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Can I Refinance My Student Loans?

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In a Nutshell

When you refinance your student loans, you take out a new loan and use it to pay off your existing student loans. Refinancing may allow you to benefit from a lower interest rate and/or reduce monthly payments.

Written by the Upsolve TeamLegally reviewed by Attorney Andrea Wimmer
Updated November 26, 2021

This article will explain the process of refinancing student loans. When you refinance your student loans, you take out a new loan and use it to pay off your existing student loans. Refinancing may allow you to benefit from a lower interest rate and/or reduce monthly payments.

Refinancing can be a great solution for working graduates who have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans. Federal loans carry some special benefits, for example, access to public service forgiveness and economic hardship programs. Beware that if you refinance, these benefits and others - like deferment and forbearance - may no longer be available to you. 

Here’s What You Need To Know About Student Loan Refinancing

Refinancing your student loan debt means that you are trading your current student loans for a brand new loan. Refinancing a loan revises and replaces the terms of an existing loan contract. The purpose of refinancing is to make favorable changes to the interest rate, payment schedule, and/or other terms in the agreement of the original loan or loans. 

When refinancing your student loans, you can choose a variable or fixed interest rate. If the new loan has a variable interest rate instead of a fixed interest rate, the interest rate will likely increase over time. Variable interest rate loans are appealing to some borrowers since these loans have interest rates at the beginning of their repayment terms that are lower than loans with fixed interest rates. If you think you can repay the new loan quickly, a loan with a variable interest rate - instead of a fixed-rate loan - may be a good choice.

Refinancing your student loan debt allows you to choose a shorter or longer repayment term. Student loan repayment terms can be relatively short. They can also be almost as long as a traditional mortgage. Most refinancing lenders offer student loan terms of 5, 7, 10, 15, or 20 years. Pick the term that makes repayment the easiest for your situation.

Private student loans and federal student loans can both be refinanced together or refinanced separately. Since refis are done through private lenders, borrowers are generally given access to these types of options.

Refinance Private Student Loans

Private student loans are financing options for higher education. Generally, these loans supplement, rather than replace, federal loans. Private loans are offered by private companies like banks, credit unions, schools, and state-affiliated organizations. Private student loans cannot be consolidated into a Direct Consolidation Loan but may be refinanced.

Refinancing private student loans can be a worthwhile option to consider if you qualify for a better interest rate. A lower interest rate may lower your payment and the amount of interest that you’re charged each month.

Refinancing can also change the way that repayment of your loans unfolds moving forward. In addition to lowering your interest rate, your monthly payments can decrease by extending your term of repayment. This term may be for as long as 20 years. You can also save on interest by shortening the repayment term. Many refinance lenders let you choose relatively short repayment schedules, such as 5 or 7 years. 

You may want to consider refinancing if you’re unhappy with your current loan servicer’s repayment options. Another lender may offer more benefits, like being able to release a co-signer sooner than another lender would. You may be able to take advantage of different payment plans or postponements. Some private lenders offer other bells and whistles like prepayment rebates, referral bonuses, and personal career coaching.

Keep in mind that repaying private student loans may not be as easy as paying off federal student loans. Private lenders usually don’t offer loan terms that are equally good as those offered by federal programs. Private student loans often have higher interest rates and fewer repayment plan options. For example, private loans do not generally provide the deferral and forbearance alternatives that federal loans do.

Refinance Federal Student Loans

You can refinance federal student loans, but only with a private lender. You can’t refinance student loans through the federal government. 

If you borrowed federal loans, there are 8 repayment plans available, including the Standard 10-year repayment plan, and income-driven repayment plans. Income-driven repayment (IDR) plans reduce your monthly payment amount. Private student loans aren’t eligible for income-driven repayment plans. If you refinance a federal loan into a new private loan, you will no longer qualify for an IDR plan.

Refinancing with a private lender also blocks access to government programs like Public Service Loan Forgiveness. Your loans also will not be eligible for forbearance or deferment. This also includes student loan relief offered in an emergency, like a pandemic. 

If there is a possibility that your job could be further affected by the current Covid-19 pandemic, you probably shouldn’t refinance federal student loans. If you are considering a career change, you probably shouldn’t refinance federal student loans. Doing so could cause problems if you later experience financial difficulties and can’t make the monthly payment for your new loan. 

Student Loan Consolidation Is Different Than Refinancing

Another option worth considering involves consolidating your student loans into one refinanced loan. You can refinance federal student loans, private student loans, or both. 

A federal student loan consolidation is very different from refinancing student loans. For example, if you have three student loans, you may refinance all of them into three new loans. Alternatively, you may consolidate all three loans into one new refinanced loan. A Loan consolidation provides access to additional loan repayment plans and forgiveness programs. There is no application fee to consolidate your federal education loans into a Direct Consolidation Loan. 

Loan consolidation through the Department of Education is available for federal loans only. You cannot transfer private loans to the federal government, only to other private lenders. Ridding yourself of multiple loan servicers may make your life easier. With loan consolidation, you only have to worry about making one payment each month.

Consolidation of your student loan debt can lower your monthly payment by giving you a longer period, up to 30 years, to repay your loans. Also, you can switch any of your variable-rate loans to a fixed interest rate.

When applying for a Direct Consolidation Loan, you are not required to consolidate all of your eligible loans. If consolidation would cause you to lose benefits such as interest rate discounts, principal rebates, or some loan cancellation benefits related to any of your current loans, and you have partially earned these benefits, you should not include those loans in your new Direct Consolidation Loan. 

