When Should You Refinance Your Student Loans (4 Factors to Consider)

We recently refinanced $78,000 in student loans after paying as much as possible each month for the last two and half years. But you want to know whether or not you should refinance your student loans…

You also might be asking why we waited to payoff over $140,000 in student loans the last 24 months before refinancing half of our remaining student loan debt… 

Well there is a reason for waiting to refinance our student loans and I aim to expand on that in the coming paragraphs.

My goal for the next 5 minutes is help anyone who has student loans understand the following when it comes to refinancing student loans:

  1. How student loan interest really works
  2. Why you need to be careful consolidating loans
  3. The perks of federal and private loans
  4. Why cash flow is priority #1, not interest rates

Note: At the end of this post if you determine refinancing is the best option for you I will provide a few personal vendors I would consider, one of which we used at the end of September to refinance $78,000.  

Related Content: Should You Refinance Your Student Loans?

Why is Refinancing Student Loans so Tricky?

One does not simply refinance their student loans.

Refinancing is really simple. There is an application process for companies like LendEdu who match you with the best private student loan lendors for you. 

The process of refinancing is really straight forward –

  1. Fill out the application
  2. Provide the documents
  3. Sign
  4. Start paying

The tricky part about student loan refinancing is whether it is really the best option for you. So before refinancing, ask yourself these 5 questions. 

What questions should you ask yourself before refinancing student loan?

  1. Why are you refinancing? Better interest rate? Better payment? Shorter term length?
  2. Do you need a cosigner?
  3. How is your career? Is it stable?
  4. What are your life and family goals?
  5. Is it better to stay federal or go private?

The reason why refinancing student loans is not the perfect fit for every millennial or student loan borrower is because every situation is 100% unique.

And that starts with understanding your student loans.

When should you refinance student loans & 4 factors to consider before doing so.   

1. Interest Rates & Student Loans

student loan interest

We live in a world of interst focus. We see the low number and we automatically think the lower the better.

Myself included, sometimes I think the lower interest rate means I am saving money. But interest is not nearly important as cash flow when it comes to expediting student loan payments.

First, the most important factor to keep in mind is the principal balance. Sure a 5% interest rate sounds great, but 6% on a small balance is better than 5% on a huge balance.

Rule 1: Make sure refinancing will actually SAVE money over the long haul. Don’t get over stimulated by a lower interest rate.

For example, let’s take a hypothetical student loan scenario where over the long haul refinancing won’t save money, even with a lower rate.

A former college student owes $30,000 and $20,000 in principal student loan debt, between two loans. They have been paying for 2 years and combined the remaining principal owed is $50,000.

The loan at $20,000 has a 6% interest rate and the loan at $30,000 stands at 5.5% with a standard 10 year repayment plan. Using the remaining loan term in years (8) and the numbers above, the student would pay back the following:

Loan 1:$20,000 at 6%.

Loan 2: $30,000 at 5.5%

Total Interest Paid: $12,381

Now, hypothetically, the borrower decides to refinance the loans. Because the refinance requires consolidating the two loans, even at a lower interest rate and an extended term, the student would actually pay more over the length of the new refinanced loan.

The difference,even at the lower rate, would be $1,258.

Refinanced Amount: $50,000 

Total interest owed $13,639

As you can see refinancing over time will cost more money. Extending the loan length results in more payments, and $1,200 is $1,200. Also, lost is the ability to attack the smaller loan quicker.

However, if the term length is shorter, refinancing can result in saving money. 

Student Loan Calculator Link

2. Consolidating Student Loans

consolidating student loans

Consolidating student loans is almost always a bad idea. Just like the scenario above, consolidating student loans hurts cash flow and the ability to attack student  loans individually (Factor #3) as well as the borrower loses federal perks (Factor #4).

In the long run consolidating doesn’t save you money. While in the short term it might lower a payment, you will pay more if you consolidate your student loans.

According to a Forbes article on consolidating student loans, aside from losing most of your strategies to attack your student loans, it will take longer to pay them off if you consolidate.

Message = almost never consolidate.  

Consolidating is typically a short term solution to a long term problem – the fact that the student loans need to paid off.

Rule # 2: If your loans are serviced by different servicers,  or broken into multiple loans, if you decide to refinance don’t be tempted to consolidate. Avoid consolidating all loans into one huge principal loan.  

Rule #2.1: If you do refinance, make sure you refinance individual loans separately.

3. Cash Flow & Loan Breakdown

student loan strategies

Chances are if you are reading this article you are serious about paying off your student loans. If you are just looking to lower your payments and keep paying the minimum then go to Lendkey and refinance your loan here.

However, typically, refinancing means consolidating. Most private student loan lending companies will take all the small loans and make them one big loan. Aka consolidating.

That takes away payment strategies as the Forbes article mentioned above. Here is a great example to help.

Let’s say you have 7 small fires in a field.

The best way to put the fires out, with a hose of course, would be to attack one fire at a time. However, most people take their hose, and they spray a little on each fire.

Now replace fire with student loan and hose with money. Catch my trend?

And to continue with the example, you wouldn’t one to have one huge fire where the hose can make a dent?

The same can be said about student loans.

Small, manageable student loans are easier to payoff then one big…huge…massive principal. Which leads to rule # 3.

Rule # 3: Never refinance student loans if it impacts your monthly cash flow or ability to attack small loans one at a time using something like the debt snowball method.

For more, read on student loan strategies and get a copy of the student loan strategy guidebook here:



4. Federal Student Loan Perks

refinancing student loans loses federal perks

Refinancing federally funded student loans with a private company means borrowers will lose their federal perks.

Deferment, grace periods, Income Based Repayment plans, Public Service Loan Forgiveness, and financial hardships are perks that are lost when refinanced.

While relying on PSLF is risky in itself, refinancing student loans involves private lending. Taking your student loan with federal guidelines and refinancing it privately means the federal terms are gone.

No hardships, no PSLF, no income based repayment plans.  

Rule 4: Before refinancing, make sure federal terms are worth losing, aka, know your situation.

The question remains….

Should you refinance your student loans?

Ok, now you have read the four factors that should indicate to you whether or not you should refinance your student loans and you have determined that refinancing your student loans is a good route for you.

Where should you start and where should you go?

Personally, we were looking for fixed rates, longer terms (lower payment each month)  and the lowest possible rate. Since we attack out student loans individually and strategically, we have all intentions of paying them off ASAP.

Option #2 – go directly to the provider.

It seems to me that just about every time I explored refinancing my student loans Lendkey was the bank with the best rates.

And had it not been for Penfed being my primary banker, I would have gone with Lendkey. They are an option that LendEdu provides, but it you are looking to get right to it, then just go to Lendkey directly.

You can use my exclusive link here to check out what works best for you:

Lendkey refinance


So now that you have read this, maybe you are still on the fence about refinancing. Here is what I will say – DON’T.

There is no rush. While I do collect affiliate sales from refinancing I would rather readers do what is best for them.

There was a reason we waited almost 3 years to refinance. It would have impacted our cash flow and ability to pick and choose what we paid!

If we had a hardship – we didn’t want to be stuck with a huge student loan payment.

And when it came to refinancing, and with interest rates all over the place, we kept getting told to refinance. But that is not the simple answer… nor should it be!

However, once we got all of our principal student loan payments to a manageable spot, we pulled the trigger and refinanced two student loans that were at 7.8% to 4.8%.

So my question for you as we part, is this:

Q: Have you refinanced or do you plan to refinance your student loans?