Why Do Some Students and Recent Graduates Avoid Refinancing Their Student Loans

Key Takeaways

• Many borrowers avoid refinancing due to misconceptions about federal loan protections, credit score impact, or eligibility requirements.
• Refinancing can lower rates, simplify payments, or release a cosigner—depending on your credit, income, and loan type.
• Checking your rate with LendKey does not affect your credit score.
• Federal borrowers should weigh potential loss of IDR or forgiveness programs before refinancing.
• A simple refinance readiness quiz can help borrowers understand whether refinancing aligns with their goals.

Its fairly common advice given to students and recent graduates: If you’re paying off debt, refinancing your loans is one of the smartest things you can do.

There are many benefits to refinancing your loans including getting a lowered rate, releasing you cosigners, and be able to consolidate your loans. Your new loan could have smaller monthly payments over a longer period of time, or the payments will be the same, but you’ll pay less interest.

If you continue making your original monthly payments after refinancing, you’ll also pay off your loan faster. You can use the extra cash from those smaller payments to fund an emergency fund or start a retirement portfolio.

With more than 40 million Americans paying off student loans, it’s a wonder that more people don’t end up refinancing. Decreasing a loan by even one percent can shave off hundreds or thousands of dollars.

So why do students and recent graduates avoid refinancing? Read below for our theories.

Myth #1: Refinancing federal loans is always a bad idea.

Fact:
Refinancing federal loans may reduce your interest rate or help you remove a cosigner—but it does eliminate federal protections like IDR and forgiveness. Borrowers planning to use SAVE or PSLF should not refinance federal loans.

Myth #2: Refinancing and consolidation are the same thing.

Fact:
Refinancing creates one new private loan with a new rate.
Federal consolidation simply groups federal loans together without lowering the rate.
See our guide on consolidation vs refinancing.

Myth #3: Rate checks will hurt my credit score.

Fact:
LendKey offers soft inquiries for rate estimates, allowing borrowers to compare options without credit impact.

Myth #4: Refinancing is too risky.

Fact:
Choosing a fixed rate eliminates the risk of payment changes. Borrowers can select term lengths, payment structures, and lenders that match their comfort level.

Myth #5: I won’t qualify, so it’s not worth trying.

Fact:
Many borrowers qualify after improving income, credit, or establishing repayment history. A co-signer can further increase approval odds.

Before you refinance, ask your lender these questions:

• Will there be a hard inquiry? A hard inquiry can ding your score and stay on your credit report for years, so always be careful with how you approach them. You can also find lenders that don’t use a hard inquiry.
• Are there any fees for refinancing? Origination fees can often cost around 1% of the total loan amount. Make sure the fees cost less than your refinance savings. There may also be an application fee. Read the fine print, do the math and make sure you’re signing on with a lender that can truly save you money.
• Will there be an extra fee if you repay the loan early? Sometimes lenders charge prepayment penalties if you pay your loan off early. It’s best to find a lender with no prepayment penalty. Loans can be stifling enough on their own, but the inability to pay them back faster can be a morale killer.
• Is this a fixed rate or variable rate loan? There are two types of interest rates: fixed and variable. Fixed rates stay the same, while variable rates change depending on outside circumstances. Variable rates have a range they’ll fall in. Often, the lower end of the variable rate will be lower than the fixed rate loan. Before you choose a variable rate loan, make sure you can afford to make the payments if the interest rate goes up. You don’t want to be struggling to make your loan payments if interest rates change.
• Should I refinance before or after I get a job in my field?

Refinancing does not have to be stressful or consume weeks of your time. Using a platform like LendKey actually makes the process pretty quick and painless. We connect you directly with reputable community banks and credit unions. This helps to ensure you receive personal service, community benefits, and online convenience every step of the way.

Is Refinancing Right for You? Take the Quick Assessment

Answer a few quick questions to see if refinancing could lower your rate, reduce monthly payments, or help remove your cosigner.