Pros and cons of refinancing student loans

Pros and cons of refinancing student loans

October 11, 2016
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College is very expensive nowadays, so it’s no wonder that so many young people graduate with tens of thousands of dollars in debt. Refinancing can be a great solution to help you get rid of student loans, but it’s important to understand that it comes with both advantages and disadvantages.

So, before you decide to refinance your student loan, you might want to take a look at the pros and cons first.


  1. Lower monthly payments

One of the most important reason to refinance is the lower monthly payments. You do this either by securing a better interest rate or by extending the duration of your loan. Either way, your monthly expenses will drop and will allow you to start saving.

  1. Debt consolidation

Let’s say you have several loans. Keeping track of them is definitely a lot of stress. But you can avoid this situation by consolidating them into a single loan. And refinancing can help you do this. You might even be able to refinance at a better interest rate, which will allow you to save.

  1. Releasing a cosigner from the loan

Cosigning for a student loan is a massive undertaking and comes with high risks. But, by refinancing, you’ll be able to take the full responsibility for your loan. This way, you will release your parents, who will no longer be held accountable if you default on your loan, and will allow them to experience a higher credit score and access new lines of credit.


  1. You will pay more in the long run

The biggest drawback of refinancing to a longer term is that you will end up paying more money over the entire life of the new loan. The monthly payments will be lower, of course, but you still need to check and see if the new loan is worth it.

  1. No federal benefits

If you consolidate your federal and private loans together, you’ll lose some federal benefits, such as loan forgiveness and cancellation programs.

  1. No grace period

Many student loans allow you to delay payments while you are still in school. But, if you refinance them, you will lose this perk and your repayment process will start right away. When faced with such a situation, the right course of action is to wait until the grace period is over and refinance the loan afterwards.

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