How to Refinance Student Loans

Jacob Wade

Writer

If you're juggling multiple student loans, consider refinancing your student loans to consolidate payments in one place. Explore lower rates online for potential savings.

Before you decide to consolidate your loans or apply to refinance student loans online, it’s important to understand how the process works. Plus, if you have federal student loans, it may be a bad idea to refinance with a private lender.

We’ll cover the details of how to refinance student loans, and how to compare lenders. Also how to get pre-qualified and how to know if it’s a good idea to refinance. Plus, we’ll show you what you can do with your federal student loans instead of refinancing, so you can still keep your benefits.

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  • Before your refinance student loan debt, you need to calculate the total cost of refinancing to make sure it’s worth it.
  • If you have federal student loans, it’s almost never a good idea to refinance, as you lose access to many borrower benefits, including student loan forgiveness.
  • Most lenders require a good credit score and decent income to qualify for the best rates.
  • You can get prequalified online in just a few minutes with most student loan refinance companies to compare rates before completing an application.

What to consider before refinancing student loans?

Before you choose to refinance your student loans, there are a few things you need to consider first:

If you have federal loans

You may want to avoid refinancing federal student loans. This is because federal loans offer unique benefits, including student loan forgiveness, deferment options, and income-based repayment plans. And they typically have some of the lowest interest rates available.

Instead of refinancing federal loans, you can consider doing a Direct Consolidation Loan. Which combines your federal loans into a single payment. This allows you to still qualify for loan forgiveness and income-based repayment options without refinancing through a private lender.

Calculate the costs

While student loan refinancing can consolidate all of your loans into a single payment and potentially lower your monthly payments, it’s important to calculate the total costs to refinance. In addition to the interest rate, other fees may be assessed when refinancing your student loans. Which includes an origination fee and potential prepayment penalties.

It’s important to calculate your current interest rate for each of your student loans and understand the total cost you will pay on your current repayment schedule. Then, calculate your student loan refinance to see if you will really be saving money in the long run.

For example, if you have multiple student loans at an 8% APR with 7 years left in repayment, you might be considering a student loan refinance to get a lower interest rate of 7% APR rate on a 10-year loan. This reduced interest rate can lower your monthly payments. However, because you extend the loan term by three additional years, you may end up paying more in the long run. And if the new loan has an origination fee, this can add to your total refinancing costs.

There are some great student loan calculators out there to help you calculate your current loan vs. a student loan refinance to see if you’ll save money. This student loan refinancing calculator makes the calculation simple (assuming you qualify for the lowest interest rate).

Related: How to consolidate student loans

Make sure you qualify for student loan refinancing

Once you decide which student loans you want to refinance, you want to make sure you’ll be able to qualify for a private student loan. While federal loans don’t require a credit check or income verification, a private student loan is more similar to a mortgage application. It requires a good credit score and income to qualify for the best interest rate.

Many student loan refinancing companies offer a prequalification tool to check if you qualify. While others require a full application. Many private lenders will list their minimum credit score requirements on their website to let you know what you need as a minimum to apply.

Improve your credit score

If you find that your credit score isn’t quite high enough to apply for student loan refinancing, or you don’t qualify for the best interest rate, here are a few steps you can take to improve your score:

  • Review your credit report: You can download a free copy of your credit report from all three major credit bureaus at annualcreditreport.com. Review each of them to make note of any negative marks and work to get those removed. This can have a big impact on your credit score.
  • Stay up-to-date on your bills: On-time payments are one of the most important factors that make up your credit score. So making sure you’re caught up with all of your bills and debt payments is crucial to improving your score.
  • Pay down debt balances: If you have maxed out credit cards or high debt balances, this can have a big impact on your credit. Paying down debts lowers your credit utilization and debt-to-income ratio, and can improve your score.
  • Use a co-signer: If you don’t want to wait until your score is improved to apply for a student loan refinance, consider using a co-signer. You can use their high score and excellent credit history to get approved, and potentially get better interest rates on your loans.

