In general, refinancing federal student loans is not a good idea. When you refinance federal debt, you lose access to government programs, such as income-driven repayment plans, student loan forgiveness, and deferment and forbearance.

Student loan refinancing is when you apply for a new loan to pay off your current student loans, usually to lower your interest rate or extend your payoff timeline. If you have a federal student loan, you must refinance with a private lender.

While refinancing student loans is an option that helps thousands of borrowers save money on their monthly payments, it's certainly not for everyone. Make sure you double-check the payment protections you would have under a private lender for any worst-case scenarios, such as losing your job.

Refinancing is a good idea if you have private student loans and can qualify for a lower interest rate than what you're currently paying. Before settling on a lender to refinance with, it's important to shop around and compare multiple offers, including banks and credit unions.

The best way to take some of the risk out of refinancing is not to count on conditions being favorable when you need to pay off a loan or want to switch, for example, from an ARM to a fixed-rate mortgage. That is also a powerful argument for not taking on too much debt in the first place.

Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months.

Perhaps the most common reason to refinance is to lower your interest rate and, consequently, your monthly payment as well as the overall cost of your home. The interest rate on your mortgage has a substantial impact on the amount of your monthly payments.

Reasons to Refinance Refinancing to a lower interest rate also allows you to build equity in your home more quickly. If interest rates have dropped low enough, it might be possible to refinance to shorten the loan term - say, from a 30-year to a 15-year fixed-rate mortgage - without changing the monthly payment by much.

While refinancing can sometimes result in a lower interest rate or a shorter repayment term, it cuts off the borrower's access to government benefits like loan forgiveness, forbearance, emergency relief, and income-driven repayment.

Key Takeaways. A refinance occurs when the terms of an existing loan, such as interest rates, payment schedules, or other terms, are revised. Borrowers tend to refinance when interest rates fall. Refinancing involves the re-evaluation of a person or business's credit and repayment status.

You may find that you don't qualify for an interest rate that's much lower than what you currently have, or that your finances don't allow you to choose a shorter repayment term. That could mean that, after closing costs, refinancing won't help you save money over time.

Depending on the type of refinance you get, your new loan could end up costing you more money in the long run than if you'd just stuck with your original loan. This can happen when you extend your loan term, because you're lengthening the amount of time you'll spend paying interest.