Student loan refinancing can save you money while simplifying your monthly payments. But before applying, make sure you understand the ins and outs of the process.
Read on for the most common questions to ask when refinancing your private and federal student loans. Whatever your situation, you’ll learn whether refinancing is right for you.
General student loan refinancing questions
What is student loan refinancing?
What’s the difference between refinancing and student loan consolidation?
Can I refinance both private and federal loans?
Who are the best lenders for refinancing?
Will refinancing save me money?
What are the benefits of refinancing my student loans?
What are the risks of refinancing?
How to qualify
How do I qualify for refinancing?
Will browsing student loan refinancing offers hurt my credit score?
What’s the difference between a fixed and variable interest rate?
What interest rates can I get?
What are my options for repayment terms?
Are there any limits to how much student loan debt I can refinance?
Is there a fee to refinance my student loans?
Is there a penalty if I pay back my student loan early?
Can I defer my refinanced student loan if I go to grad school?
Can I refinance during a student loan grace period?
Can I assume responsibility for my parents’ Parent PLUS loans through refinancing?
What if I didn’t go to a Title IV school?
Can I refinance if I didn’t graduate from college?
Student loan questions to ask when refinancing
Student loan refinancing refers to the process of taking out a new loan to pay off your current loans. The refinanced student loan will have a different repayment plan and interest rate. Rather than sending off multiple monthly payments, you’ll send just one to a single lender. Most lenders allow you to refinance both private and federal student loans.
The terms “student loan refinancing” and “student loan consolidation” are often used interchangeably. But there’s a big difference between private student loan refinancing and federal student loan consolidation.
When you refinance, you take out a new student loan with a private lender. Ideally, the new loan has a lower interest rate than what you’re currently paying. You can refinance both private and federal loans. Your new refinanced loan will be private, meaning you’ll no longer have federal loans.
With federal consolidation, you take out a Direct Consolidation Loan from the government. You can only consolidate federal loans, not private ones. Your new interest rate will be an average of all your loans, meaning your interest rate won’t go down. Consolidation simplifies your monthly payments and it allows you to choose a longer repayment term up to 30 years. But this won’t save you money on interest.
Yes, you can refinance private and federal student loans. Note that refinancing federal loans means you’ll no longer have access to federal student loan programs, as you’ll learn more about below.
The best lenders will offer low interest rates and excellent customer service. We have six favorite lenders based on their competitive offers and how they treat their customers.
Before choosing a lender, compare offers for the best one. Applying for an offer only takes a few minutes and this preliminary check will not affect your credit score. Only after you choose a lender and submit documents will the lender run a hard credit check.
People often refinance student loans to save money. By lowering their interest rate, they spend less on their loans in the long term. But you’ll only save money if you qualify for an interest rate that’s significantly lower than what you currently have.
If you have an average weighted interest rate higher than 6%, you could benefit from refinancing. If your loans already have an average interest rate lower than 6%, you might not see much savings.
Student loan refinancing has several main benefits. First, you simplify your monthly payments. Some borrowers have to keep track of several loan servicers and monthly payments. After you refinance, you’ll only have one lender and one monthly payment.
Second, refinancing allows you to choose a new repayment term. If you can handle the monthly payments, you could shorten your repayment term and pay your loan off faster. Or you could choose a longer repayment term with lower monthly payments (though with this strategy you may pay more in interest over the life of your loan).
Finally, student loan refinancing can get you a lower interest rate. Student loans accrue interest on a daily or monthly basis. If you lower your interest rate significantly, you could save thousands of dollars over the life of your loan.
If you refinance federal student loans, you’ll no longer have access to federal protections. These protections include income-driven repayment plans and forgiveness programs. If you’re worried about losing your income or are working toward federal loan forgiveness, refinancing may not be the right choice for you.
That being said, some private lenders offer flexible repayment plans if you’re struggling to make monthly payments. Before choosing a lender, find out how they help borrowers who hit a rough financial patch.
How to qualify for student loan refinancing
When you apply for student loan refinancing, lenders look at your income, debt-to-income ratio, and credit history, among other things. Lenders set their own requirements. SoFi, for instance, requires a credit score of 650 or above and has no income minimum. LendKey wants borrowers to have a credit score of 680 and income of at least $24,000.
