Complete Guide to Student Loan Refinancing

Find out if student loan refinancing is a good option for you.

Are you one of the 44 million Americans with an outstanding student loan? If so, did you know that you aren’t stuck with the rates and terms you have?

Percentage of students with a Bachelor’s degree who graduate with student debt

Lenders that offer refinancing are competing against each other to win your business, and you could save thousands over the course of your loan.

What does it mean to refinance a student loan?

Refinancing your student loan involves shopping around for a new loan that offers an advantage over your current one. The advantage is commonly a lower APR but could also be an attractive loan term, loan feature, or service feature.

Once you find a new and improved loan, you pay off the old loan and begin making payments to the new lender.

Student loan refinancing eligibility requirements

Wondering if you will be able to qualify for student loan refinancing? Below are some of the common requirements:

  • Must be a U.S. citizen or permanent resident.
  • A minimum amount of student loan debt (i.e., $5,000-$10,000).
  • Responsible financial history.
  • Cosigner (in some cases).
  • A degree from a qualifying college (Title IV accredited university or graduate program).
  • Proof of employment or a job offer that begins in 90 days.
  • Strong monthly cash flow.

Eligibility requirements vary from one lender to the next so you will have to check with those you are interested in. If you can’t qualify alone, many lenders allow for joint applications with cosigners.

Can you refinance federal and private loans?

What if you have a mix of federal and private loans? Can you refinance all of them or just the private loans?

It is possible to refinance both federal and private loans into one new loan. However, you would have to get approved for a loan large enough to pay them all off.

Further, before refinancing federal loans, you should understand that if you do so, you will lose the benefits that come with them (i.e., income-driven repayment plans, loan forgiveness, etc.).

The table below summarizes the loan forgiveness and repayment options available to federal and private student loans.

What is the difference between consolidating and refinancing?

You will hear the terms “student loan consolidation” and “refinancing” used interchangeably, but they actually refer to two different financial strategies.

The federal government offers a direct consolidation loan which allows you to combine multiple federal loans into one federal loan. The interest rate on the new loan will be the weighted average of the rates from the prior loans.

The purpose of the consolidation is to make your loans easier to manage, not to save you money. However, you can lower your monthly payment amount by extending the loan term, but it will cost you more in the long-term.

On the other hand, refinancing can involve consolidating multiple loans but involves a new APR which is based on the applicant’s credit and financial profile. The main purpose is to reduce the cost of borrowing for the graduate.

What should you look for in a refinancing lender?

When shopping around, look for lenders that offer the following:

Low APRs

APR stands for annual percentage rate. It is the figure used to communicate how much a student loan costs per year. The APR includes the interest rate along with other costs of borrowing such as fees and taxes.

The Truth in Lending Act (TILA) requires U.S. loan and credit card issuers to communicate the cost of borrowing as an APR. This standardization makes it easy for borrowers like you to compare the cost of various lenders.

You’ll notice that lenders often advertise their lowest possible APRs which are only available to the ideal borrower in a specific scenario. To find out the actual rate a lender will offer you requires getting prequalified. The good news is SuperMoney allows you to prequalify online with no impact to your credit score.

You can shop around from the comfort of your home and find out what several lenders will offer you. If you can get an APR lower than your current one, you can cut down on your borrowing costs. The table below shows the interest rates of federal student loans from 2006 to 2018.

Various loan terms

Lenders vary in the loan terms they will offer you. Some offer repayment periods from 3 to 5 years, while others offer them from 5 to 20 years.

Make sure the term of your loan suits your needs. If the term is too short, your monthly payments may be unaffordable. If the term is too long, it could increase the overall cost of the loan.

Forbearance and forgiveness options

What happens if you face a financial or personal difficulty and can’t pay your monthly payments? Will you have protection if you become unemployed? Further, are you still held liable if you pass away or become permanently disabled?

It’s good to know how a lender handles these situations before you face them. Some will be more flexible and accommodating than others so be sure to check their policy and what other borrowers have to say about their customer service.

Good track record

Lastly, take note of a lender’s reputation. Most will publish statistics on how much they save customers on average, both monthly and overall. Plus, read reviews from past customers to find out how satisfied they were with all aspects of the experience.

Keep all of these factors in mind when vetting lenders to ensure you are happy with your new loan.

Fixed vs. variable rates

How do you decide on your interest rate type when it comes to refinancing your student loan? Should you go with a variable or fixed interest rate? Let’s take a look.

Rick Castellano, vice president of corporate communications at Sallie Mae, says, “Each situation is different, so it really comes down to the student’s preference. Fixed rate loans may be more predictable, but the rates tend to be higher so you’ll pay more.


There is a lot to love about fixed interest rates, but they are not always the best option. Here is a list of the benefits and the drawbacks of fixed interest rates.

  • If rates get lower, then you’re stuck.
  • You don’t have the opportunity to take advantage of the market when it’s doing well.
  • If rates stay low and get lower, you’ll save money over the life of the loan.
  • If rates are higher than you’d like right now, they may go down in the future.
  • Provides variation in your budget, which could come in handy when rates are low.

