Let’s get right to it. Should you refinance ALL of your student loans? Not necessarily. Whether or not you should refinance a loan will depend on a combination of factors. What is your reason for refinancing? Which benefits are you’re getting from refinancing? What types of loans are you refinancing – federal or private? A major chunk of the decision will depend on the answer to the last question.

Here’s a look at how refinancing works and how to decide which student loans to refinance.

How Refinancing Works

When you refinance, you give up your old loan in exchange for a new loan. The newly refinanced loan has absolutely no association with the original loan. It is considered a completely different entity with a different interest rate and new terms and conditions. Refinancing is a solution for any borrower looking for a way to change the terms of their existing loan.

The main reason many students choose to refinance is to get a better interest rate on their loans. For example, a high credit score will qualify you for a lower interest rate. If you’ve focused on building your credit score after graduating, you may be eligible for a lower rate. Getting even a slightly lower rate can save you hundreds if not thousands in accrued interest over the life of the loan.

Difference Between Refinancing Federal And Private Loans

Federal student loans come with several different benefits and protections. The income-based repayment plans allow you to peg your monthly payments to your monthly income. With these plans, you pay a percentage of your income towards the monthly payments. This makes the payments affordable at all times. The Forgiveness Programs absolve part of your federal student loan if you meet certain requirements. Federal student loans also come with deferment and forbearance options.

However, the federal government doesn’t offer refinancing options. If you want to refinance your federal student loans, you’ll have to do it through a private lender. When you do this, the refinanced loan becomes a private loan. That means it loses all benefits and protections associated with the original loan. This may or may not matter to you depending on your monthly income and your financial circumstances.

How To Decide Which Student Loans To Refinance And Which Not To Refinance

Private loans don’t come with any special benefits or protections. If you qualify for a rate that’s lower than your current rate, no need to think twice about refinancing. You’ll benefit from the lower rate without losing out on anything.

When refinancing federal student loans, however, you must give some thought to what you are giving up.

Do you qualify for federal loan forgiveness or will you qualify in the next few years? If you do, you should not refinance your federal student loans.

What about your monthly income? Is it too low or inconsistent? Are you at high risk of defaulting on your loan payments? In that case, you definitely do not want to give up the income-based repayment plans. It’s best not to refinance your federal student loans under these circumstances.

To recap:

Refinance private student loans as soon as you qualify for an interest rate that’s lower than your current rate. You can refinance multiple times, getting progressively lower rates as your credit score improves.

Refinance federal student loans only if you don’t intend to avail of the protections and benefits that are associated with those loans.