Should you refinance your student loans? There’s no one correct answer, as it depends on the type of student debt you have, what refinancing terms you can qualify for, and what your financial goals are.
Review what you might gain and lose by refinancing, along with some scenarios where it can make solid sense.
When you refinance student loans, you take out a new loan to pay off your existing debt. The new loan has its own unique rates and terms, so refinancing can be a useful way to adjust and better manage your debt.
Here are some ways refinancing may benefit you:
Related: Student loan consolidation vs. refinancing: Which is best?
While refinancing can be a worthwhile process, depending on your current debt, there are also potential risks to refinancing.
If you have federal student loans, the risks of refinancing are generally larger. Federal loans come with special benefits and protections, but you’ll lose access to them if you refinance your debt. For example, you would no longer:
Make sure you won’t need any of these perks in the future before you refinance, as the process is permanent and irreversible.
| Note: Federal student loan payments and interest were paused in March 2020 due to the COVID pandemic. Refinancing didn’t make much sense for federal borrowers during this time, as they would be required to resume payments as soon as they did. But with the payment pause set to expire on Sept. 1, 2023, federal borrowers may reconsider if refinancing is a good idea. |
If you refinance private loans, you don’t face any of the above risks since you are simply switching from one private student loan to another. However, not all private student loan borrowers may benefit from refinancing. For example, if you lengthen your repayment timeline or increase your interest rate on your new loan, you could pay more in the long run.
Considering the risks and benefits of refinancing is helpful, but ultimately you’ll need to consider your unique situation carefully to determine when you should refinance student loans. To help you decide, here are a few scenarios when refinancing might make sense:
Related: How to refinance student loans
There are also some situations when it’s likely not wise to refinance, including the following circumstances:
By carefully considering the pros and cons of refinancing and assessing the specifics of your situation, you can make an informed choice about whether refinancing is right for you.