If you’re paying your current student loans through an income-driven repayment plan, or if you’ve made qualifying payments toward Public Service Loan Forgiveness, consolidating your current student loans will cause you to lose credit for the payments you made for any forgiveness programs like PSLF or IDR.

One drawback of consolidation is that the repayment period usually increases. This means that you will likely make more payments and pay more interest than you would have with the original loans. Another negative is that any outstanding interest on the consolidated loans becomes part of the original principal balance of the new loan. 

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Your Credit Score Matters When Refinancing Student Loans

Your creditworthiness will affect the loan terms of any refinancing efforts. This is unlike the process of taking out federal student loans where loan terms like interest rate are less dependent on your credit score than other loan eligibility requirements. One good reason to refinance student loans is that if you have a strong credit score and stable income, refinancing could save you money and lower your interest rate. 

Refinance lenders typically require a minimum credit score of 650, current employment or consistent income, a debt-to-income ratio lower than 50%, student loan accounts in good standing, current rent or mortgage payments, and no bankruptcies on your credit report or accounts recently in collection.

Am I Eligible For A Student Loan Refinance?

Eligibility for private refinancing loan programs is based on your credit score, personal financial history, and whether you are a U.S. citizen or permanent resident. Aside from a credit score of, at least 650, you’ll need a debt-to-income ratio below 50%.

Other factors for approval include the following:

  • Having enough savings to cover at least two months of normal expenses, including housing costs.

  • Spending less than you earn and having bank account balances that increase over time.

  • Avoiding a large amount of non-student, non-mortgage debt such as credit card debt and personal loan debt.

  • Having a credit history of timely making payments on your other debts.

  • Having a credit history of not being regularly charged late, overdraft, or insufficient funds fees.

How A Co-Signer Can Help You Refinance

If you have a credit score lower than 600 or are just having difficulties finding a loan with favorable terms, having a co-signer can make a difference. Refinancing student loans with a co-signer can help you get a lower interest rate or meet a lender’s eligibility criteria if you can’t get approved for a refi on your own. But, using a co-signer creates a potentially risky situation. A co-signer will be legally responsible for paying back your refinanced student loan if you don’t make your payments. 

Some lenders will grant a co-signer release after the passage of time, usually 12, 24, or 36 months. But before asking someone to co-sign, try to pre-qualify with multiple lenders with and without a co-signer. This will allow you to determine potential interest rates for both situations without affecting your credit.

Be On The Lookout For These Loan Terms

When refinancing student loans, you must pay special attention to the “fine print.” You should fully understand the terms of the new loan before you commit to a change. 

Be aware of longer repayment terms. When you refinance your existing student loans, you can adjust your repayment terms. For example, instead of the standard 10-year plan for federal loans, you have the option to shorten or lengthen the term of the loan. The trade-off of getting a new lower monthly payment may be getting a new loan with a longer repayment term. Refinancing to a low monthly payment could mean paying more interest over the life of the loan. 

Probably the most important term of the new loan to be aware of is the interest rate. Is it higher than the interest rate on your current loan? Knowing your current interest rates and comparing them to the new interest rate is the first step you should take when shopping for a new loan. Otherwise, you could spend energy refinancing only to pay more money over time. 

Some other things or faqs to consider when reviewing the terms of your new loan include the following:

  • Are there other fees, such as origination fees?

  • Is there a prepayment penalty if I want to pay my loan off early?

  • Is there a forbearance program if I am laid off from my job?

  • How do I access customer service?

Save Money By Shopping Around To Different Lenders

Different refinance companies offer different loan terms. The more time you take to shop around and research the best deal, the more money you could save on your student loan payments.

Some lenders give instant rate quotes, so you can get an idea of your rate after providing basic personal information. Each lender uses different criteria when evaluating applicants, so the company advertising the lowest rate may not offer the best rate. A soft credit check, or pre-qualification, typically doesn't affect your credit score. An actual application that requires a hard credit check can briefly lower your credit score. 

While most student loan refinancing lenders are similar, they may offer certain features that better suit your situation. For example, some may refinance parent PLUS loans in the name of a child. Others may not require a college degree for refinancing.

If you decide to refinance student loans, compare multiple loan programs to see which offers you the best rate for your loan amount. If you have similar offers, give greater weight to lenders that offer the most flexibility with payments and the longest possible forbearance options. Consider which lender offers the best student loan refinance bonus as well.

Sofi, Earnest, Citizens Bank, and Laurel Road are four of the largest student loan refinance companies. Both Sofi & Laurel Road service their loans through MOHELA, one of the largest holders and servicers of student loans nationwide. There are 10 federal loan servicers operating in the United States. MOHELA granted borrowers a six-month grace period for student loan payments because of the pandemic. Similarly, Citizens Bank borrowers were eligible for a 3-month forbearance. Sofi, Earnest, Citizens Bank, and Laurel Road all place a good deal of weight on income potential when considering approval for refinancing. Laurel Road and Earnest both offer suspended payments for 3 months in the event of income loss. 

Let’s Summarize...

Student loan refinancing is an option for finding relief if you’re having difficulty paying your student loans. The more you learn about your options related to refinancing and repayment, the more money you could save. Refinancing means that you are trading any current loans for a brand new loan. Refinancing is a private consolidation of your student loan debt. Refinancing should provide new, more favorable loan repayment terms. These terms include the interest rate, payment schedule, and other terms of the original loans. 

Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

Attorney Andrea Wimmer


Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team as Managing Editor. While in private practice, Andrea handled... read more about Attorney Andrea Wimmer

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