Compare multiple lenders

Once you are ready to apply for student loan refinancing, it’s best to compare multiple private lenders. You can get quotes from each and compare the loan terms and what interest rate you may qualify for to find the one that fits your situation best. Additionally, you can choose between fixed-rate and variable-rate loans.

You may opt to apply for multiple lenders or use a site like Credible to review options for multiple private student loans with a single application. 

It’s important to pay attention to the loan policies for each lender, including the maximum loan amounts, and fees. And if there are any prepayment penalties for paying off your existing private student loans early. And make sure to understand the co-signer rules and release policies before applying with a co-signer.

Get prequalified for a student loan refinance

Many online lenders offer a prequalification tool that allows you to submit a quick application in just minutes and review potential loans and rates. To get prequalified, you only need to enter basic personal information, along with some general financial information.

With a prequalification application, lenders only do a soft inquiry on your credit, which will not affect your credit score.

After submitting your prequalification application, you’ll be able to view your loan options to find the interest rate and loan term length that's best for you. Once you choose your loan, you will need to complete a full student loan application. Which may require more documentation and result in a hard inquiry on your credit.

Female student studying with notebook and laptop: Guide on how to refinance student loans.

Complete your application

To complete your student loan refinance application, you’ll need to complete a full loan application. In addition to a credit check, you’ll need to provide the following information:

  • Personal information (name, address, email, etc.)
  • Financial information (income, debt balances, etc.)
  • Social Security number (or other identification documentation)
  • Other required information from the lender

You’ll also need to provide documentation to verify your existing student loan debt and other financial information, including:

  • Current loan statements
  • Proof of graduation (or residency, if a medical student)
  • Proof of employment
  • Govern-issued photo ID (such as a driver’s license)
  • Bank statements
  • Pay stubs

You may need to provide more information, depending on your refinance lender and financial situation.

Once you complete your application, you will be required to sign your loan documents to accept the loan terms. Once your loan is accepted, your lender will then pay off your old loans through a disbursement. This may take several days or weeks.

Continue making payments until the refinance is completed 

It’s important to make sure that you continue your student loan repayment on your old loans while your student loan refinance is processed. Missing a payment during the refinance process can lead to penalties and negatively impact your credit score. Be cautious to avoid this.

Once you receive confirmation that your old private loans are paid off, you can stop making monthly payments. You will need to switch any autopay services you have set up for your old loans and start making payments on your new loan.

FAQs

Should I refinance my student loans?

Refinancing your student loans is best for borrowers who already have private loans with a high-interest rate. It can save them money by lowering the rate and potentially the monthly payment. However, refinancing federal loans is usually not a good idea. Refinancing a federal student loan into a private loan usually means you’ll lose your borrower protections and access to student loan forgiveness options.

How often can you refinance student loans?

Refinancing private student loans is possible if you qualify, but frequent refinancing may incur origination fees, potentially increasing overall costs. Plus most lenders only let you refinance student loans directly with them once. This means you’ll have to find another lender to refinance with if you want to refinance again.

Does refinancing student loans make them private?

Yes, when you refinance federal student loans, you are moving to a private lender. This loses your federal student loan borrower protections and may end up costing you more in the long run.

What credit score do you need to refinance student loans?

Most private lenders require a “Good” or “Excellent” credit score to apply for private student loans. Though some accept applications from borrowers with “Fair” credit. Good credit scores are those that are 700 or above, depending on the credit reporting agency. Fair credit scores range from 580 to about 670. It’s important to note that lenders that accept lower credit scores often charge a much higher interest rate to those with poor credit history.

What are alternatives to student loan refinancing?

If you don’t want to refinance your student loans with a lender, you can pay off your loans in other ways. One alternative to student loan refinancing is using a home equity line of credit (HELOC) to borrow against the equity in your house. If you have federal student loans, you can apply for a Direct Consolidation Loan. They still offer federal loan borrower protections and consolidate all of your federal student loans into a single payment.

Related: Federal Vs. Private Student Loans: What's the difference?

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I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

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Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.