Pros and Cons of Refinancing Undergraduate Student Loans Before Grad School

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Refinancing undergraduate loans while in grad school
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Whether grad school is just around the corner or a couple of years down the road, you may be wondering what to do with your undergraduate student loans as you take the next step. Refinancing, deferring or seeking out loan forgiveness are three ways to tackle it.

For some students, refinancing is an appealing option. But can you refinance student loans while in school or right after graduation? The short answer is “maybe,” depending on a few factors. To figure it out, let’s take a look at the following topics:

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Handling undergraduate loans in grad school

Refinancing means paying all of your debt off using a brand new loan, and it isn’t always an easy process to accomplish as an undergraduate or newly graduated student.

As a borrower, you might have a tough time refinancing as an undergrad since most lenders require proof that you graduated from college. In addition, lenders may require you to have a cosigner on your refinance loan.

One scenario to consider: You could wait to refinance after you are in graduate school. By that time, you will have earned your undergraduate degree and hopefully paid down some of those loan balances and applied for financial aid for your graduate studies.

However, there are a few solid options for handling your undergraduate student loans in graduate school. These suggestions can also apply to anyone with student debt.

  • Continue paying your loans
  • Choose forbearance or deferment (delaying repayment completely while in graduate school and begin payments after you obtain your advanced degree)
  • Refinance your undergraduate student loans (which may also include deferring payment while in graduate school)

Before deciding which route is best for you, you should consider:

  • The type of loan you have currently (federal or private)
  • What your income will be during graduate school
  • And what additional accommodations you will have to make if you choose to refinance.

Just because you can refinance, doesn’t necessarily mean you should. To learn more, read on.

How refinancing works

Refinancing your undergraduate student loans involves getting a new loan from a private lender and using it to pay off your current federal or private debt.

The goals of refinancing include consolidating multiple student loan payments into a single monthly bill, possibly scoring a better interest rate, lowering your monthly payment or, ideally, all of the above.

You can refinance one loan or several at a time, but there are some downsides to consider, especially if you have federal student loans. Once you refinance with a private lender, you lose benefits that come with federal student loans, such as federal loan forgiveness and income-driven repayment eligibility.

If you don’t need these benefits, however, refinancing might help you save money on interest or lower your monthly payment.

Pros of refinancing

When you refinance, you could get a lower interest rate, saving you money as you pay down your undergraduate student loans. You can get an idea of how much you could potentially save by taking a look at some of the rates available and then plugging the figures into our refinance calculator.

Be aware, though, that some of the lowest rates are reserved for the most creditworthy borrowers, and unless you have a strong credit history, you might need a cosigner to qualify for any refinancing loan at all.

Besides switching your interest rate, student loan refinancing lenders also offer various repayment terms, potentially giving you more control over your monthly payments. However, you must account for the fact that, depending on the loan, you may be accruing additional interest and adding more months or years to your student loan.

If you lengthen the term of your loan, you’ll end up with lower monthly payments. This could ease the pressure on your finances, but keep in mind that this will also likely result in your paying more in interest over the life of the loan.

What if you can’t afford any payment, especially while working your way through grad school? Although private refinance loans usually don’t have the same super-flexible forbearance options that federal loans do, many refinancing companies will give you the option to defer your student loans while in grad school.

Deferment of your student loans means you pause your payments for a specified period of time. CommonBond, SoFi and Earnest, are examples of companies that allow academic deferment on your undergraduate loans while you’re in grad school.

Plus, some refinancing lenders, like SoFi also offer loan protection programs for when you experience economic hardship, although interest will still accrue on your loan.

If you are able to refinance your student loans into a more manageable amount and then defer those payments, it could give you some financial relief during graduate school.

Cons of refinancing

As noted above, the biggest downside of refinancing federal student loans in graduate school involves missing out on special protections.

Specifically, you’ll lose access to income-driven repayment plans, student loan forgiveness programs, and possible life-savers such as easy-to-get deferment and forbearance.

