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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 to refinance over other options that might help you better manage your student loan debt and your overall budget.
Student loan refinancing is the process of taking out 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.
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.
Potentially lower interest rate
Lower overall payment
Easier to manage a single loan, rather than several loans
Potentially 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
Replaces federal loans, and you lose any potential benefits
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.
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 make you ineligible for them.
Another consideration is that refinancing federal loans limits your ability to participate in income-driven repayment plans. 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.

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 aren't working a job that qualifies you for PSLF and know you won't use federal benefits, it can make sense to refinance your federal student debt, assuming your credit score is good enough to result in a lower interest rate.
It may make more sense for people to refinance any private student loans. If you don’t have a fixed interest rate on your private student loans, that might lead to higher payments later. 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.
Keep in mind, though, that the Federal Reserve began raising interest rates in March 2022 and has continued in order to combat inflationary pressures caused by the global COVID-19 pandemic and Russia’s invasion of Ukraine. If more rate hikes are coming, it might be wise to refinance before rates climb higher, which would ultimately result in paying more.
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.

Government, tribal government, or non-profit employees with federal student loans may qualify for the Public Student Loan Forgiveness program. Eligible borrowers may qualify for a limited PSLF waiver, which provides credit for previous periods of repayment. Submit your forms before the Oct. 31, 2022, deadline to see if you qualify.
The White House announced protections for federal student loan borrowers. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law in March 2020, paused student loan payments. The Biden administration extended this provision until Dec. 31, 2022. This means borrowers don’t need to make any payments, interest doesn’t accrue, and late fees don’t apply during this period. Even though you’re not required to make payments, it’s a good idea to continue, as it lowers your overall liability without incurring interest.
The government also announced debt cancellation of up to $20,000 for individuals with Pell Grants from the Department of Education and up to $10,000 for non-Pell Grant recipients. Borrowers must have annual incomes of $125,000 ($250,000 for married couples) or less.
There is also a proposal in the works for cutting monthly payments in half for undergraduate student loans. The Biden administration says it is committed to working with institutions to keep tuition low and making community college free.
If you refinance, you could miss out on blanket federal loan forgiveness. You may also lose access to the temporary federal loan payment suspension. Another thing to remember is that none of these provisions apply to private student loans. Check with your lender to see if your loan qualifies for any form of relief.
Depending on the situation, refinancing might lower your interest rate, which can lead to lower monthly payments and help improve your cash flow.
Though 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 qualify for 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.
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.
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 which benefits you can access. 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.

Federal Student Aid. "Should I Refinance My Federal Student Loans Into a Private Loan?"
Federal Student Aid. "If Your Federal Student Loan Payments Are High Compared to Your Income, You May Want to Repay Your Loans Under an Income-Driven Repayment Plan."
Federal Student Aid. "Consolidating Your Federal Education Loans Can Simplify Your Payments, but It Also Can Result in the Loss of Some Benefits."
Federal Reserve System. "March 16, 2022, Federal Reserve Issues FOMC Statement."
Federal Reserve System. "July 27, 2022, Federal Reserve Issues FOMC Statement."
Federal Student Aid. "PSLF Waiver Offers Way to Get Closer to Loan Forgiveness."
The White House. "Fact Sheet: President Biden Announces Student Loan Relief for Borrowers Who Need It Most."
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