: Yikes, your student loan payments will be due this month. Is the right move to refinance? 

With all that pressure to repay your student loans, you might be considering refinancing — see the latest student loan refinance rates here — especially since it’s hard to escape those seemingly tempting offers. But is it actually the right move for you?  Here are some questions to ask yourself, and a guide on how to refinance if it is the right option for you.

Will refinancing save you money?

There’s more to consider than the cost — and by no means is refinancing guaranteed to save you money — but let’s first look at what you might pay.   

For the week of October 2, 2023, rates on 10-year fixed rate loans averaged 7.29% and 5-year variable loans averaged 6.28%, according to data from Credible for borrowers who prequalified on their marketplace. Those are averages, and to get the lowest rates, you’ll need to have impeccable credit, a strong financial profile and maybe even a cosigner to help improve your creditworthiness. Even then, are the rates you’d get on a refi lower than on your existing federal loan?

“Borrowers with excellent credit or who have cosigners with excellent credit may qualify for a fixed rate that is competitive with the interest rates for graduate students and parents. Other borrowers may want to wait for a few years until interest rates drop,” says student loan expert Mark Kantrowitz, author of How to Appeal for More College Financial Aid. In other words, refinancing generally makes the most sense cost-wise for graduate students and parents, who may be paying higher federal loan interest rates. See the latest student loan refinance rates here.

One thing to note: Broadly speaking, just because you refinance your loan doesn’t necessarily mean your monthly payment will be lower. “You’re likely going to pay the least amount over time, but depending on whether you choose a 5-year or 10-year loan, you may not see immediate savings,” says Smith. Be cognizant of the fact that interest rates are higher than they have been in years and finding a good deal on refinancing student loans will be difficult.

What kind of loans do you have?

If you have existing private student loans, and have determined a refi can save you money, consider pursuing that option. “Private loan holders burdened by elevated interest rates stand to gain significantly from refinancing, particularly if a more competitive interest rate becomes available,” says Bobby Matson, founder and CEO of Payitoff, a provider of consumer debt guidance tools.

So, “start by looking at your private loans to see if refinancing can help lower your interest rates. Borrowers with federal loans need to be more cautious in refinancing those particular loans,” says Aaron Smith, cofounder of Savi, a social impact company that helps employees repay their student debt. 

Indeed, those with federal student loans have a harder calculation. That’s because when refinancing a public student loan, you’re effectively taking out a new private loan to pay off your existing federal loan. “Private refinances do not offer the same benefits as federal student loans, such as income-driven repayment plans, deferments and forbearances, loan forgiveness and discharge options,” says Kantrowitz. That said, some private loans do offer forbearances, but they tend to be only up to a year in duration.

For that reason, Michael Kitchen, LendingTree’s student loan repayment expert, says you should probably not refinance your student debt if you have federal loans and you think you might struggle with repayment, have a lot to pay off or are unsure of what the future may bring. “If there’s a possibility of earning a low income for the foreseeable future, refinancing might not be the best option,” says Kitchen.

What kind of loan programs are you engaged in? 

Though refinancing might be the answer for some folks, you’ll want to hold off if you’re engaged in federal assistance programs like Public Service Loan Forgiveness (PSLF) or Income-Driven Repayment (IDR). PSLF forgives the remaining balance on loans after the borrower has made 120 qualifying payments while working full-time for a qualifying government or not-for-profit employer. IDR plans lower a borrower’s monthly payment based on their income and family size. “Refinancing would disqualify borrowers from these beneficial programs,” says Matson.

Generally, student loan refinancing tends to be the best option for borrowers with higher incomes. That’s because they’ll get better rates and are less likely to benefit from government income-based repayment options and don’t work in the public sector, where they might get loan forgiveness.

What refinancing benefits are you looking for besides cost savings?

One additional benefit of refinancing student loans is consolidating multiple loans into one single monthly payment for simplified repayment that is easier to track and manage, says Carlos Rodriguez, director, financial planning at Edelman Financial Engines.

“Other reasons for refinancing also include releasing a cosigner from the financial obligation or changing your loan structure from a variable rate to a fixed rate to allow for more stability in your expense structure,” says Rodriguez.

How to refinance a student loan

If, after weighing the pros and cons, a borrower determines they want to refinance, Kitchen recommends following these steps before you apply for a loan: 1) Gather information on your current loans, including rates and terms; 2) Shop around for lenders; 3) Collect your tax records and other information you might need for documentation.

After you find the “lowest interest rate and most favorable loan terms that suit your individual situation,” you should “get prequalified for a loan,” says Bankrate analyst Sarah Foster. “Often, lenders will allow you to input information about your personal and financial situation to get a quote on a rate.”

Be prepared to answer questions about your current loans, who the lender is, the amount of the loan, your loan identification number and personal financial information about yourself. The main determining factor in how much you’ll pay to borrow money is your credit score. “It plays a bigger role than the broader economic environment or the Federal Reserve. You might also decide it’s better to hold off on refinancing for now, so you can build up credit history or pay off other debts to improve your score,” says Foster. 

Once approved, you’ll need to log into the servicer’s site to accept the loan. “There will be a 3-day borrower remorse period during which you can cancel the refinance. Then, the lender will pay off the original loans which can take up to 30 to 60 days and the new lender will tell you when the payments should start being sent to them. Sign up for autopay as this not only makes you less likely to miss a payment but you’ll get a small interest rate reduction as an incentive,” says Kantrowitz.

One key thing to remember: “Keep paying your original loan until the new loan is disbursed to your previous lender,” says Kitchen.

Even if you apply now and decide not to go through with a refinance or choose to refinance again down the line, there’s no limit to the number of times you can refinance a student loan. A significant downside to the process is that each application involves a hard credit check that can temporarily ding your credit score.