For example, you won’t be able to pick from the flexible federal repayment plans, including income-driven repayment that caps your monthly bill at a percentage of your disposable income. And if you’re suffering from especially low income, that payment might be “$0.”

Private loans are different, however. They aren’t eligible for those federal payment plans or for forgiveness programs such as Public Service Loan Forgiveness, which can wipe away your remaining balance after 10 years of qualifying employment. As a result, it makes more sense to refinance.

Note that pausing your loan payments while in graduate school might still be possible with a private lender, but as mentioned, interest will pile up during this period.

Weighing your options

All things considered, refinancing federal loans is usually a poor choice, only because these let you easily defer your undergraduate student loans in school and avoid making payments entirely if you can’t afford it, while still holding on to your federal loan protections.

However, for private loans, refinancing may be much more viable, since there are no special protections to lose. This makes it a good choice, so long as you qualify and can save money with a lower interest rate.

But whether you refinance or not, you’ll also need to decide whether to make any payments on your loans while you’re pursuing your graduate degree — as mentioned, many refinancing lenders offer in-school deferment, and all (non-refinanced) federal loans have this option.

Since pausing your repayment will rack up interest and cost you extra money — except for subsidized federal loans — it could be wise to throw some money at your debt if you can.

In any scenario, you should only refinance if you can get a better deal on the overall cost of your loan. And of course, if you do decide to refinance, make sure to shop around so you can get your best deal possible.

What to do if you don’t qualify for a refinance loan

If you apply for a refinance loan before graduate school but do not qualify or you need a cosigner and can’t find one, don’t worry too much about it.

Qualifying for a refinance loan can be difficult for college students or new graduates because of the hefty requirements to qualify for one, which is why such loans often include a cosigner.

Use the time between graduation and graduate school to build up your creditworthiness (most refinance lenders want to see a score of 660 or higher), keep paying down your original student loans and try to get your debt-to-income ratio below 50%. These actions will all help you become a better candidate when you apply for a refinance loan in the future.

Maya Dollarhide contributed to this report

Interested in refinancing student loans?

Here are the top 6 lenders of 2021!
LenderVariable APREligible Degrees 
1.89% – 5.99%1Undergrad
& Graduate

Visit Splash

1.99% – 5.64%2Undergrad
& Graduate

Visit Earnest

1.99% – 6.84%3Undergrad
& Graduate

Visit CommonBond

1.91% – 5.25%4Undergrad
& Graduate

Visit Lendkey

2.25% – 6.53%5Undergrad
& Graduate

Visit SoFi

2.17% – 4.47%6Undergrad
& Graduate

Visit PenFed

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of Feburary 1, 2021.


2 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of October 26, 2020, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 10/26/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


3 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. ‍All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.15% effective Jan 1, 2021 and may increase after consummation.


4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it  endorse,  any educational institution.

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of  5 years and is reserved for applicants with FICO scores of at least 810.

As of 02/17/2021 student loan refinancing rates range from 1.91% APR – 5.25% Variable APR with AutoPay and 2.95% APR – 7.63% Fixed APR with AutoPay.


5 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: 1. Fixed rates from 2.99% APR to 6.99% APR (with AutoPay). Variable rates from 2.25% APR to 6.53% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.12% plus 2.38% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The discount will not reduce the monthly payment; instead, the interest savings are applied to the principal loan balance, which may help pay the loan down faster. Enrolling in autopay is not required to receive a loan from SoFi. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score.Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

6 Important Disclosures for PenFed.

PenFed Disclosures

Annual Percentage Rate (APR) is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rates range from 2.99%-5.15% APR and Variable Rates range from 2.17%-4.47% APR. Both Fixed and Variable Rates will vary based on application terms, level of degree and presence of a co-signer. These rates are subject to additional terms and conditions and rates are subject to change at any time without notice. For Variable Rate student loans, the rate will never exceed 9.00% for 5 year and 8 year loans and 10.00% for 12 and 15 years loans (the maximum allowable for this loan). Minimum variable rate will be 2.00%. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.