Should you refinance your student loans before the new year? Pros and cons | Earnest

Should you refinance your student loans before the new year? Pros and cons

By Corey Buhay | Published on December 4, 2025

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TL;DR

Timing matters when it comes to refinancing student loans, and December can be a good time to look into refinancing because there is potential to lock in a lower rate and set yourself up for savings in the new year. That said, choosing the exact right time for you will depend on interest rate trends, your credit, your financial goals, and your personal bandwidth.

If you’re interested in refinancing but not so sure about your timeline, use the end of the year as an opportunity to sit down and do some soul-searching. As you’re closing your books for 2025 and setting resolutions for the year to come, take a closer look at your budget and your upcoming goals. Then, use the tips below to decide whether refinancing is right for you.

Interest rate outlook: What could change in the new year?

You’ll get the most benefit from a refinance if you qualify for a significant interest rate decrease. So, the lower interest rates are when you refinance, the more likely it is that you’ll be able to score a rate that’s appreciably lower than what you’ve already got.

So, if rates are expected to increase soon, it’s best to refinance fast to lock in a low rate while you can. If you’re aiming to lower your monthly payments, refinancing sooner can help you start saving sooner. And if rates drop even further later on, you could refinance again—meaning you won’t miss out on today’s savings while keeping the door open for future opportunities.

Here’s what determines student loan interest rates, plus what the interest rate forecast looks like for 2026.

How student loan interest rates get set

Student loan interest rates usually correlate with national market trends. When national interest rates tick upward, student loan rates usually increase, too. When national rates drop, so do student loan rates.

These national financial markets usually follow the Federal Funds Rate, a benchmark interest rate set by the Federal Reserve. So, all eyes are currently on the Fed, which dropped rates several times in late 2025 and has signaled that additional adjustments may be possible in 2026, though the path forward will depend on economic conditions.

Federal vs private student loan interest rates

Federal student loan interest rates usually go up when other rates go up. However, they’re technically set by Congress and are based on the 10-Year Treasury Note auction, which happens each spring. After the auction, Congress announces student loan rates for the academic year to come. These rates remain fixed for the following year.

Private student loan interest rates, however, can fluctuate quarter to quarter or month to month and are more directly tied to national trends. Since refinancing can only happen through a private lender, these are the rates you’ll want to watch if you’re considering a refinance.

Will interest rates drop in 2026?

Right now, interest rate forecasts for student loans are predicting a slight drop in 2026, though no one is quite sure how much rates will drop—or when.

Some predict the Fed will levy as many as five interest rate reductions in 2026. Others are betting much more conservatively. According to CNBC analysts, the Fed could drop interest rates by a quarter of a point in early 2026, and then stay hands-off for the rest of the year.

So what does that mean for prospective refinancers? Well, private student loan interest rates could see a slight drop in 2026. However, it’s not guaranteed.

Private lenders’ interest rates can increase at the start of a new fiscal or calendar year, regardless of what market rates do. Lenders are businesses. So, while they generally link their rates to national market trends, they have some wiggle room to set their pricing based on what they need to stay afloat. During economic uncertainty, lenders might hedge by setting their rates a little higher at the start of a new year.

How your credit score and debt-to-income ratio affect your rate

The next thing to consider when timing your refinance is your personal financial situation. A strong credit profile and a low debt-to-income ratio can help you secure lower rates. So, if you’ve recently started a higher-paying job, gotten a raise at work, or paid off a big chunk of debt, you might be in a better position to refinance.

On the other hand, if you’ve recently taken on debt, missed a payment, or filed for bankruptcy, you might want to work on building up your credit score before you refinance.

Benefits of refinancing before the end of the year

There are some major advantages to knocking out a student loan refinance before the end of the year. These kinds of financial decisions can align with end-of-year tax planning and goal setting. Come December, you probably already have your financials top-of-mind, which could help you make fast, informed decisions.

It can also feel good to start the new year with a lower payment or a clearer path toward student loan payoff. That psychological momentum can help you stay on track with your payments and continue to make smart choices throughout the rest of the year.

Drawbacks of refinancing before the end of the year

The biggest downside to a New Year’s Eve refinance is that this is a busy time of year for everyone. You might have a lot on your plate between holiday travel and wrapping up end-of-year tasks at work. Refinancing is a big financial decision, and the last thing you want to do is rush it or stress yourself out more than you need to.

Lenders can also be busy at the end of the year, especially at traditional banks and brick-and-mortar financial institutions. So, you might need to plan in advance if you want an in-person appointment. Online lenders, like Earnest, tend to be a little more agile, which may make this an easier route for folks hoping to move quickly.

Should I refinance student loans now? Things to consider

It can seem wise to wait for the Fed’s next move, but waiting can actually slow your progress. Refinancing now could let you start saving sooner, and if rates fall again at the start of the year, you may be able to refinance again. Holding off may simply mean missing out on savings that could have started earlier.

If you can’t afford your current payments, want to switch lenders ASAP, or are anxious to start paying off your debt more aggressively, acting now could help you lock in a better rate before lenders have time to update their pricing.

What if I have federal loans?

If you have federal student loans, choose carefully. Refinancing federal loans will turn them into private loans. That process isn’t reversible. So, if you’re hoping to retain access to federal borrower protections like student loan forgiveness, income-driven repayment plans, or deferment or forbearance, you may want to keep your loans in the federal system. You can change your loan term and monthly payment using a process called federal student loan consolidation. However, you cannot change your interest rate this way. Refinancing is the only way to lower your interest rate on your student loans.

How to check your rate, no strings attached

Refinancing can help you simplify your payments, reduce your interest rate, and get out of debt faster. If refinancing fits your goals, the end of the year could be a smart time to act.

Earnest’s rate-checker tool is an easy way to start exploring your options. It’s essentially a calculator designed to give savvy borrowers a sneak peek at the rates they might qualify for. It’s fast and free to use, and it doesn’t trigger any kind of credit impact.