How to Partially Refinance Your Student Loans

Update 1/21/2021: President Biden has issued an executive order to extend the federal student loan payment suspension through Sept 30, 2021. We will continue to monitor these changes and post them as they occur.

The coronavirus pandemic that began in 2020 caused many changes for everyone. If you have student loans, your payments may have been impacted by a few of the changes.

Federal student loans are on administrative forbearance with no payments due and 0% interest until January 31. The pandemic also caused the Federal Reserve to decrease interest rates to historically low levels, making it a great time to refinance student loans in some circumstances.

That said, not all loans would benefit from refinancing right now. Read on to learn which may benefit from refinancing and whether partially refinancing your student loans could be a good option for you.

What is Student Loan Refinancing?

Refinancing is when a lender pays back a different student loan and a new loan is obtained. You can refinance federal or private student loans, and you can also refinance your student loans multiple times. Refinancing again could be a good choice if you feel you could earn a better interest rate on your student loans.

You can refinance multiple student loans, a single loan or partially refinance your student loans. You can partially refinance your student loans in multiple ways. For example, if you have multiple student loans, you may decide only to refinance your highest-interest loans. You may also choose to refinance only your private student loans.

If you only have one loan, you may decide to partially pay off that loan with a new loan at a lower interest rate. This would result in two different loans. Your refinanced loan would have a new interest rate, and the remaining balance would stay on the original loan.

When to Refinance Your Student Loans

While federal student loans are in forbearance, it makes wise financial sense to not refinance those federal loans. Once you refinance a federal loan to a private loan, you will no longer receive federal student loan benefits.

Whether or not to refinance your student loans is a personal decision based on your financial situation. Be sure to consider your job security, any other debts and whether you’re equipped with an emergency fund. Here are some circumstances where refinancing now is beneficial.

Refinance Private Student Loans

If you have other private student loans at higher interest rates, now would be a great opportunity to refinance to a lower interest rate. Private loans aren’t eligible for federal administrative forbearance benefits, so there’s no reason not to take advantage of a lower rate.

Refinance Part of Your Student Loan Balance

If you have federal student loans but want to take advantage of the current low interest rates, consider refinancing only part of your balance. This allows you to take advantage of federal student loan protections on part of your balance while enjoying a lower rate on the remaining balance.

Interest rates change daily, so waiting to refinance may mean missing out on the lowest available interest rates. If you do refinance, though, remember that the refinanced portion will no longer be eligible for administrative forbearance or federal forgiveness.

Divide and Conquer

Partial student loan refinancing may make sense if you are sharing the loan with another person. For example, if a couple is divorced but is sharing the responsibility of a loan, then each spouse could refinance the portion they are responsible for into their own name.

Partial student loan refinancing allows the loan to be divided. That way, both parties may be able to take advantage of the current low interest rates. This would also be advantageous if you share responsibility for a loan with a parent and want to refinance your portion of the loan. Dividing the loan by refinancing allows each person to remain responsible for their own portion.

You Can Refinance Your Federal Student Loans Later

You may also determine that it’s best to wait to refinance until any federal loan protections are over. In that case, you can still save the money you would be paying towards your loans during the 0% interest period. Then, when you do refinance, you can make a large payment towards your loans at that time. Once the forbearance period is over, you can refinance all or part of your loan balance.