When to Consider Student Loan Refinancing

Are you one of the 42.8 million people in America^* with federal student loan debt? Do you already have a private student loan? If either or both are true, you may want to consider student loan refinancing. 

While the prospect of saving money is usually the biggest motivator, whether and when to consider student loan refinancing depends on many factors, including the type of student loan you already have. If you have a private student loan and find a lower interest rate, the answer is easy—you will benefit by refinancing. However, if you have a federal student loan with protections such as forgiveness or income-based repayment options, your decision on whether to refinance can be more complicated. 

While it doesn’t make sense for everyone, many borrowers have already taken advantage of the opportunity to refinance their student loans. In fact, nearly 10 percent of all U.S. student loan debt is through private student loans, including $29.7 billion in refinanced loans¹.

Let’s look at why so many borrowers have chosen to refinance their student loans and learn more about the things you should consider when deciding whether and when student loan refinancing is right for you. 

What is a student loan refinance? 

When you refinance a student loan, your new lender pays off your existing loan, which can be either a federal or a private student loan, and gives you a new private student loan. You can refinance with a credit union, bank, or even an online lending institution, but you cannot refinance through the federal government. 

The primary reason people decide to refinance their student loan is to save money. Even modest monthly savings can add up over time, potentially saving you thousands over the life of the loan.  

When should I refinance my student loan? 

If any of these situations fit you, it’s time to consider a student loan refinance: 

• The interest on your current loan is high, and you’ve found a lower rate that will save you money over the life of the loan. 
• You want a new loan with a longer repayment term that would lower your monthly payment, or you want a loan with a shorter term that helps you pay it off sooner. 
• You’ve improved your chances of qualifying for better rates and terms because: 
  • You’ve improved your credit score; many lenders look for a score of 680 and higher. 
  • You have a steady job with a stable income. 
  • You’ve established a solid track record of making on-time payments with your existing student loan. 
  • You have a co-signer who could help you qualify for a better interest rate or loan terms. 
• You want to release a cosigner from your current loan. 
• You want to convert your variable rate loan to one with a fixed interest rate. 
• You want to simplify life by consolidating multiple loans to one with just one monthly payment. 

When should I wait to refinance my student loan? 

A student loan refinance doesn’t make sense for everyone. If any of these situations apply to you, think carefully before deciding to refinance: 

• When you refinance a federal student loan, it becomes a private loan, and you’ll lose access to the federal student loan protection benefits that come with those loans. Benefits include things like flexible deferment or forbearance options,; access to loan forgiveness programs like those for teachers, people in public service, military members, and others; and access to income-based repayment plans. If you think you may need these programs at some point, weigh the potential benefits of refinancing against the risk of losing those federal protection benefits. 
• If you are close to paying off your existing loan, refinancing may not make sense because the fees included in a new loan could make it less economical to switch. 
• If you just graduated or have uncertain job prospects, you may want to work for a few years and establish your career before applying for a refinance. 
• If you don’t have a strong credit score and you don’t want a co-signer, you may not qualify for lower rates. 

How much can I save with a student loan refinance? 

Does a student loan refinance make sense for you? Use Global Credit Union’s Student Loan Refinance Calculator to compare options and determine your next steps. 

What are the pros and cons of refinancing a student loan? 

Refinancing a student loan can be a good idea for many, but it’s not the right decision for everyone. 

A student loan refinance can be a great way to save money, but is it right for you? 

Sometimes, even a 1% drop in interest will make refinancing worthwhile. Other times, you may benefit more by keeping your existing federal student loans and their associated protection programs. If you think you might qualify for teacher, military, or public service loan forgiveness programs, or if you think you may someday need assistance in terms of an income-based payment plan, you may want to consider keeping your federal loan.  

If you do decide to move forward and refinance your student loans, sooner may be better because refinancing to a lower interest rate now will provide benefits over the entire loan term, for savings that really add up. Plus, you can refinance multiple times, so if your salary has increased or if your credit has improved, this may be a good time to consider it again to see if you now qualify for better terms.  

The sooner you lower your interest rate, the more you can save.