3 Times Refinancing Your Student Loans Make Sense (and 2 Times It Doesn’t)

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When William Weaver graduated from college, he had over $50,000 in student loans. Because of interest, William realized he would pay back thousands more over the length of his repayment. By refinancing his debt instead, he was able to save over $10,000.

Although refinancing was a great choice for William, it’s not a one-size-fits-all solution. Depending on your loan types and interest rates, refinancing isn’t always the best idea.

This guide will help you figure out if refinancing is a good idea for your situation or not.

When refinancing makes sense

Refinancing can be beneficial in many ways. If you’re looking to save money, you might be able to get a lower interest rate and a shorter repayment term. If you need more breathing room in your budget, you can extend your repayment term to get a lower monthly payment.

If you think refinancing might be for you, here are the situations where refinancing makes the most sense.

1. You have private loans

Private student loans tend to have higher interest rates and less forgiving repayment terms than federal loans.

If you opted for a variable interest rate when you took out your loan, you could see interest rates as high as 9%. And since variable interest rates can fluctuate, that also means your monthly payment could change several times over the life of your loan.

Because of these factors, refinancing private student loans could be a good solution. If you refinance, you might be able to reduce the amount of interest you’ll pay over the length of your loan.

If you don’t like how variable rates can affect your payments, you can also opt to refinance with a fixed rate loan. You might pay more at first, but the rate is set for the length of your loan and your payments will never change.

2. You have high-interest federal loans

Depending on the type of federal loans you took out, you might be paying a lot in interest. For example, if you went to graduate school and took out PLUS loans, you could be paying 6% to nearly 8% interest, depending on the year you took them out. That interest rate can add significantly to the cost of your loan.

If you have good credit and earn a decent salary, you could refinance your federal loans and get a lower interest rate. Some lenders offer refinancing loans with fixed interest as low as 3.25%.

If you had $10,000 in PLUS loans at 6.31% interest and took 10 years to pay off your debt, you’d pay $3,510 in interest. However, if you refinanced the loans and qualified for a 3.25% interest rate, you’d pay just $1,726 in interest — and you’d have a lower monthly payment.

That switch would save you about $1,800, which you could use to pursue your other goals.

Student Loan Refinancing Calculator

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Refinancing $35,000 in student loans at a rate of 4.99% with a 10-year term would save — in interest paid and reduce your monthly payments by —.

• 6 Best Banks To Refinance Your Student Loans
• 10 Questions To Ask Before Refinancing
• Top Lenders To Refinance Your Parent PLUS Loan

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3. You have loans with a cosigner

If a parent or loved one cosigned a student loan with you, they’re responsible for the debt if you fall behind on your payments. Your cosigner’s credit could be negatively impacted if you miss a payment, making it difficult or even impossible for them to get approved for any new lines of credit, such as a car loan or a mortgage.

To prevent these kinds of issues, you can refinance the loans in your name only and release your cosigner from responsibility. If you want to help your loved one and can handle the debt on your own, refinancing can relieve them of responsibility. It could also reduce tensions between the two of you.

When you shouldn’t refinance

While refinancing can be a great way to save money, it’s not the right choice for everyone. Here are two scenarios when refinancing might not be wise.

1. You need an income-driven repayment plan

If you have federal student loans, you might qualify for an income-driven repayment (IDR) plan if you can’t keep up with your payments. Under an IDR plan, your payment is capped at a small percentage of your income and your repayment term is extended, reducing your monthly bill.

An IDR plan can be a lifeline when you’re starting out on a small income, but if you refinance your federal loans with a private lender, you lose this as an option. If you refinance and your income later decreases, your new lender might not be flexible about your payments.

2. You’re pursuing student loan forgiveness

If you plan to spend your career in public service, such as by working for a non-profit or a government agency, you could qualify for Public Service Loan Forgiveness (PSLF). After 10 years of making qualifying payments, the government will forgive your loans.

However, if you refinance your debt, you’re no longer eligible for PSLF. The program only applies to federal loans. Even though refinancing can save you money right now, it could cost you thousands in the long run if you qualify for PSLF.

Deciding if refinancing is right for you

Everyone’s situation is unique when it comes to student loans. So before refinancing, make sure you do your homework and understand how much you could save with each option. Then you can decide if the savings are worth the potential drawbacks.

Ready to refinance? Check out this list of the best banks for refinancing.

Interested in refinancing student loans?

Lender	Variable APR	Eligible Degrees
Get real rates from up to 4 Lenders at once Check out the testimonials and our in-depth reviews! 1 Important Disclosures for Laurel Road. Laurel Road Disclosures VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. 2 Important Disclosures for SoFi. SoFi Disclosures Student Loan Refinance: Fixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org) 3 Important Disclosures for CommonBond. CommonBond Disclosures Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018. 4 Important Disclosures for Citizens Bank. Citizens Bank Disclosures Education Refinance Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
	2.57% – 5.87%	Undergrad & Graduate	Visit Earnest
	2.80% – 6.38%1	Undergrad & Graduate	Visit Laurel Road
	2.48% – 7.52%2	Undergrad & Graduate	Visit SoFi
	2.47% – 7.99%	Undergrad & Graduate	Visit Lendkey
	2.57% – 6.65%3	Undergrad & Graduate	Visit CommonBond
	2.72% – 8.17%4	Undergrad & Graduate	Visit Citizens