How to Refinance a Student Loan : The Ultimate Guide

When you refinance your student loans, you get a new loan to pay off the ones you already have. Refinancing can combine all your loans into one simple monthly payment, possibly at a lower interest rate or with better terms. This is similar to how federal loans are consolidated. After deciding if this process is right for you, you can check your credit, shop around for affordable rates, and apply for a loan that fits your financial situation best. Read to know more on how to refinance a student loan. 

What is student loan refinancing? 

Student loan refinancing helps borrowers get a new loan with a lower interest rate to pay off their old loans. This means that your loans are transferred to a new lender. The new lender will make a payment that covers the full principal balance of your loans and any interest that is still due. You’ll then make payments to your new lender until you’ve paid off the rest of your loan. If you refinance to get a lower interest rate, you could save thousands of dollars over time and maybe even a few hundred dollars a month compared to what you’re paying now. 

Refinancing a student loan is not the same as consolidating a student loan. With a Direct Consolidation Loan, a borrower can combine all of their federal loans into one monthly payment. This is a service offered by the federal government. If you do this, your new interest rate will be a weighted average of the interest rates for each of your loans. This may make your interest rate change slightly. This means that you may end up paying a little more in interest over time if the new rate causes interest to build up a little faster than it did on your individual loans. 

Eight steps to refinance your student loan  

Take some time to think about what you want before you start the application process to refinance your student loans. Get an idea about which loans you want to refinance, how quickly you can pay them off, and how much you can afford each month. Once you’ve decided to refinance, here’s what to do next. 

Figure out if a student loan refinance is right for you 

Refinancing may make sense if it may save you money, but it is not for everyone. To qualify for the lowest rates and meet the eligibility criteria of a refinance lender, you must have good credit and a stable financial situation. Do not refinance federal student loans unless you are certain your work is secure and will not require these options. Refinancing private student loans, on the other hand, has a few drawbacks. Some federal programs will not accept private loans. 

Get your credit score checked 

One of the first things a lender will do when you ask to refinance your student loans is, look at least one of your credit reports and credit scores. This is why you should check your Equifax, TransUnion, and Experian reports often to see if there are any mistakes. The FCRA gives you the right to dispute wrong information on your credit report with the right credit-reporting agency if you find it. Before you fill out loan applications, finding out where your credit stands is a good practice. If your credit isn’t great, you can work to fix it before you try to refinance. 

Research on lenders 

Numerous banks, internet lenders, and credit unions refinance student loans. Start by shopping around different lenders. You can compare multiple offers without jeopardizing your credit score or feeling obligated to accept the loan. You can also look for refinance lenders based on a specific requirement. Visit each lender’s website and submit some basic information to see what rates are available to you. Most lenders will normally request the following: 

• Name, address, and other basic details 
• University and degree type 
• Student loan debt total 
• Income 
• Housing payment on a monthly basis 

Get multiple rate estimates 

Once you’ve identified a few lenders who meet your requirements, request rate quotes from each of them. Choose the lender with the lowest interest rate. You can compare rates from many student loans refinance lenders at the same time, or you can visit each lender’s website separately. 

While shopping, some lenders will want you to pre-qualify – provide basic information so that the lender can give you its best estimate of the rate you might qualify for. Some lenders will only show you a quote once you complete a full application, but that rate is a real offer. 

A soft credit check, also known as pre-qualification, usually has no effect on your credit ratings. A genuine application necessitates a hard credit check, which may temporarily reduce your credit scores. 

Decide on the lender and loan offer 

Once you’ve chosen a lender, you’ll have to make a few more choices, like whether you want a fixed or variable interest rate and how long you want to pay back the loan. Most borrowers should choose loans with fixed interest rates. Variable rates may start out lower, but they can change every month or three months. 

Choose the shortest payment period you can afford if you want to save the most money. Choose a longer repayment period if you want lower monthly payments so you can put more money toward other costs. 

Apply for the loan 

Once you’ve decided on a lender and loan offer, you must fill out a formal loan application. Even if you already went through the pre-qualification process with a lender, you still need to do this step before your loan can be approved. 

At this point, the lender will probably do a hard credit check to look at your full report. The lender will also want information that wasn’t on the pre-qualification form. If you are applying with a co-signer, you will also have to give them your information. You might have to give the lender copies of papers and information like: 

• Social Security Number (SSN). 
• License to drive or a government ID. 
• Statements about loan payoffs from lenders or servicers who already have student loans. 
• Proof that you graduated. 
• Proof that you have a job (pay stubs, W-2, etc.). 

Keep paying your loans as you wait  

Even if you can look at initial offers in a flash, filling out a full refinance application can take a while. Some lenders try to finish the process in two to five days, but it can take as long as three weeks. In the meantime, keep making payments on your current loans until you hear that the transfer is done. 

Once your new lender approves the loan, you might want to set up autopay so that you don’t fall behind on your student loans. Many lenders will cut your interest rate by an extra 0.25% when you use autopay. If you refinance with a bank in which you already have an account, you might also get a discount for being a loyal customer. 

Sign your loan documents and start making payments 

Once your loan is approved, you’ll sign the papers for it. Now, most student loan companies handle their entire process online. After you’ve signed and filed your paperwork, you’ll be expected to start making payments on your new loan just like you did with your old one. Your new lender may be unable to pay off your old loans immediately, though. The process can sometimes take a few weeks. Keep making payments on your student loans that are due in the meantime so you don’t get charged late fees or have a negative impact on your credit. 

Should I refinance my student loan? 

