Refinancing a student loan means taking out a new private loan to pay off your existing federal or private loans, ideally at a lower interest rate. The decision hinges on three factors: the rate reduction, the term change, and any fees.
Federal vs. private loans. Refinancing federal loans into a private loan permanently forfeits federal protections: income-driven repayment eligibility, public service loan forgiveness (PSLF) qualification, forbearance options, and potential future forgiveness programs. Never refinance federal loans if you're pursuing PSLF or IDR benefits.
Rate vs. term trade-off. A lower rate with a shorter term saves the most interest but may raise your monthly payment. A lower rate with a longer term reduces monthly payments but can increase total interest paid if the term extension is large enough.
When refinancing makes sense. You have stable income, no federal benefits you're relying on, a good credit score (usually 700+), and can get a materially lower rate (at least 1–2 points lower for meaningful savings).
Break-even interpretation. If you plan to pay off the loan before the break-even month, refinancing doesn't make sense — you won't recoup the fees through lower payments. The longer you stay in the loan past break-even, the more you save.