Student loan refinancing is a tool many students use to better manage their loan debt. Some may refinance to get a smaller interest rate. Others may refinance to get lower monthly payments. But did you know there’s such a thing as partial refinancing? Partial student loan refinance is a useful solution when you don’t want to refinance your entire student debt. Understanding how it works is key to deciding whether or not it’s right for you.

How Partial Student Loan Refinance Works

When you refinance student loans, the lender pays off your current balance and issues you a new loan. The new loan will have new terms and conditions and if you qualify, a lower interest rate too.

The process for refinancing student loans fully or partially is almost the same. There are just a couple of steps that are different.

Partial Refinance with Multiple Student Loans

You’ll simply choose the individual loans you want to refinance. These could include loans with the largest balances or those with the highest interest rates. This choice will depend on your repayment goals.

Partial Refinance with One Student Loan

With a single loan, you ask the lender to pay off only a portion of the debt during the refinancing process. This is known as an underpayment.

It’s important to inform lenders in advance that you’re looking for a partial student loan refinance. Some lenders don’t offer this option. Among those who do, the criteria or procedure may vary. Finding out details in advance can prevent obstacles from coming up after you’d started the process.

When To Consider A Partial Student Loan Refinance

A partial student loan refinance may be right for you under these circumstances:

• You qualify for a lower rate but would like to hang on to federal perks. If your income is shaky, income-driven repayments can help make payments affordable. Refinancing only private student loans but not federal student loans allows you to save money while still maintaining federal protections.
• Interest rates have dropped but you don’t qualify for a full refinance. Most lenders impose approval limits. These are based on applicants’ credit scores or some other criteria. If you want to take advantage of the drop in rates but don’t qualify for a full refinance, partial refinance can help. To maximize your savings under these circumstances, refinance loans with the highest interest first. As your credit score improves, you can refinance again to avail of even lower rates.

When You Shouldn’t Consider Partial Refinance

Federal student loans payments have been paused interest-free because of the coronavirus pandemic. While the pause was initially in effect only till August 2021, it has now been extended until January 31, 2022. During this time, all repayments, interest accruals, and collections have been paused. This offers immense relief to student loan borrowers who don’t have to worry about repayments or collections.

When you refinance federal student loans they get converted to private loans. The interest-free paused repayments don’t apply to private student loans. If you refinance before January 31, 2022, whether fully or partially, you’ll lose all pause protections. Your payments will start immediately. It may be best to wait a little bit for partial refinance.

However, if you believe the benefits of refinancing outweigh the benefits of federal perks, then it may be time to try partial refinance.