Applying with a cosigner can also help you qualify. A cosigner will be responsible for the loan if you don’t pay it back. Some lenders release your cosigner after a set period of on-time monthly payments.
You can apply for preliminary student loan refinancing offers without any effect on your credit score. Most lenders ask that you provide a few pieces of basic information, such as your name, salary, college, and total loan amount.
Once you choose a lender, you’ll submit an official application. You’ll provide a lot more information, as well as supporting documents like loan statements. At this point, the lender will run a hard credit check to finalize your offer.
Lenders offer both fixed and variable interest rates. Fixed interest rates remain the same over the life of the loan. Variable interest rates can change periodically. While they tend to start out lower than fixed rates, they may increase over time.
A variable interest rate may not be worth the risk if you have several years of repayment ahead of you. But if you’re looking to pay your loan off fast, you don’t have to worry as much about the ups and downs of a variable rate.
Interest rates vary by lender. SoFi, for instance, offers fixed interest rates between 3.25% and 7.24% and variable interest rates between 2.75% and 6.84%. The interest rate you qualify for will largely depend on your creditworthiness.
Most lenders offer five, 10, 15, and 20-year repayment plans. A few also offer seven-year plans. Note that if you tack extra years onto your loan, you might end up paying more in interest overall.
Maximum limits also vary by lender. SoFi has no maximum and CommonBond refinances up to $500,000. Citizens Bank refinances up to $90,000 for undergraduate student loans and up to $250,000 for graduate student loans.
You shouldn’t have to pay a fee for refinancing your student loans. Check with your lender of choice to make sure it doesn’t charge an origination fee when it disburses your new student loan.
Special refinancing situations
Reputable lenders do not charge a prepayment fee. Check with your lender before refinancing to make sure it does not charge a fee for paying back your loan ahead of schedule.
Some lenders allow you to refinance your student loans during the six-month grace period after graduation. However, you’ll still need the income and credit score to qualify (or you’ll need to enlist the help of a cosigner). Carefully read over the terms of the new loan so you know when to start sending payments.
Policies vary by lender, but several allow you to put your refinanced student loan into deferment. Deferment pauses your monthly payments, but it doesn’t stop interest from accruing. If you think you might need deferment in the future, speak with lenders about their policies before refinancing your student loans.
Several lenders allow you to take over Parent PLUS loans from your parents. As long as you meet eligibility requirements, you’ll be able to assume responsibility for these loans.
Most refinancing lenders require that you attended a Title IV school. A Title IV school is any institution that’s eligible for federal student aid. A few lenders, including Citizens Bank, don’t have this requirement.
Is student loan refinancing right for you?
Thanks to student loan refinancing, you’re not stuck with your loan servicers or interest rates. If you meet the income and credit score requirements, you could take out a new loan with more attractive terms.
Before refinancing, make sure you understand the benefits and risks. While you could save money on interest, for example, you might lose access to federal programs. If you’re concerned about losing your income in the near future, it’s likely not the best time to refinance.
But if you have a steady income and solid credit score, refinancing could be a good financial decision. Before signing on the dotted line, take the time to do the math. Our student loan refinancing calculator will show you exactly how much you’ll save or spend with a new repayment plan and different interest rate.
Student loan refinancing is beneficial to some borrowers, but not so much for others. Make sure to review these questions to ask when refinancing and see where you stand. If you’re a strong candidate, refinancing could bring you a big step closer to financial freedom.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Rates (APR)||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!|
|2.75% - 7.24%||Undergrad & Graduate||Visit SoFi|
|2.57% - 6.39%||Undergrad & Graduate||Visit Earnest|
|2.57% - 7.12%||Undergrad & Graduate||Visit CommonBond|
|2.99% - 6.99%||Undergrad & Graduate||Visit Laurel Road|
|2.74% - 7.26%||Undergrad & Graduate||Visit Lendkey|
|2.89% - 8.33%||Undergrad & Graduate||Visit Citizens|
Student Loan Hero Advertiser Disclosure
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.