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When Does It Make Sense to Refinance Your Student Loans?

Your relationship with your student loan may be one of the most enduring commitments of your life. On average, most people with four-year degrees take 21 years to pay off their student loans.

That means your student loans will likely be a part of your life for many years to come—when you sell the old clunker you’ve been driving and upgrade to something that won’t leave you stranded on the side of the road, as you apply for a mortgage and move into your first home, or when you welcome a tiny little bundle of love into your life and start paying for daycare.

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The good news? Even though your loans won’t disappear overnight, you can still move forward financially. When you’re looking at adding new expenses—like a mortgage or a higher car payment—you might consider reducing your student loan payment to make room for that additional line item on your budget.

Refinancing your student loans is just one of the ways you can lower your monthly payment. To decide if it’s the right choice for you right now, consider how a student loan refinance could help and if you are in the best position to refinance your student loans.

Refinancing your federal or private student loans may be the right move if:

You need to save money

If you need more money in your budget right now—for that childcare payment or car note—you can refinance your student loans for lower interest rate or a longer term.

With a lower interest rate, you’ll save money with each monthly payment. You may even be able to pay down the loan faster.

If you lengthen your payment term, you’ll reduce your monthly obligation by spreading payments out. The flip side is that you’ll pay more interest over the life of the loan than you would with a shorter payment term—but having that money in your bank account now might be more important.

Your current interest rate is high

If your private or federal student loans carry interest rates of 6.5% or higher, you’ll likely save money by refinancing. With the low interest rates offered by some private lenders, you could see an average payment reduction of over $200 per month.

Parents may also get a good deal by refinancing parent PLUS loans, which typically have higher interest rates.

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You're in a good position to refinance student loans if:

You or your cosigner have good credit 

A strong credit score shows lenders you’re a trustworthy borrower. A FICO score in the 690 to 850 range will give you the best shot at refinancing for a low interest rate.

If your credit isn’t where you want it to be, you can use a cosigner who agrees to take responsibility for the loan if you can’t pay it. 

Your debt-to-income ratio is low 

If your debt-to-income ratio is low, lenders see you as a good candidate for refinancing your student loan debt. 

To get your debt-to-income ratio, add all your monthly debt payments (car payment, student loan payments, credit card payments, etc.) and divide that by your gross monthly income. Your gross income is what you earn before taxes.

If you have a steady income and your debt-to-income ratio is between 20% and 36%, lenders will likely offer you a lower rate to refinance.

So if you have good credit and a low debt-to-income ratio, but you need some more cash in your pocket right now, refinancing could be a smart way to make that happen.

One word of caution: if you have federal loans, consider whether you plan to use certain benefits, such as student loan forgiveness or income-driven repayment that may be lost upon refinancing.

To find out how much you could save from refinancing you student loans, check out our Student Loan Refinancing Calculator.

See also: Everything You Need to Know About Student Loan Refinancing

Additional Nitro Recommended Student Loan Lenders

Lender Rates (APR) Loan Types Terms Eligible Degrees Eligible Loans  

Sallie Mae

3.37% - 13.72%1 Variable & Fixed
10 - 15 years

Undergrad Students Learn More

View Disclosure

Ascent

3.04% - 14.75%1 Variable & Fixed
5 - 15 years

4

Undergrad & Graduate Students Learn More

View Disclosure

Earnest

2.70% - 12.78%1 Variable & Fixed
5 - 15 years

3

Undergrad & Graduate Student & Parent Learn More

View Disclosure

SoFi

2.99% - 13.60%1 Variable & Fixed
5 - 15 years

Undergrad & Graduate Student & Parent Learn More

View Disclosure

FundingU

6.99% - 12.99%1 Variable & Fixed
10 years

Undergraduate No-Cosigner Student Loan Learn More

View Disclosure

MPowerFinancing

7.52% - 14.98%1 Fixed
10 year only

Undergrad & Graduate Student Learn More

View Disclosure

Rates (APR) 3.37% - 13.72%1
Loan Types Variable & Fixed
Terms 10 - 15 years

Eligible Degrees Undergrad
Eligible Degrees Students
Rates (APR) 3.04% - 14.75%1
Loan Types Variable & Fixed
Terms 5 - 15 years

4

Eligible Degrees Undergrad & Graduate
Eligible Degrees Students
Rates (APR) 2.70% - 12.78%1
Loan Types Variable & Fixed
Terms 5 - 15 years

3

Eligible Degrees Undergrad & Graduate
Eligible Degrees Student & Parent
Rates (APR) 2.99% - 13.60%1
Loan Types Variable & Fixed
Terms 5 - 15 years

Eligible Degrees Undergrad & Graduate
Eligible Degrees Student & Parent
Rates (APR) 6.99% - 12.99%1
Loan Types Variable & Fixed
Terms 10 years

Eligible Degrees Undergraduate
Eligible Degrees No-Cosigner Student Loan
Rates (APR) 7.52% - 14.98%1
Loan Types Fixed
Terms 10 year only

Eligible Degrees Undergrad & Graduate
Eligible Degrees Student

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