Making monthly payments on student loans is a daunting task if you're struggling financially. If you're looking for a way to reduce your monthly payment and improve your cash flow, refinancing your student loan is one strategy.

However, before you decide to refinance, it's important to consider your situation and determine whether it makes sense. Other options might be a better choice to help you better manage your student loan debt and your overall budget.

What Is Student Loan Refinancing?

Student loan refinancing means taking out a new loan to pay off an existing loan or loans. Shifting your debt to a new loan can change the interest rate, terms, and other loan features. You can combine multiple loans into a single loan. You can refinance both federal and private student loans. You can choose to refinance all your loans or just some of them. Refinancing means you are taking out a new, private loan. Depending on your situation and the lender, you might be able to get a sufficient loan to pay off both federal and private student loans and combine them all into one.

Pros and Cons of Student Loan Refinancing

Refinancing multiple loans into one loan can make the debt easier to manage.

The new loan might come with a lower interest rate that reduces your overall costs or a longer term that lowers your monthly payments.

Refinancing any loan generally requires a good credit score. If you don't meet the credit and income criteria to refinance your student loans, you might need a co-signer.

If you refinance your federal student loans, you're replacing them with a private loan. You lose access to federal benefits and programs that are designed to help borrowers who are struggling to pay off their student loans.

Does It Make Sense to Refinance Your Student Loans?

As you review your situation, there are some things to consider as you decide whether it makes sense to refinance your student loans. Often, this can depend on the type of loan you've taken out.

Federal Student Loans

If you're having trouble paying federal student loans, you might explore alternatives to private loan refinancing that are available through the U.S. Department of Education. These include:

• The SAVE program reduces your monthly payments to a level you can afford, based on your income. If you're out of work, this can be $0 per month. If you make payments to your loan in a timely manner and still have a balance, you may qualify for forgiveness of the remainder in about 10 years.
• Loan forgiveness is available to some public service workers, employees of non-profits, and those who have become totally and permanently disabled. This program survives despite the Supreme Court's rejection of the Biden administration's much more ambitious plan to forgive loans for millions of borrowers.

If you're eligible for either of these programs, the benefits could far outweigh refinancing your federal student loan with a private lender.

However, the programs are only available for federal student loans, not loans obtained through private lenders.

If you'd still prefer one payment, you might look into a direct consolidation loan through the Department of Education. This type of loan combines all your federal loans into one payment to make it more manageable. You can also choose a loan term of up to 30 years to lower your monthly payments.

Private Student Loans

If you obtained your student loans through a private lender, refinancing or consolidating the loans may be worthwhile.

If your current loans have a variable interest rate, you can consider locking in a fixed interest rate when you refinance. You'll save money over the long term and avoid sudden increases in your monthly bill. This strategy works, of course, only in periods during which interest rates are relatively low. Interest rates in general have risen throughout 2022 and 2023.

If you have both private and federal student loans, you can refinance the private debt and consolidate the federal student loans separately. This still simplifies the situation but you retain eligibility for federal programs and benefits for managing the federal loans.

Student Loan Forbearance

The Biden Administration enacted protections for federal student loan borrowers in 2020. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law in March 2020, paused student loan payments.

The three-year forbearance on student loan payments and interest that began back in 2020 ended on October 1, 2023. Student loans began accruing interest again on September 1, 2023, and the monthly bills started flowing in October. If you have a federal student loan you should get a bill at least 21 days in advance of the due date.

The Bottom Line

Refinancing your student loans can reduce your monthly payments and help you manage your budget. Your strategy for refinancing depends on whether your loans are federal, private, or a mix of both. If you want to qualify for federal programs and benefits, consider consolidating your federal loans separately and only refinancing your private student debt.