Variable rates may be less and could mean lower total student loan costs, but the rate can rise or fall depending on the market index. At Sallie Mae, during the application process, we lay out both options and help estimate monthly payments with each.”


There is a lot to love about fixed interest rates, but they are not always the best option. Here is a list of the benefits and the drawbacks of variable interest rates.

  • If rates stay low and get lower, you’ll save money over the life of the loan.
  • If rates are higher than you’d like right now, they may go down in the future.
  • Provides variation in your budget, which could come in handy when rates are low.
  • If interest rates shoot up, you’ll end up owing more that month.
  • If interest rates get higher and stay up, you’ll end up paying more over the life of the loan.
  • No stability in your budget.

With these pros and cons in mind, let’s look at an example.

Loan payments based on interest rates

You can hear a number thrown out like 8%, but it’s difficult to envision what that means in terms of repayment. Let’s look at an imaginary student loan for $20,0000, with a 10-year term and varying interest rates.

As you can see, if your loan has a 5% interest rate over the life of the loan, you could save $16,255.72 in interest (if the other option was 17%). You’d also pay $135 less each month.

When you go to refinance your loan, remember this chart. If you can lock in an interest rate 5% or lower, a fixed rate loan is a pretty safe option. If rates are above 7%, consider risking a variable rate.

When should you refinance a student loan?

Now that you know the basics of student loan refinancing, when should you do it?

Well, the short answer is, any time that you can save. But here are some situations when you are more likely to get a lower rate.

1. When you get a job.

Once you graduate and land a job, you will be eligible to apply for refinancing. This is a good time to shop around and ensure you have the lowest rate possible.

2. If your credit score has increased.

When your credit score increases, you can qualify for better rates. Therefore, if you’ve been paying your bills on time and managing your credit well, keep tabs on your credit score. When it goes up, especially to a new credit rating (i.e., fair to good, good to excellent, etc.), check the refinancing rates.

3. When interest rates drop.

Private lenders base their interest rates on indexes, most commonly the London InterBank Offered Rate (LIBOR) or the prime rate. The indexes are closely correlated with the federal funds rate. Being so, keep an eye on the market to see when the rates are going down. When they do, apply to see if you can lock in a good deal.

4. If your income increases.

Lenders often look at your monthly and annual income when you apply for a loan so an increase in income can improve the APR you qualify for. If you get a raise, wait a few months and then apply with your new income stats.

These are a few of the situations when it’s a good idea to shop around for a new student loan. However, you can periodically check in with lenders just to see if you can qualify for a better deal. Most let you apply without hurting your credit score, so you have nothing to lose.

Read more about when to refinance student loans.

FAQ on Student Loan Refinancing

Should I refinance my student loan?

If you have multiple student loans, a good paying job, and decent credit (or a cosigner), refinancing your loans is probably the right answer. However, if you rely on one of the federal programs, such as income-based repayment, it’s best to stick with that until you’re in a stable financial place.

How soon can I refinance my student loans?

You may want to refinance private student loans as soon as you qualify for a lower interest rate. You generally must wait until after you finish school to refinance. Don’t refinance federal student loans if you’re making payments on an income-driven repayment plan and/or are pursuing a federal loan forgiveness program.

Can I refinance my student loans after consolidation?

If you have previously consolidated your student loans—whether through the government or a private lender—you can still refinance your student loans if you are eligible.

Does refinancing student loans hurt credit?

Refinancing your student loans doesn’t typically cause a great deal of damage to your credit. If you move forward with a full application will a hard credit check be performed. This hard inquiry could impact your credit score, but typically only by five points or fewer. Of course, if you submit multiple full applications, your credit score could take a bigger hit.

How often can you refinance a student loan?

Student loan borrowers can refinance their student loans as many times as they would like, so long as their credit and income remain strong. Lenders do not typically put restrictions on how often loans may be refinanced, although borrowers may need to move to a different lender if a refinance was recently completed.

How to refinance your student loan

The process of refinancing entails renegotiating the terms of an existing student loan or multiple student loans into a brand new loan. You should shop around for your APR and repayment terms, including the length of repayment, with at least three lenders.

To find the best terms at the lowest rates, compare student loan refinancing companies now.


Compare the pros and cons of refinancing your student loans to make a better decision.

  • You could lower your interest rate and save money.
  • If you have a co-signer, you can release them from liability.
  • You’ll only need to make one payment every month.
  • Flexible payment terms.
  • Both federal and private student loans are eligible.
  • Can cost more in the long run if you extend the payment term too much.
  • Loss of grace period.
  • You’ll miss out on loan forgiveness, cancellation programs, and income-based repayment plans offered by federal loans.
  • Requires a credit check.

How to choose a student loan refinancing lender

  1. Find out your current balance, rates, and years left to repay your student loan.
  2. See what rates you qualify for.
  3. Check expert and consumer reviews on your top choices.

Find out now how much you could save with a refinance. Start with the lenders below.

How do you qualify for a lower interest rate?

There isn't a one-size-fits-all rule but you should qualify for a lower rate if you meet these requirements:

  • A reliable source of income.
  • In good standing with current loans.
  • A good credit score and payments history.
  • A degree.
  • A good employment history.
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