By the CalcLedger editorial team · Updated September 2026 · Examples use illustrative rates · How we calculate
Student loan refinancing means taking a new loan from a private lender, such as a bank, credit union, or online lender, to pay off one or more existing student loans. The goal is usually a lower interest rate, a different monthly payment, or one simpler bill. For some borrowers it saves thousands. For others, especially those with federal loans, it can be a costly mistake.
Refinancing vs. consolidation
These terms are often confused:
- Federal Direct Consolidation combines federal loans into one federal loan. Your new rate is the weighted average of your old rates, rounded up slightly, so it doesn't lower your rate. You keep federal benefits.
- Private refinancing replaces your loans, federal, private, or both, with a new private loan at a rate based on your credit and income. It can lower your rate, but federal loans that you refinance permanently become private.
How much refinancing can save
Suppose you owe $40,000 at an average rate of 7% with 10 years left:
| Option | Monthly payment | Total interest |
|---|---|---|
| Keep current loans, 7%, 10 years | $464 | $15,732 |
| Refinance at 5.5%, 10 years | $434 | $12,093 |
| Refinance at 5.5%, 7 years | $575 | $8,283 |
| Refinance at 6%, 15 years | $338 | $20,758 |
A lower rate at the same term saves about $3,600. Choosing a shorter term saves almost half the interest, if you can handle the higher payment. But stretching to 15 years for a lower payment costs about $5,000 more than keeping the loans you have, even with a lower rate. It's the same trade-off as with a mortgage. See the refinance break-even guide.
Total interest on $40,000 of student loans
Current 7% loans vs. refinance offers
What you give up by refinancing federal loans
Federal student loans come with protections that private loans generally don't offer:
- Income-driven repayment: payments tied to your income, which can be very low if your income drops.
- Loan forgiveness programs, including Public Service Loan Forgiveness for government and qualifying nonprofit employees, and forgiveness at the end of income-driven plans.
- Deferment and forbearance options if you lose your job, go back to school, or face hardship.
- Discharge in cases of death or total and permanent disability.
- Future federal relief, if Congress or the Department of Education changes the rules.
Once you refinance a federal loan into a private one, you can't move it back. Federal repayment rules have changed several times in recent years, so check StudentAid.gov for what currently applies to your loans before deciding.
When refinancing usually makes sense
- You have private student loans with a high rate. There are no federal benefits to lose.
- You have federal loans, stable high income, and no plans to use forgiveness or income-driven repayment, and you can get a meaningfully lower rate.
- Your credit has improved a lot since you first borrowed.
- You want to pay the loans off faster and can afford a shorter term.
When it usually doesn't
- You work, or might work, in public service and could qualify for PSLF.
- Your income is uncertain, or your job isn't stable.
- You're on, or may need, an income-driven plan.
- The rate you're offered is only slightly lower than your current rate.
Some borrowers split the difference: they refinance private loans, and high-rate federal loans that they're sure they won't need protections for, and keep the rest federal.
Watch out for "forgiveness" scams
Borrowers who are struggling are often targeted by companies promising to cancel or dramatically reduce student loans for an upfront fee. Everything these companies offer for federal loans, such as consolidation and applying for income-driven plans, you can do yourself for free at StudentAid.gov or through your loan servicer. Never pay upfront fees for student loan help, and never share your FSA ID password.
Fixed or variable rate?
Refinance lenders offer both. Variable rates often start lower but can rise over the life of the loan. A variable rate can make sense if you'll pay the loan off within a few years. For longer terms, a fixed rate protects you from rising rates.
How to get the best offer
- Check your credit score. Refinance rates depend heavily on it, and on your income and debt-to-income ratio. See how credit scores affect rates.
- Prequalify with several lenders. Most use a soft credit check that doesn't affect your score.
- Compare APR, fees, and term, not just the advertised lowest rate, which may only apply to the shortest terms and best credit. Our APR guide explains why.
- Consider a cosigner if your credit is limited, and check whether the lender offers cosigner release.
- Look for autopay discounts, commonly around 0.25 percentage points.
Run your own numbers
Enter your balance, current rate, and remaining term in the loan calculator, then try the rate and term you've been offered. Compare the monthly payment and the total interest. If you plan to pay extra each month, the debt payoff calculator shows how much faster you'll be done.