graduate degree, for example.

Refinancing a loan with a grace period still intact is a big mistake, says Hudson. As soon as the new lender approves the refinance, your repayment process begins right away and cancels out any grace period your original loan had.

Finally, Hudson says, “Before you refinance, know your options. Look into income-driven plans that match payments to earnings.”