How to Decide If Refinancing Your Student Loans Makes Sense

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Refinancing with Earnest

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For many student loan borrowers, refinancing can feel like a godsend.

Instead of having multiple student loan servicers, refinancing lets you deal with just one. If you get a good offer, you can lower your monthly payments and interest rate. If your interest rate goes down significantly, you could save thousands of dollars over the life of your loan.

But refinancing isn’t a viable option for everyone. Some people won’t qualify, and others won’t see much savings from refinancing.

So how do you know whether or not you’re a good candidate? Check out this full student loan refinance checklist to find out.

When should I consider refinancing my loans?

If all of these statements are true, then refinancing your student loans can be the right move for you. See how many you can check off below.

I have a steady income or job offer letter.

When you refinance your student loans, you combine them all into one new loan from a private lender. Although private lenders allow some repayment flexibility, they typically don’t help all that much if you run into financial trouble.

Before turning any federal student debt into one private loan, make sure you’re confident about your ability to pay it back. Plus, you’ll need to show proof of income (or at least a job offer letter) when you apply for refinancing offers. You’ll need to show you can pay back the new loan.

The weighted average interest rate of all my loans is high.

One of the best benefits of refinancing your student loans is getting a lower interest rate. Lowering your interest rate by just 1.5% to 2% can save you thousands of dollars over the life of your loans.

But if your interest rates are already low, a refinancing lender may not be able to beat them — and the last thing you want to do is make your interest rates go up.

If the average weighted interest rate of your current loans is high, you could qualify for a lower rate. CommonBond, for instance, offers variable interest rates between 2.57% and 6.65% and fixed interest rates between 3.20% and 6.65%.

If you can snag a lower rate, you could both simplify your monthly student loan payments and pay a lot less in interest overall.

I don’t need an income-driven repayment plan.

With federal student loans, borrowers have certain protections. Income-driven repayment plans, for instance, extend your repayment term. Plus, they cap your monthly payments at 10 to 15 percent of your discretionary income.

If you refinance, you’ll lose access to these federal programs. Instead of working with the government, you’ll work with one private lender, like SoFi or CommonBond. You should only refinance if you don’t need access to federal income-driven repayment plans.

I’m not working toward federal loan forgiveness.

Programs like Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness forgive federal student loan debt in exchange for service. If you refinance your federal loans with a private lender, you’ll no longer have access to federal forgiveness programs.

These forgiveness programs aren’t the only ones that help pay back student debt, though. You might still qualify for state and university-sponsored loan forgiveness and assistance programs. But if you could be eligible for federal student loan forgiveness, you might not want to refinance your student loans.

My credit score is 650 or greater.

Lenders determine your refinancing offer based on your creditworthiness. When you apply, they take a look at your credit score, among other factors. While many lenders don’t have a strict cutoff, they’re looking for a relatively strong score.

At the same time, some lenders understand that a recent college grad hasn’t had time to build up their credit score yet. But if your score still isn’t up to scratch, you could boost your application by applying with a cosigner. Some lenders even offer a cosigner release after you make on-time payments for a certain period of time.

If you’re not sure your credit score is strong enough, you can always request a quote from the company. This won’t affect your credit score and will give you an initial sense of the offers.

Refinancing would give me better terms on my student loans.

Finally, you must make sure refinancing would improve your student loan situation. Identify your goals for refinancing. Are you working with a lot of lenders and want to simplify your monthly payments? Refinancing would definitely help you do that.

Are you trying to lower your monthly payment or interest rate? To find out if refinancing will help, you must submit a few pieces of information, like your name, income, and total debt. In just a couple of minutes, you can see what kind of offers you could qualify for.

You don’t have to worry about a hard credit check at this point. You can compare lenders to see what your monthly payments and interest rates would be. Then, use a student loan refinancing calculator to determine whether or not you’d save money.

When is refinancing a bad idea?

There are some cases when you might be better off waiting to refinance. If any of the following refinance checklist applies to you, you might not be a good candidate for student loan refinancing at this time:

  • My income is irregular or unstable.
  • The average weighted interest rates of my loans is already low.
  • I might need an income-based repayment plan in the future.
  • I’m in or am considering a career that qualifies for federal loan forgiveness, such as PSLF or Teacher Student Loan Forgiveness.
  • My credit score is lower than 650.
  • Refinancing wouldn’t help me save money or lower my monthly payments.

Decide whether refinancing is right for you

Before refinancing your student loans, make sure you understand the full implications. Assess your situation to determine whether you’re a strong candidate for refinancing.

If you’re interested, you can easily browse offers with lenders like SoFiCommonBond, and LendKey. If you find a good offer, you could soon ease the burden of student loan payments.

For many people dealing with student loan debt, refinancing improves their financial picture. By evaluating your personal situation, you can confidently determine whether or not refinancing is right for you.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderVariable APREligible Degrees 
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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% 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 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% 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. 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. *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. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. 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. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
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.