6 Student Loan Refinancing Mistakes That Could Cost You — and How to Avoid Them

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Refinance rates with Laurel Road start at 1.89%.

Checking your rates won’t affect your score.

Check out Laurel Road

Lower interest rate, shorter loan period, more money in your pocket. The potential outcomes of student loan refinancing can sound appealing. And for some people, refinancing is a smart way to consolidate debt and potentially reduce the cost of student loans.

But refinancing doesn’t guarantee a lower interest rate, and refinancing federal student loans may cause you to miss out on options for student loan forgiveness. Consider, too, what could happen if you lose your job after refinancing and can no longer afford to make payments.

Before signing on the dotted line, make sure you’re not making any of these student loan refinancing mistakes:

1. Checking your rates with only one lender
2. Thinking you have to refinance all of your loans
3. Not comparing different repayment plans
4. Giving up federal loan protections (if you need them)
5. Not finding a cosigner
6. Prematurely stopping payments on your old student loans
How to avoid student loan refinancing mistakes

1. Checking your rates with only one lender

It’s essential to thoroughly compare refinancing offers before you commit to one. Offers differ among potential customers based on factors including your credit score and overall financial picture. That’s why a great lender for someone else may not be the best for your situation.

To evaluate your options, consider requesting a rate quote from multiple lenders online. You’ll enter a few basic pieces of information, including your total student debt, income and education level. You’ll then undergo a soft credit check to give the lender a sense of your financial history.

This soft check won’t hurt your credit score. Then, you’ll be able to quickly compare fixed and variable interest rates and different repayment terms. Most lenders offer terms between five and 20 years.

Once you’ve reviewed offers, you can look more closely at the lenders offering the best rates for you. Understand what fees you might be subject to, including late payment fees. Check how easy it is to get in touch with customer service and what options are available if you need a lower payment or more flexibility in the future.

Whatever your criteria for choosing a lender, make sure to shop around. That way, you can find the best deal for refinancing your student loans.

2. Thinking you have to refinance all of your loans

Be strategic about which loans you choose to refinance. Depending on your situation, it might make sense to refinance just one of your loans or to refinance multiple loans together.

Student loan interest rates should be a major factor in deciding which loans to refinance. Federal student loans have a standard interest rate that varies by year, but when you get a loan, that rate will be fixed for its entire term. Private loans can have a wide range of interest rates, depending on the borrower’s credit and financial history. For example, the fixed interest rate for federal direct loans for undergraduates for the 2019-2020 academic year is 4.53%. Fixed interest rates on Sallie Mae private student loans for undergraduates, on the other hand, currently range from 4.74%* to 11.35%* APR (which include a discount for making automatic payments). If you have student loans with interest rates higher than 5%, it may be worth seeing if you could get a lower rate by refinancing. But you can choose not to refinance loans that already have comparatively low rates.

Additionally, some borrowers might benefit from refinancing their private student loans, but not their federal ones. When you refinance federal student loans, you lose access to helpful federal programs like income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF). It’s possible to leave your federal loans alone, and to refinance only private loans into a single new loan.

3. Not comparing different repayment plans

Before choosing a repayment plan for your new refinanced loan, it’s important to run the numbers. Compare your old term and interest rate with the new ones you’ll get through refinancing. You’ll see exactly how much you’ll save on a lower interest rate or shorter repayment term. Or, if you need lower monthly payments, you’ll see how your new loan will affect your budget.

For example, let’s say you have eight years remaining on your old student loan balance of $30,000. Altogether, these loans have a weighted average interest rate of 6.80%. When you apply for refinancing, you qualify for a 4.75% interest rate.

On a seven-year repayment plan, you’ll pay just $15 more each month but save $3,657 in interest over time. On a five-year repayment plan, you’ll pay $157 more per month but save $5,217 total in interest. Plus, you’ll get out of debt three years ahead of schedule.

By crunching the numbers with a student loan refinancing calculator, you can see how refinancing your loans to a lower interest rate or different term will affect your payments. In general, the shorter the loan term, the less money you’ll pay in interest over time, but it can be smart to choose a loan repayment amount that fits your monthly budget, too.

4. Giving up federal loan protections (if you need them)

When you refinance federal loans, you turn them into private loans. As a result, you lose access to federal benefits like IDR plans, which lower monthly payments to a percentage of your income, and loan forgiveness programs. Whether you can afford to forfeit these options depends on your goals and career path.

If you’re working toward federal loan forgiveness, you shouldn’t refinance your loans. If you suspect your income might drop in the future, it may be wise to keep your federal student loans and maintain access to IDR plans so you can lower your monthly payments as needed. Plus, you may not save much on interest if the rates on your federal loans are close to what you’d get by refinancing.

But it’s also important to know what refinance lenders may offer in forgiveness-type opportunities. For example, some private lenders offer flexible repayment terms or forbearance in case of financial hardship. Speak with potential lenders about your concerns; they can help answer “what if?” questions so you can refinance your student loans with a full understanding of what you’re gaining and what you may be giving up.

5. Not finding a cosigner

One way to unlock the best student loan refinancing rates is to be a competitive applicant with very strong credit. That could be the case if you scored a lucrative job out of college, are free of other debt and earn a large income. But if not, you may be able to access lower interest rates by applying with a cosigner.

Your cosigner could be a parent, a partner or another person with strong credit and solid income. They should know, though, that they take on risk when cosigning a loan. If you can’t repay the loan, the cosigner is responsible for it.

Talking through expectations alongside contingency plans if, say, you were unable to pay the bill due to a job loss, can help make sure you’re both on the same page and enable you to decide if a cosigner is the right option for you.

6. Prematurely stopping payments on your old student loans

From start to finish, the process of refinancing your student loans usually takes a few weeks. In the meantime, you must continue making payments on your original loans. If you miss payments, your loan could become delinquent or go into default, which could seriously dent your credit score.

Before you stop paying your original student loan, make sure you receive confirmation from your new lender that the new loan has been issued, and set up your first payment. Log in to your old loan account to make sure the balance has dropped to $0, which confirms that your new lender has paid it off.

Once you get the green light from your new lender and are confident the old loan balance is $0, you’re ready to make payments toward the new loan only.

How to avoid student loan refinancing mistakes

Before making changes to your student loans, do your research. Thoroughly understanding how refinancing works can help you avoid the above mistakes.

As long as you’ve thought through your options, refinancing can be a smart financial move. You could simplify your monthly payments and save on interest over time.

For more debt payoff inspiration, here are some of the best tips for paying off your student loans faster.

*Rate accurate as of August 20, 2019.

Anna Davies contributed to this repor

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.