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Loan refinancing

When Should You Refinance Private Student Loans? 

Updated 09/12/2021

If your financial situation has improved or your priorities have changed since first receiving your student loan, you might want to consider refinancing. In this process, a new private lender pays off your current loan (or loans) and gives you a new loan, usually with a lower interest rate.


Refinancing your loans can help you save money, simplify your payments, and keep your repayment plan aligned with your long-term goals. But when exactly is the best time to refinance?


Here are a few scenarios where refinancing could work to your advantage.


When Your Credit Score Has Increased


If your credit score is higher now than it was when you took out your original loan, chances are you qualify for lower interest rates than you did back then. Since most private student loans base their interest rates on credit checks, a better credit score could secure you a new loan that accrues significantly less interest.


Why does this matter? Ultimately, a lower interest rate will lower your monthly payments and help you pay off your loan faster. The quicker you pay off your loan, the less time you’ll spend accruing interest — this could mean saving thousands of dollars in the long run.


Refinancing also allows you to switch between loans with fixed and variable interest rates, both of which come with their own advantages and setbacks. People who like predictable monthly payments might prefer a fixed interest rate, while switching to a variable rate could help you take advantage of especially low rates.


If your credit score hasn’t increased but you have the opportunity to reapply with a credit-stable cosigner, this is also a great time to consider refinancing to lower your interest rates. Alternatively, if your credit has improved enough that you no longer need a cosigner, you can refinance with a new lender to release the cosigner on your old loan.


When You Want to Combine Multiple Loans


Refinancing is especially convenient if you have private student loans from more than one lender. Instead of juggling multiple monthly payments, you can refinance your loans through a new lender to consolidate them into a single loan.

This will make it easier to manage your debt, since you’ll be paying one monthly bill instead of several. If your current loans all have different interest rates, consolidating them into a new loan with a lower interest rate or a different repayment plan can also help you save money in the long term.


When You Want to Change Your Repayment Plan


Refinancing private student loans can also help students change the terms of their repayment plan to suit their financial priorities. For instance, switching to a longer repayment plan allows you to lower your monthly payments, freeing up money for other expenses or financial goals … provided you can balance the additional accrued interest of a longer loan repayment schedule.


On the other hand, finding a new loan with a shorter repayment term will help you pay off your student loans faster. If you’re at a point in your life where you can handle higher monthly payments, this is a good way to speed up repayment and reduce the amount of money you pay overall.


When You Want to Switch Lenders


Refinancing your private student loans also gives you the option to switch to a new lender if you’re not satisfied with your current one.


Maybe you’re unhappy with your lender’s customer service, or you’re interested in benefits that your lender doesn’t offer, such as deferment and forbearance options or an earlier opportunity to release your cosigner. Whatever the reason, refinancing presents an opportunity to find a private lender that’s a better fit.


While the other factors above should carry more weight, it’s important to have a good relationship with your student loan company — after all, they’re joining you on one of the most important financial journeys you’ll take in your lifetime.


How To Refinance Private Student Loans


Refinancing is simple, free, and you can do it as many times as you want. Knowledge is power, so make sure to research private lenders that offer the interest rates, repayment plans, and benefits you want. Once you’ve found a company that feels right to you, apply directly with them — if your application is approved, they’ll pay off your existing lender or servicer and issue you a new loan.