More than 8.5 million Americans are enrolled in income-based repayment plans that can spread out payments for their federal student loans for two decades or more. While the repayment plans lower the monthly payments of borrowers, these plans do not reduce the interest rates on student loans and can increase the total amount of interest borrowers pay over time.

Therefore, borrowers with good income and credit are using another strategy: student loan refinancing. This means taking out a loan with a private lender, usually at a lower rate, to pay off the debt on the federal loan. Borrowers save more than $18,600 by reducing the rates on their student loans by an average of 1.7 percentage points through refinancing, according to

However, the savings from student loan refinancing do come with some drawbacks. Borrowers who refinance with private lenders can’t take advantage of income-based repayment plans and public service loan forgiveness provided by federal loans. Though some private lenders offer forbearance if borrowers can’t make their payments, the benefits aren’t as robust as those with federal loans.

“Student loan refinancing is giving up an insurance policy from the federal government. If you don’t need it and are comfortable with the risk, you can save thousands,” said Nick Clements, co-founder of price comparison website, which tracks private lenders that provide student loan refinancing. High-income borrowers with six-figure loan balances are being aggressive about paying off their student debt. 54% of borrowers who refinanced more than $100,000 in student loan debt had loans with repayment terms of 10 years or less, according to Credible. The standard repayment term for federal student loans is 10 years.

You will need an excellent credit score to get the best deals with student loan refinancing. Eighty-four percent of high-balance borrowers who used Credible had credit scores of 740 or above when they refinanced. “It’s not just for the HENRYs [high earners, not rich yet], you can refinance your student loans with a credit score as low as 620 if they have a co-signer,” said Stephen Dash, founder and CEO of Credible.

Here’s what to know when you’re looking to refinance your student loans:

  • Geography and cash flow matter. Someone who is making $60,000 a year in Omaha, Nebraska, would likely be viewed more favorably by lenders than someone making $60,000 in San Francisco. Lenders also will evaluate borrowers’ living expenses, not just income. So the better you budget, the better rate you may receive.
    If you missed any payment in the past, you probably won’t qualify without a co-signer. Borrowers who recently graduated may not have the best credit scores yet. However, it’s more important to show lenders that you pay your bills on time.
  • Know the trade-offs between fixed- and variable-rate loans. Currently, lenders are offering fixed-rate loans starting at 3.38 percent and variable-rate loans as low as 2.58 percent. The rate on a variable-rate loan will rise and fall based on a market benchmark, in most cases, the London Interbank Offered Rate.
  • Avoid origination fees. Most lenders don’t charge origination fees for student loan refinancing. If you find one that does, move on.
  • Sign up for automatic payments. Many lenders offer a 0.25 percent interest rate discount if borrowers automatically deduct student loans from their bank accounts.