I Refinanced My Student Loans. Here’s How I Knew It Was Worth It

I went to college, then grad school, and even made it through the COVID-era student loan payment pause without giving my loans much thought.

Then reality set in.

My roughly $50,000 student loan balance came with an $800 monthly payment that felt like a second mortgage. Between childcare, a car payment and our actual mortgage, our two-income household was suddenly struggling to make it to payday.

I knew something had to change, and my student loans were the first place I looked.

Here’s how I decided refinancing with SoFi was worth it — and how the process cut my monthly payment from $800 to less than $400.

Why Refinancing Student Loans Is Appealing

There are a few reasons why you might be interested in refinancing your student loans. Depending on your goals, refinancing may help you:

• Qualify for a lower interest rate
• Lower your monthly payment
• Pay off your loans faster by choosing a shorter repayment term
• Reduce the total interest you pay over the life of the loan
• Consolidate multiple student loans into a single monthly payment

For me, the biggest motivators were lowering both my interest rate and my monthly payment. A lower interest rate meant I’d pay less in interest over time, while a smaller monthly payment gave our family some much-needed breathing room in the budget. Instead of feeling like every paycheck was already spoken for, I’d have more flexibility to build an emergency fund — and treat myself to a Starbucks every once in a while without feeling guilty.

Not everyone refinances for the same reason, though. Other borrowers may choose to refinance in order to pay off loans faster. If I had chosen to, I could have paid all my loans off in five years and for just $200 more than what I was currently paying.

Weighing the Cons of Student Loan Refinancing

The biggest downside of my decision was extending my repayment term. On paper, refinancing meant signing up for another 20 years of student loan payments.

But I don’t see that 20-year term as a commitment to make only the minimum payment. Right now, childcare, our mortgage and other household expenses make the lower monthly payment incredibly valuable. But as both my husband and I continue to progress in our careers (and our kids head off to kindergarten), we’ll have more money available to pay down these loans. Luckily, SoFi doesn’t charge prepayment penalties, which means we can pay down the balance faster when our budget allows.

I also had to think carefully about interest rates. Refinancing combines your loans into one new loan with a single interest rate. If your existing loans all carry relatively high rates — typically anything above 8% — refinancing may lower both your interest costs and your monthly payment. But if, like me, your loans range from around 2% to 10%, refinancing becomes more of a balancing act. A lower overall rate might still save money, but you’ll also be replacing some very low-rate loans with a higher blended rate. Running the numbers is essential.

Finally, I had to consider what I’d be giving up. Refinancing federal student loans with a private lender means permanently losing access to federal benefits, including income-driven repayment plans, most federal forgiveness programs and options like deferment or forbearance. My career doesn’t qualify me for Public Service Loan Forgiveness, and I felt financially secure enough to forgo those protections. But that tradeoff won’t make sense for everyone.

Comparing Interest Rates

One of the biggest misconceptions about refinancing is that you have to refinance all of your student loans. That wasn’t the right move for me.

Some of my federal loans carried interest rates as low as 2%. Even the lowest rate SoFi offered me — 5.32% — would have increased the cost of those loans. My best offer for a 20-year repayment term was 6.32%, which was significantly lower than the nearly 10% rates on my two largest loans, making those obvious candidates for refinancing.

That left me with a choice:

• Refinance all of my loans into one convenient monthly payment, even if it meant giving up my lowest interest rates.
• Refinance only my higher-rate loans and continue making payments to more than one loan servicer.

One feature I found especially helpful was SoFi’s comparison tool, which let me see how my existing loans stacked up against my refinancing offers. Looking at the numbers side by side made the decision much easier.

In the end, I refinanced only the loans with interest rates of 5.5% or higher and left my lower-rate federal loans untouched.

As a result, I now make about a $200 monthly payment to SoFi and another payment of just under $200 to my federal student loan provider. It’s slightly less convenient than having one payment, but the savings from keeping those ultra-low interest rates made the extra payment worth it.

What to Compare Before Refinancing

Student loan refinance companies often advertise their lowest interest rates to catch your eye, but that’s only one piece of the puzzle. Before choosing SoFi, I compared several factors to make sure the loan fit both my budget and my long-term financial goals.

Fixed vs. variable interest rates. While variable-rate loans initially offered lower monthly payments, I didn’t want to risk my payment increasing over time. I ultimately chose the predictability of a fixed-rate loan.

Loan terms. I compared repayment terms to find the best balance between an affordable monthly payment and the total interest I’d pay over time. For me, a 20-year term was what I could get on board with.

Fees. Some student loan refinancers will charge fees to refinance. So, I looked for lenders that didn’t charge those origination fees, prepayment penalties or unnecessary servicing fees. It’s also worth checking whether a lender charges late or returned payment fees.

Customer reviews. Reading reviews helped me understand what it was actually like to work with each lender. I paid particular attention to customer service, communication and how easy borrowers found the online account management tools.

Repayment flexibility. Although I wanted a lower payment now, I also wanted the option to pay extra later without penalty. Choosing a lender that wouldn’t penalize me for additional principal payments gave me that flexibility.

Credit inquiry policies. Many lenders let you check your estimated rates with a soft credit inquiry, which doesn’t affect your credit score. I took advantage of that feature to compare offers before deciding whether to move forward with a full application.

What I Learned From Refinancing My Student Loans

Refinancing isn’t the right choice for every borrower, and it wouldn’t have been the right choice for me if all of my loans had carried low interest rates. The best decision depends on your loan types, your financial goals and your overall personal circumstances.

What made the biggest difference for me was taking the time to run the numbers instead of assuming refinancing was an all-or-nothing decision. By refinancing only my highest-interest loans, I was able to significantly reduce my monthly payment without giving up the benefits of my lowest-rate federal loans.

Today, I pay less than half of what I was paying before, which has given our family more flexibility in the budget during a particularly expensive season of life. It may not be the perfect long-term solution, but it’s the right one for us right now.

If you’re considering refinancing, compare offers from multiple lenders, pay close attention to the interest rates and loan terms, and think carefully about the federal protections you’d be giving up. The best refinance isn’t necessarily the one with the lowest monthly payment — it’s the one that best supports your financial goals.

This article originally appeared on USA TODAY. Reporting by Alora Bopray, USA TODAY. USA TODAY Network via Reuters Connect.