10 Questions to Ask Before Refinancing Your Student Loan(s)
Refinancing your student loans can be a smart way to lower your interest rate, reduce your monthly payments or pay off debt faster. But it may not be the right move for everyone. Before you apply, it’s important to take a step back and ask the right questions to see if refinancing makes sense for you.
Here are 10 questions every borrower should consider before deciding whether to refinance their student loans.
1. What Types of Loans Do I Have?
Start by getting a clear picture of your situation. Not all student loans are the same, and the type of education loan you have can affect your decision.
Federal loans: If you refinance federal loans into a private refinance loan, you’ll lose access to federal benefits like Public Service Loan Forgiveness (PSLF), Income-Driven Repayment (IDR) plans, and federal deferment and/or forbearance options. It’s important to look at your complete financial picture before refinancing federal student loans.
Private loans: Refinancing private loans can be more straightforward since you aren’t giving up certain federal repayment and forgiveness options. For many borrowers, this is where the biggest opportunity for savings comes in.
Both: If you have a mix of federal and private loans, you’ll need to weigh the pros and cons carefully before refinancing mixed loan types to see if it’s the best option for your financial situation.
2. What Are My Financial Goals?
Ask yourself: What do I want to get out of refinancing my student loans?
Do you want to lower your interest rate?
Do you want lower monthly payments, so you have more room in your budget?
Do you want to pay off your debt faster and save on long-term interest?
Is your priority to free up cash flow now or minimize total costs later?
Knowing your goals from the start can make it easier to choose the loan terms that fit your situation if you decide to move forward with refinancing.
3. What Interest Rates Am I Paying Now?
Refinancing generally makes sense for your long-term financial success if the new interest rate is lower than what you have today. For example, if you owe $40,000 at 7% interest and refinance to 5%, you could save several thousand dollars over the life of the loan without changing your repayment term.
However, if you have multiple student loans with different interest rates—maybe one already has a low rate while others are much higher—refinancing them all into a single loan could still be smart. Combining everything can simplify repayment with just one monthly payment to track and may lower your overall costs, even if one of your original loans had a better rate.
The key is to look at the big picture. Run the numbers, compare offers and make sure the new loan supports your financial goals—not just today, but for the long haul.
4. Is My Credit Score Strong Enough to Qualify?
Most lenders require good to excellent credit to be eligible to refinance your student loan debt. If your score isn’t quite there yet, you can take this time to work on improving your credit score by making consistent on-time payments, paying down debt or fixing errors on your credit report. Learn more about understanding credit reports and scores here.
5. Do I Have Stable Income?
Lenders want to see that you can comfortably afford your new payments. In addition to credit score, they’ll look at your debt-to-income (DTI) ratio, which simply means comparing how much you owe to how much you earn. A steady paycheck or reliable income stream can help you qualify for lower rates, saving you money over time.
6. How Long Do I Plan to Repay My Loan?
The length of your loan term will affect both your monthly payment and the total amount of interest you pay.
In a nutshell:
Shorter terms: Higher monthly payment, but less interest overall.
Longer terms: Lower monthly payment, but more total interest paid at the end of your loan term.
The right choice depends on whether your priority is a lighter monthly payment or becoming debt-free sooner.
7. Am I Willing to Give up Benefits on My Federal Student Loans?
Once you refinance federal student loans into a private loan, you can’t get those federal benefits back.
Some benefits you could lose access to include:
Public Service Loan Forgiveness (PSLF)
Income-Driven Repayment (IDR) plans
Federal forbearance and/or deferment options
If you’re considering refinancing a federal student loan, it’s essential to weigh the impact of losing these benefits. For example, a teacher working toward PSLF could miss out on forgiveness after 10 years of service if they refinance into a private loan. Also, if your job is unstable, you may want to hold onto your eligibility to temporarily reduce or put a pause on your student loan payments through federal economic hardship programs.
8. What Are the Lender’s Terms and Benefits?
Every lender is a little different, so it’s important to research the details of their refinance loan before you take this big step.
Here are some questions to consider:
Does the lender offer fixed or variable rates and what are their low and high ranges?
Are there repayment options that fit your situation better than what you currently have?
Do they provide auto pay discounts or other borrower benefits?
What is their customer service reputation?
These details and benefits offered can make a big difference over time.
9. Am I Planning Any Major Life Changes Soon?
Big transitions, like going to graduate school, changing jobs, starting a family or making a move, can affect your income and repayment ability. If you’re on the verge of a life changing event, waiting to refinance may be a smarter choice, depending on your overall financial picture.
10. Does Refinancing Fit With My Long-Term Financial Plan?
Finally, take a step back and look at the big picture. Refinancing is a financial tool that should work in harmony with your other goals, like buying a home, building retirement savings or paying off other debt. Think about how a refinance loan fits into the rest of your financial journey.
Wrapping Up
For some borrowers, refinancing is a powerful way to save money, simplify repayment or reach financial milestones faster. For others, keeping current federal benefits or waiting until your credit improves is the wiser mover.
The key is asking yourself the right questions, weighing the pros and cons and choosing what truly supports your long-term success.
If you’re curious about what refinancing could look like for you, check out HESC’s refinance loan options for Texas borrowers.