Refinancing your student loans can often come with huge benefits. It could mean a lower interest rate, a smaller monthly payment, and fewer costs in the long run. But be warned: Timing is everything — especially if you have federal student loans.
But if you have private student loans, then a refinance could be a smart move. Check a student loan refinancing calculator to gauge the potential savings it could offer, and make sure to compare rates and multiple lenders, as interest rates can vary widely.
If you have federal loans, then read on. There are lots of factors to consider before pulling the trigger. Here’s what you need to know.
Biden’s plans on student loan forgiveness
On Aug. 24, 2022, President Joe Biden announced up to $20,000 of student loan forgiveness. Almost as soon as this announcement was made, several lawsuits arose, and it was unclear if any would succeed based on lack of standing. However, two of them did pass after that month. These lawsuits blocked the Biden administration from enacting its plan to forgive more than 16 million borrowers who had already applied and been approved for forgiveness.
Of the 26 million people who applied for forgiveness, more than 60% have already had their loans sent to their servicers for discharge, according to the U.S. Department of Education.
Current roadblocks to forgiveness
In Nov. 2022, the plan was officially blocked by a federal judge in Texas. Applications for relief were put on hold while the Biden administration attempted to appeal to the Supreme Court. Meanwhile, the 8th Circuit Court of Appeals additionally imposed an injunction on debt relief, prompting the U.S. Department of Education to also appeal that decision and allow the program to continue while the legality of the forgiveness plan was determined in court.
In response, the Biden administration extended the payment pause to expire 60 days after June 30, 2023.
On Dec. 1, 2022, the Supreme Court allowed the injunction from the 8th Circuit Court to remain in place. The case now goes before the court, and oral arguments will be heard in February, with a final decision set for June.
If you have private loans and didn’t qualify for federal student loan forgiveness, then you should consider refinancing your student loans. With today's low rates, you could save time and money with a student loan refinance. Head to Credible now to refinance your student loans today.
Can you get student loan forgiveness if you refinance?
No, you will not be eligible for student loan forgiveness if you refinance. Refinancing a federal student loan could help you get a lower interest rate, but that comes with some trade-offs. For one, it would mean losing all the benefits that federal student loans come with — things like income-based repayment plans, student loan forgiveness if you enter a public service career, and the various loan repayment and student loan forbearance options.
Again, if you have private student loans, then you don't qualify for federal benefits. So, refinancing could be a smart move if you're looking to lower monthly payments and change your loan term. Just plug your loan amount and estimated credit score into Credible's free refinancing tools to view multiple mortgage lenders and the rates they offer.
The Biden administration extended the forbearance options set out by the CARES Act, and payments are paused until at least 60 days after June 30, 2023. Previously, the relief measure was set to expire on Dec. 31.
If you have federal loans, it likely makes sense to wait until after Aug. 29, 2023 to refinance, said Brad Griffith, a financial planner with Buckingham Advisors in Ohio. "It’s possible that this could get extended further. Instead of just spending those payments, we suggest our clients use this as an opportunity to get their financial house in order: building up an emergency fund, paying off credit cards and other high-interest rate debt, and saving up cash for when payments begin again."
When to refinance student loans
Refinancing private loans is usually an easy decision. If you can lower your interest rate and the fees to refinance are minimal, then it’s typically a smart move.
With federal student loans, though, it’s not as "cut and dry," Griffith said. While refinancing to a private loan could help you lower your interest rate, you’ll want to be sure losing all those federal loan benefits is worth it.
If the rate drop is big enough, that certainly may be the case. If you refinanced from a $100,000 federal loan at an 8% rate to a private student loan at a 3% rate, for example, you’d save a whopping $5,000 per year in interest and much, much more over the course of the loan’s life.
You’d also pay off the loan sooner, which would free up more cash and allow you to start saving for retirement or any other financial goals you might have.
How to refinance private student loans
If you do decide to refinance, shop for student loan rates that are best for you. Always compare lenders first, since rates can vary from one to the next.
"Make sure to look at if the rate is fixed or variable," Griffith said. "With rates as low as they are, it will likely make sense to lock in a fixed rate. Variable rates can increase over time and many have no caps, which could substantially increase total interest costs over the life of the loan if rates increase."
Use Credible to start comparing student loan refinancing rates now.