Making payments on student loans can feel like a daunting task, especially if you’re struggling financially. If you’re looking for a way to reduce your monthly payment and improve your cash flow, refinancing is one strategy.

However, before you decide to refinance, it’s important to consider your personal situation and determine whether it makes sense to choose refinancing over other options that might help you better manage your student loan debt and your overall budget.

Key Takeaways

  • Student loan refinancing allows you to combine several student loans (whether federal or private) into one loan with only a single monthly payment and possibly a lower interest rate.
  • Refinancing your federal student loans means losing out on government programs and benefits, such as Public Service Loan Forgiveness (PSLF) and income-driven repayment.
  • Conversely, it can actually make more sense to refinance your private student loans, especially if they don’t have a fixed interest rate and, as a result, will become more costly should the Federal Reserve implement additional rate hikes.

What Is Student Loan Refinancing?

Student loan refinancing is the process of using one bigger loan to pay off your smaller student loans. You can refinance both federal and private student loans. Depending on your situation, and the lender, you might be able to get a big enough loan to pay off both federal and private student loans and combine them all into one loan, with one payment and one (potentially) lower interest rate.

However, you also need to consider that student loan refinancing often requires a good credit score. If you don’t meet the credit and income criteria to refinance your student loans, you might need a cosigner. However, not all lenders allow you to release a cosigner from their obligation, and that can make it difficult to find someone willing to take on the responsibility for your student loan debt.

Finally, if you refinance your federal student loans, you’re replacing them with a private loan. You lose access to federal benefits and programs associated with federal student loans when you refinance.

Benefits and Drawbacks of Student Loan Refinancing


  • Potentially lower interest rate

  • Lower overall payment

  • Easier to manage a single loan, rather than several loans

  • Potential save money over the life of the loan


  • You might need a good credit score to qualify

  • You might need to find a cosigner to qualify

  • Refinancing replaces federal loans, and you lose any potential benefits

Does It Make Sense to Refinance Your Student Loans?

As you review your situation, there are some things to consider as you decide whether it makes sense to refinance your student loans, depending on the type of loan you’ve taken out.

Federal student loans

Before you refinance federal student loans, consider whether you might need access to the programs and benefits associated with them. For example, if you will qualify for Public Service Loan Forgiveness (PSLF), it doesn’t make sense to refinance your federal student loans. Many federal student loan forgiveness programs, like PSLF, aren’t available for private loans, so refinancing would remove your eligibility.

Another consideration is that refinancing federal loans removes your ability to use income-driven repayment. If you’re struggling to make your federal loan payments, you might qualify for income-driven repayment, which reduces your monthly student loan payments from 10% to 20% of your discretionary income, depending on the plan.

If you’re trying to lower your monthly payment, an income-driven plan can be an effective way to achieve that goal while maintaining access to federal benefits. However, be aware that you might pay more over time with income-driven repayment. Even though your balance can be forgiven after 20 or 25 years of income-driven repayment, what you pay in interest could potentially be higher over time.

Finally, if you’d still rather have only one payment, then it may be worth looking into a direct consolidation loan. This type of loan combines all your federal loans into one payment to make it more manageable. You can also choose a loan term of up to 30 years, allowing you to enjoy lower individual payments.

Refinance your federal student loans if you know you won’t need access to the benefits. If you already make too much money to qualify for income-driven repayment or if you aren’t working a job that qualifies you for PSLF, and you know you won’t use federal benefits, it can make sense to refinance your federal student debt if your credit score is good enough to result in a lower interest rate.

Private student loans

On the other hand, if you have private student loans, it might make more sense to refinance. The Federal Reserve raised rates in May 2022, and there is speculation that more rate hikes might be coming. If you don’t have a fixed interest rate on your private student loans, that might lead to higher payments later.

Additionally, if more rate hikes are coming, it might might be wise to refinance before rates head higher, which would result in you ultimately paying more.

There has been some speculation that the Biden Administration may announce some measure of loan forgiveness in the near future. If you refinance, you could miss out on blanket federal loan forgiveness. Additionally, you would lose access to the temporary federal loan payment suspension.

In many cases, you can lock in a fixed interest rate when you refinance your private loans, providing you with stability and saving you money over the long term.

Some borrowers might decide to refinance their private student loans and consolidate their federal student loans separately. This still simplifies the situation, resulting in only two monthly payments and potentially lowering the overall costs, while still allowing borrowers to remain eligible for federal programs and benefits on their federal loans.

Does Refinancing Student Loans Lower Payments?

Depending on the situation, refinancing might lower your interest rate, which can lead to lower monthly payment and help improve your cash flow.

Should I Refinance My Federal Student Loans?

While refinancing federal student debt can lead to a potentially lower interest rate and monthly payment, it’s not always the best choice. When you refinance federal student loans, you lose the ability to get student loan forgiveness and access programs like income-driven repayment. If you think you might need these programs, a direct consolidation loan might make more sense than refinancing.

How Can I Lower My Monthly Federal Student Loan Payments?

If you’re hoping to lower your monthly student loan payments, there are a few options. You can get a direct consolidation loan to extend your term and combine your payments into one, take advantage of income-driven repayment (if you qualify), or sign up for an extended repayment plan. You can also refinance your loans for a lower monthly payment, but that will replace your federal loans with a private loan, and you will lose access to federal programs.

The Bottom Line

Refinancing your student loans can potentially reduce your monthly payment and provide you with a way to better manage your budget. However, it’s important to consider whether your loans are private or federal, and what benefit you have access to. If you want to qualify for federal programs and benefits, you should consider consolidating your federal loans separately and only refinancing your private student debt.

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