Student Loan Refinancing: Is Now the Right Time?

Posted on: November 5, 2020

Currently, there is a lot of talk about refinancing student loan debts. By refinancing, borrowers can lower their monthly payment and the overall amount owed to the lender. So how do you know if it is the right time to refinance your student loans? Here are four things to know.


If you have a federal student loan, you can’t refinance the interest rate. Congress sets the rate for all federal loans. However, if you want to lower the interest rate, check the current rate for private loans. Federal loans can be switched to private loans, but you’ll need to apply to a private lender for a new loan.
Before switching a federal loan to a private loan, consider three benefits of your federal loan:

  1. Loan forgiveness – The federal government offers student loan forgiveness to people in several fields, such as teaching or public service. After making several payments, you could get a portion of the balance forgiven.
  2. Payment adjustment – With federal loans, you also can get income-driven repayment plans. Your monthly payment is adjusted based on your salary.
  3. Deferment – During the pandemic, federal student loan payments were deferred for several months to help borrowers manage expenses.

Since Federal Direct loans have a 0% interest rate for the remainder of 2020, borrowers may want to wait to refinance their federal loans until 2021. Borrowers with private loans should consider refinancing if the current rate is less than what they’re paying. If you have a variable interest rate, a fixed-rate may be a better option if the going rate is lower. Check and compare rates using an online calculator.

Also, if you have consistently made monthly payments, you could qualify for a lower rate. Ask the lender to review your account to see if you qualify.

Often borrowers have loans from several lenders. If that reflects your current situation, you can consolidate your debt so you have only one monthly payment. You may end up having a little extra cash for other financial needs.

How to refinance

If you decide to refinance, your current private lender, or a new institution, can explain the application process. When reviewing your files, the private lender will review your credit score and credit history. If your record is weak, the lender could require a co-signer for the refinanced loan. The lender will want to review several documents, such as proof of employment, residency, graduation, and citizenship. If approved for refinancing, you’ll complete paperwork to set up the new loan.

BenefitEd can also help with student loan refinance. BenefitEd partners with Nelnet Bank Student Loan Refinance to provide turn-key solutions for refinancing. Learn more about how Nelnet Bank works to support your financial needs.


Depending on the interest rate the lender offers, refinancing your student loan can save you money. You’ll have a lower monthly payment and the total interest paid on the loan will be reduced.

Here’s an example of potential savings. On average, borrowers have $32,731 in student loans. If the loan was given recently, you might be paying 6.5% interest. So for a 10-year loan, your monthly payment is about $372. If you can refinance the loan at 3.5% interest, the monthly payment amount will drop to $324, saving you an extra $48 every month. Over the life of the loan, you’ll save $5,759 in interest.


If you don’t currently qualify for refinancing, ask the lender for tips on meeting requirements in the future. Here are a few ideas:

  1. Improve your credit score by paying monthly bills on time.
  2. Take a second part-time job to earn money to make extra payments to pay off a home mortgage or car loan
  3. Look for additional learning opportunities to expand your knowledge and skills so you qualify for a job at a higher income level.

Taking these steps could help improve your debt-to-income ratio, which lenders review as part of your application.