How to Refinance Student Loans

Student loans are like any other type of loan, which means you can refinance them. When you refinance a loan, you’re trying to make payments more manageable by combining all of your student loans – which could include both private and federal – into a single, more affordable loan payment or a lower interest rate. 

In addition to interest rates, you can revise other aspects, like the terms and the repayment schedule of your loans when you refinance.

Before taking the steps toward refinancing, you should first ask yourself if refinancing is the best course of action for you. Only consider refinancing if you can secure a lower interest rate or more manageable repayment terms. You’ll also need to meet the eligibility criteria put in place by the lender, such as income and credit score requirements.

Before applying for student loan refinancing, ask yourself the following questions:

• Is my credit score high enough to qualify?
• Do I have enough income to negotiate a lower interest rate?
• Am I refinancing private student loans, federal student loans, or both?
• Will refinancing save me money or help me pay off my student debt faster?
• Do I have other debt I need to work on paying down first?
• Is my debt-to-income ratio low enough to qualify for better refinancing rates?
• Will I have a better chance of being approved with a co-signer?
• Am I willing to forgo federal student loan forgiveness programs to refinance?

Keep in mind that refinancing your student loan debt often means you cannot have your loans forgiven by federal forgiveness programs since you would convert your federal loans into private loans.¹

Ways to refinance student loans

If you decide that student loan refinancing is the right option for you, follow these steps.

1. Do your research. Research lenders and what they are offering. Look for eligibility requirements you can meet and features that best suit your needs. Consider factors like flexible repayment terms, whether you want a fixed or variable interest rate, and if you can apply without a co-signer.
2. Shop around for the best rates. Compare rates with banks, credit unions, and online lenders. The goal is to find the lowest rate possible. You may be able to pre-qualify with some lenders to see what rates they might offer.
3. Choose your loan terms and lender. Select the lender and terms that best suit your needs.
   
4. Submit an official application. Gather all your documents. Lenders will ask for your social security number, proof of income and address, proof of graduation, government-issued photo ID, and other documents. If you apply with a co-signer, you’ll also need to submit their information.
5. Fill out the paperwork. Once approved for the loan, you’ll need to sign paperwork to accept the loan officially. You can typically do this online or in person.
6. Keep paying your old loans. After you’ve been approved, you may still need to wait a couple of weeks before your new lender pays off your former loans. While waiting, continue to pay off your current loans until the process is finalized with your new lender.

Depending on if you’re looking to refinance federal or private student loans, there are some nuances you need to know.

How to refinance federal student loans

You can refinance your federal student loans, when you refinance a federal student loan, it becomes a private student loan.¹ This change is because you have to refinance it with a private lender like a bank or online lender.

Refinancing federal student loans disqualifies you from any government-sponsored forgiveness initiatives and programs. Consider if you’re okay with forgoing Department of Education protections like deferment, income-driven repayment, and forbearance. If you’d like to keep these protections, you’d probably be better off consolidating your loans rather than refinancing them.

How to refinance private student loans

Private student loans are simpler to refinance since they are already with a private lender. You just need to look for a lender with better interest rates and apply for approval. 

A good credit score will make it easier to get approved for refinancing. Lenders want to know that you are financially responsible with credit, so your credit score is a key indicator of your creditworthiness. Most financial experts recommend that borrowers have at least a 650 credit score.²

Some lenders will work with borrowers with bad or low credit scores. Just keep in mind that a lower credit score usually will result in a higher interest rate, which might cancel out the benefits of refinancing in the first place. If you have bad credit, consider applying with a co-signer who has good credit to help you get approved with a better rate or terms. 

Refinancing your student loans can be a good option for borrowers who are looking for lower interest rates or monthly payments. But there can also be some downsides to refinancing, such as losing out on federal assistance programs and being locked into a repayment plan. 

Ultimately, if refinancing can save you money and make repayments more manageable, it’s worth looking into.

Heading to college? Understand the current landscape of student loans, credit cards, and student jobs with our college finance guide.