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Is There a Hidden Catch With Student Loan Refinancing?

Ben Luthi
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Before You Read, Lower Your Student Loan Payment

It’s that quick & easy — really. Our free tool checks a network of top refinance lenders and shows you options in one easy chart.
Checking rates takes 2 minutes with no impact on your credit
Federal & private loans are eligible
No maximum loan amount

Before You Read, Lower Your Student Payment

It’s that quick & easy — really. Our free tool checks a network of top refinance lenders and shows you options in one easy chart.

Checking rates takes 2 minutes with no impact on your credit
Federal & private loans are eligible
No maximum loan amount

Refinancing student loans isn’t for everyone.

But for those who qualify, there’s no catch.

That doesn’t mean there aren’t things you should consider before applying — and knowing when it’s smart to refinance student loans is an essential step in the process.

If you’ve been wondering if you should refinance student loans, here’s what you need to know before you decide.

The benefits of student loan refinancing

For those who qualify for student loan refinancing, there’s a lot to like.

The primary benefit is that you may be able to qualify for a lower interest rate than what you’re currently paying, potentially saving you thousands of dollars as you pay off your debt.

For example, let’s say you have $30,000 in student loan debt on a 10-year repayment plan, with a weighted-average interest rate of 6.5%.

If you managed to refinance your loans at a 4.5% interest rate with the same repayment term, you’d save $3,567 over 10 years.

It’d also reduce your monthly payment by $30, which isn’t a lot, but it’s still cash you’re keeping in your pocket every month for the next decade.

Other benefits of student loan refinancing include:

  • Flexibility: If you want to repay your student loans faster or lengthen your repayment term to further reduce your monthly payments, you can do both with a private refinance lender. With the U.S. Department of Education, the standard 10-year repayment plan is the shortest option available.
  • One lender: With federal loans, you may have multiple loan servicers to deal with. That not only means multiple monthly payments but also having to deal with different companies when you have questions. When you refinance your loans, you’ll end up with just one monthly payment and one lender — not to mention it’s one you can choose.

Student loan refinancing is best suited for borrowers who qualify and don’t need the benefits that come with federal loans — which we’ll cover in a minute.

The 2 Best Companies to Refinance Student Loans

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5.48% – 8.94% APR 4

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Fixed Rate

5.19% – 9.74% APR 2

Variable Rate

5.72% – 9.74% APR 2

What to keep in mind with student loan refinancing

As previously mentioned, student loan refinancing isn’t for everyone. One of the drawbacks is that lenders typically have high eligibility standards.

This means that you’ll likely need a high credit score, a low debt-to-income ratio and a steady income. For many recent graduates, meeting these requirements can be challenging.

If you don’t meet the required standards, you may be able to still get approved with a creditworthy cosigner. But finding someone to agree isn’t always easy because the loans will also show up on their credit report, and they’re equally responsible for paying back the debt if you can’t make your payments.

Some private lenders do offer cosigner release programs. These programs can allow you to remove a cosigner from your loans after you make a certain number of payments and meet the lender’s credit criteria.

When to refinance student loans and when not to

Student loan refinancing can be the right or wrong choice, depending on your situation. The most important thing to consider is whether you need access to the benefits that come with federal student loans.

That includes access to:

  • Student loan forgiveness programs: This includes the Public Service Loan Forgiveness program (PSLF), Teacher Forgiveness Program and more. They can provide forgiveness for your remaining balance once you meet certain requirements.
  • Income-driven repayment plans: The four plans reduce your monthly payment to between 10% and 20% of your discretionary income and can come in handy if you’re struggling to get by financially.
  • Generous deferment and forbearance programs: If you return to school or experience financial hardship, the Department of Education typically provides better deferment and forbearance options than private lenders. 

Keep in mind that if you’re refinancing private student loans, you don’t need to worry about any of these things. Depending on your situation and financial goals, here’s when to refinance student loans and when to think twice.

When to refinance

  • You meet the eligibility requirements: Student loan refinance lenders typically let you get preapproved with just a soft credit check to determine your eligibility and rate offers. If you can qualify for student loan refinancing on your own or with a cosigner, it might be a good option.
  • You can score a lower interest rate: The primary benefit of student loan refinancing is saving money. If you can get a lower rate than what you’re currently paying on your loans, you’ll not only reduce your monthly payment but also save money on interest over the life of your loans.
  • You want more control: Refinancing student loans allows you to choose your lender, and also provides you flexible repayment options. Depending on your budget and how quickly you want to pay down your debt, you’ll have a lot of options.

