Refinance student loans

11 Pros and Cons of Student Loan Refinancing 

pros and cons of student loan refinancing

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Refinancing your student loans can be a savvy move if you’ve got high-interest student loans, but it can also mean giving up federal repayment plans. So while refinancing has a bunch of pros, it could also come with some downsides. Here are all the pros and cons of student loan refinancing so you can decide if it’s the right move for you.

Pros of student loan refinancing

Let’s start with the benefits of refinancing your student loan debt.

1. Save money on interest

The best benefit of refinancing student loans is saving money on interest, especially if you’re currently dealing with high-interest loans.

The best refinancing providers offer variable rates starting at 1.90% and fixed rates starting at 3.10%.

Let’s say you owe $45,000 at a 6.5% rate. Over 10 years, you’d pay $16,316 in interest.

But if you could refinance that debt to a 3.5% rate? You’d pay $8,398 over 10 years, resulting in savings of nearly $8,000.


2. Choose new repayment terms

When you refinance student loans, you can select new repayment terms. Most lenders offer terms of five, seven, 10, 15, or 20 years.

You could choose a shorter term to get out of debt faster and save the most on interest. Or you could choose a long term to lower your monthly payments.

Crunch the numbers with a student loan calculator (many lenders offer these on their websites) to determine which loan repayment term makes most sense for you.

3. Adjust your monthly payment

Getting a new interest rate and new repayment terms means adjusting your monthly payment.

If you can afford to pay more each month, you could choose a short term and get out of debt ahead of schedule. Note that you can always make extra payments to get out of debt even faster without penalty.

If your payments are way too burdensome, you can choose a long term (like 10, 15, or 20 years) to lower your payments. Snagging a lower interest rate will help bring your payments down, too.

But remember, the longer you’re in debt, the more interest you’ll pay over time.

4. Combine multiple loans into one 

Refinancing several loans means combining them into one. Instead of tracking multiple due dates, you can simply make one payment to one loan servicer. This could really simplify things if you’re currently juggling multiple accounts and payments.

5. Get a cash bonus of up to $200

Student Loan Gal is excited to bring you welcome bonuses of $100 to $200 from most of our recommended lenders! Check out our list of lenders to see which ones offer cash back when you refinance your student loans.


See the Full List


6. Access new perks and benefits 

Some lenders offer pretty cool perks to refinancing customers. SoFi, for example, offers social networking events and career coaching. And Earnest lets you skip one payment per year without penalty.

Although you’ll probably go with the lender that offers the best interest rate, don’t forget to look for extra perks and benefits when choosing your lender, too.

7. Ditch your old loan servicer and get a new one

Hate your student loan servicer? Refinancing with a private lender means you get to switch to a new one who’s hopefully more helpful.

When we put together our list of recommended lenders, we went with ones who have a good reputation for customer service, since we know how frustrating it can be to deal with an unhelpful loan servicer.

Check out the full list here.

Cons of student loan refinancing

While student loan refinancing can be helpful for some borrowers, it’s definitely not for everyone. Here are some potential disadvantages.

1. Lose access to federal forgiveness programs 

Refinancing federal student loans, such as Direct and PLUS loans, turns them private. As a result, they’re no longer eligible for federal forgiveness programs such as Public Service Loan Forgiveness or Teacher Loan Forgiveness.

If you’re working toward any of these federal forgiveness programs, don’t refinance your federal student loans with a private lender.

2. Become ineligible for federal repayment plans

Since turning federal loans private makes them ineligible for federal programs, this counts for federal income-driven repayment plans, too, such as Income-Based Repayment and Pay As You Earn.

These plans are really helpful if you want to adjust your payments along with your income. Most private lenders do not offer income-driven plans. So if you feel you need one now or in the future, don’t turn your federal loans private through refinancing.

3. Have trouble qualifying 

Private refinancing lenders have fairly lofty requirements for credit and income. If you don’t meet them, you could have trouble qualifying for a loan. And if your credit just meets the cutoff, you probably won’t get the best rates.

4. Could end up needing a cosigner 

Most refinancing providers let you apply with a creditworthy cosigner if you need to boost your chances. But you might not want to share debt with someone, and any issues could lead to conflicts between you and your cosigner.

Before having anyone sign on to your application, make sure you have a clear discussion about what this means and what everyone’s expectations are around repayment.

Consider all the pros and cons before making changes to your student loans

As you can see, refinancing student loans has both pros and cons. Make sure you’ve familiarized yourself with all this information before applying.

To learn even more, head to our Refinancing 101 guide.

And if you’re ready to check your rates, hop on over to our list of recommended lenders.