In short, it depends on many factors. Refinancing a student loan might be helpful if you want to get out of debt faster and possibly reduce your monthly payment requirements if you qualify for a decent offer. There are a few things to think through before refinancing your student loan: 

Loan type  

The type of loan you have may influence your refinancing alternatives. Because refinancing is only available through private lenders, refinancing your federal loans means giving up federal protections such as deferment, income-driven repayment plans, etc. 

Remaining time 

If you refinance into a longer repayment period, you may pay more interest on your loan overall. If it is nearly paid off, keeping the loan you presently have may be cheaper. Refinancing may have less impact if you’re nearing the end of your repayment period. 

Current interest rate 

The majority of people refinance in order to acquire a cheaper interest rate. If you don’t extend your repayment term, you could pay less interest over the loan duration if you get a lower rate. 

Monthly payment 

If you have an unmanageable monthly payment, refinancing is a smart option. Extending your repayment period may increase your interest payments in the long run but will cut your monthly expense. When in doubt, compare your current debt to any new loans you’re considering using a student loan calculator.  

Pros of a student loan refinance 

A lower interest rate that comes with refinancing can significantly reduce the amount of money you pay over time, allowing you to keep more of your salary. 

You might be able to get out of debt faster. You may be able to shave years off your original loan payments plan if you refinance for a shorter loan term. 

And you might be able to land on better terms than your current private lender. Not all lenders provide flexibility, such as the ability to skip a payment when times are tight. Switching to a new company could save you from stress. 

You might be able to reduce your monthly cost. Depending on how you structure your loan, you may be able to minimize both your short-term and long-term loan payments.  

Cons of a student loan refinance 

You may have to pay a higher monthly payment. Refinancing for a shorter repayment period will shorten your loan term length and allow you to pay off the loan sooner. This may save you much more money in the long run because less interest will be accrued, but greater payments may be difficult in the short term.  

You will lose Department of Education protections such as deferment and income-based repayment programs, which can temporarily reduce or even eliminate your monthly payments while you are experiencing financial hardship. While Earnest private student loans have certain benefits, such as the possibility to skip a payment once a year if you’re in good standing, you won’t be able to switch to an income-driven plan if you quit your job or switch to a lower-paying position. 

You cannot return your loans to the federal government. While you may be able to refinance again if necessary — for example, if student loan refinancing rates fall and you have the potential to save even more — you will not be able to transfer your loans back to the federal government if you refinance. 

Alternatives to a student loan refinance 

You don’t have to refinance your student loans to get out of debt faster. Some other choices are: 

Forgiveness 

If you work in public service, you may be eligible for Public Service Loan Forgiveness after ten years of payments that meet certain requirements. 

Consolidation 

With a Direct Consolidation Loan, you can keep your federal loans with the federal loan lenders you already have and make only one payment each month. 

Change jobs 

Some companies offer to pay some of their employees’ student loans. If yours doesn’t, and you want to switch, look for this benefit when you look at the list of benefits. 

Bottom line 

By refinancing, you may be able to save money over the life of your loan or even shorten the time you must pay it back. This is done via private lenders, so if you need or want some of the benefits of FHA, you will need to weigh the pros and cons. In the end, a refinance can make it easier to repay your loan. And depending on your credit score, it could even lower your monthly payments. Before getting a refinanced loan, you should look around for the best rate and terms. 

FAQs 

How long does it take to refinance a student loan? 

Your request to refinance could be approved in a few days or a few weeks after you fill out a loan application and send in the necessary paperwork. 

Can you refinance federal student loans? 

Federal student loans can be refinanced, but only through a private lender. This means you’ll forego federal safeguards such as deferment and forbearance as well as access to advantages such as income-driven repayment plans. 

Who is eligible for student loan refinancing? 

In general, to refinance a student loan, you’ll need a credit score of around 650, a debt-to-income ratio of less than 43%, and a steady source of income. However, each lender has different requirements. 

Getting pre-qualified is a great way to find out if you can refinance your student loans. Pre-qualification doesn’t guarantee that you’ll be approved, but it can help you see if you meet the minimum requirements set by lenders. 

Can you put student loans in someone else’s name? 

Some lenders permit you to transfer student loans to another person. Some parents do this with the education debts they took out for their children, moving those loans to the youngster once they enter employment. However, keep in mind that the loan will have new conditions and charges based on the new borrower’s credit. 

Can you refinance student loans with bad credit? 

Several lenders refinance student loans for borrowers with poor credit; nevertheless, if a lender accepts a lower credit score, they will almost definitely charge higher interest rates. As with new student loans, it is common to be able to apply for refinancing with a creditworthy co-signer, who could assist those with bad credit qualify. 

Does refinancing student loans hurt your credit score? 

When you apply for a refinance, the accompanying hard inquiry can lower your credit score by a few points. Nonetheless, this effect is transitory and unlikely to cause major harm. 

If you are accepted, establishing a new loan account and terminating the old accounts can temporarily affect the length of your credit history, a consideration in your credit score. However, the effect is typically mild and transitory. Refinancing could enhance your credit score over time if it helps you make payments on time and in full more often. 

How much money do I need to make to refinance my student loans? 

You must meet their minimum income requirements if you wish to refinance your student loans with certain lenders. Depending on the lender, the minimum income requirement is often $24,000 or higher (this also depends on whether you have a qualifying co-signer or not). 

Can you refinance student loans at any time? 

Refinancing federal student loans is doable, but only through a private lender. This means you will lose access to federal safeguards such as delay, forbearance, and perks such as income-based repayment arrangements. 

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