When to think twice

  • You qualify for a loan forgiveness program: If you qualify for PSLF or another loan forgiveness program, the benefit of sticking with it is likely far greater than the interest savings you could get with student loan refinancing.
  • Your income situation is iffy: If you don’t have a lot of job security or you’re a small business owner with fluctuating income, it may be better to keep your federal loans, so you can get on an income-driven repayment plan or apply for deferment or forbearance if you need it.
  • You don’t qualify: If you can’t get a lower interest rate than what you currently have or you don’t qualify for student loan refinancing at all — and you don’t have a cosigner who can help — you should wait until your credit and financial situation has improved before you apply.

The bottom line

For those who qualify, refinancing your student loans can be very rewarding. And while there’s no hidden catch that you have to watch out for, it’s important to consider both the pros and cons of the process — and that goes for any financial decision.

If you’re thinking about refinancing, use Purefy’s Compare Rates tool to shop around and compare terms from multiple lenders in one place. This preapproval process won’t affect your credit and can save you time as you do your due diligence to determine if refinancing is right for you and which lender to choose.

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Ascent Rate Disclosure

Ascent’s undergraduate and graduate student loans are funded by Bank of Lake Mills or DR Bank, Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentStudentLoans.com/Ts&Cs.

Rates are effective as of 12/1/2023 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized back account each month. For Ascent rates and repayment examples please visit: www.AscentStudentLoans.com/Rates.

1% Cash Back Graduation Reward subject to terms and conditions. Click here for details.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 5.09% APR to 8.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

ISL Rate Disclosure

Earnest Rate Disclosure

2 Earnest Rate Disclosure:


Actual rate and available repayment terms will vary based on your income. Fixed rates range from 5.44% APR to 9.99% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.97% APR to 9.99% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

Advertiser Disclosure:

THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

Earnest Rate Disclosure

Rates displayed include the 0.25% Auto Pay discount. You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from a checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.67% APR to 16.15% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.64% APR to 16.45% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Nine-month grace period is not available for borrowers who choose our Principal and Interest Repayment plan while in school.

Earnest clients may skip one payment every 12 months. Your first request to skip a payment can be made once you’ve made at least 6 months of consecutive on-time payments, and your loan is in good standing. The interest accrued during the skipped month will result in an increase in your remaining minimum payment. The final payoff date on your loan will be extended by the length of the skipped payment periods. Please be aware that a skipped payment does count toward the forbearance limits. Please note that skipping a payment is not guaranteed and is at Earnest’s discretion. Your monthly payment and total loan cost may increase as a result of postponing your payment and extending your term.

Loan Eligibility criteria: Eligible students must: 1) For college Freshmen, Sophomores and Juniors, attend, or be enrolled to attend, a Title IV school full-time. For college Seniors and Graduate students, attend, or be enrolled to attend, a Title IV school at least half-time; and 2) be pursuing a Bachelor’s or Graduate degree. Earnest private student loans are subject to credit qualification, completion of a loan application, verification of application information, self-certification of loan amount, and school certification.

Responsible borrowing tip: Explore all scholarship, grant and federal options before applying for a private loan.

Earnest Private Student Loans are made by One American Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104.

Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

Advertiser Disclosure:

THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

ELFI Rate Disclosure

4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 10/13/2023. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

ELFI Rate Disclosure

Education Loan Finance is a nationwide student loan provider offered by Tennessee based SouthEast Bank. ELFI is designed to assist students financially with receiving their education. Subject to credit approval. See Terms & Conditions. Interest rates current as of 12/11/2023. Variable interest rates may increase after closing but will never exceed 18.00%. Interest rates may also differ from the rates shown above. The term of your loan, financial history, and other factors, including your cosigner’s (if any) financial history can affect the interest rate. For example, a 10-year loan with a fixed rate of 7% would have 120 payments of $11.61 per $1,000 borrowed. Rates are subject to change.

College Ave Rate Disclosure

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation.
Minimum loan amount $1,000, as certified by your school and less any other financial aid you might receive.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 1/1/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

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