How to decide if you should refinance your student loans when interest rates rise


Although interest rates have increased in recent months, some borrowers may still be able to lock in a lower monthly payment by refinancing their student loan. (iStock)

The Federal Reserve has begun implementing a series of interest rate hikes scheduled for 2022 in an effort to combat record inflation. As a result, interest rates on private student loans have risen this year, according to data from Credible.

Despite the current rate environment, some student borrowers may still enjoy the financial benefits of refinancing at a lower interest rate. Student loan refinancing can help you pay off debt faster, lower your monthly payments, and save money in interest costs over time. Here’s how to determine if you should refinance your student loan:

Learn more about each step in the sections below, and you can visit Credible to compare student loan refinance rates for free without affecting your credit score.


Determine if you will qualify for federal loan programs

When deciding whether to refinance, it’s important to consider the type of student loan you have. Refinancing your federal student loan debt into a private loan would make you ineligible for certain government protections, including:

  • Income Driven Repayment Plans (IDR). Federal student loan borrowers may be able to enroll in an IDR plan to limit their monthly payments to a certain percentage of their income, depending on family size. After a repayment term of 20 or 25 years, the remaining balance of the loan is canceled.
  • Student loan deferment and forbearance. The Department of Education offers a number of debt relief programs for borrowers in financial difficulty, including deferment. Additionally, most federal borrowers are currently on COVID-19 administrative forbearance through September.
  • Federal Student Loan Forgiveness Programs. Private student loans are not eligible for federal student debt forgiveness measures, such as the Public Service Loan Forgiveness Program (PSLF), Borrower Defense of Repayment, and Closed School Exits.

But if you already have private student loan debt that doesn’t qualify for these programs, you don’t have as much risk by refinancing. And if you don’t plan to use those federal benefits, refinancing a private loan may be worth it. You can learn more about student loan refinancing by contacting a knowledgeable expert at Credible.


Compare your student loan rate to current interest rates

Although student loan refinance rates have increased slightly in recent months, current rates may still be lower than they were when you first borrowed your college debt.

Credible analysis found average federal student loan rates from 2006 to 2022 were 4.60% for undergraduates, 6.16% for graduate students, and 7.20% for graduates or parents who have borrowed PLUS loans. By comparison, the average private student loan rate for the 10-year term was 4.59% in the last week of April 2022.

Additionally, private student loan rates are determined in part based on the borrower’s credit score and debt-to-income ratio (DTI). Applicants with excellent or very good credit generally qualify for much lower interest rates than those with fair or poor credit. Those with a limited credit history can get a lower rate by refinancing with a creditworthy co-signer, such as a trusted friend or relative.

Average student loan refinance rates by credit score, January 2022

Private lenders allow you to be prequalified to see your estimated student loan refinance rate with a soft credit check, which won’t hurt your credit score. You can visit Credible to prequalify with multiple lenders at once, allowing you to shop around for the lowest possible rate for your situation.


Use a student loan calculator to estimate your savings

Once you’ve determined your current student loan rate and the estimated rates you’ve prequalified for, you can use a student loan refinance calculator to determine if this debt repayment strategy is worth it. You can use Credible’s student loan calculator to estimate your new monthly payment and the total interest paid over the term of the loan. This way, you can estimate your potential savings by refinancing your student loan debt.


Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.


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