How to Refinance Graduate Student Loans

Ben Luthi

If you’ve recently finished graduate school, you may be wondering what to do with all the debt you’ve incurred to achieve your goal. The average student debt for graduate students, including both graduate and undergraduate loans, is $71,300, according to Saving for College.

Because graduate students tend to have much higher student loan balances and even higher interest rates than undergraduate students, they’re prime candidates for student loan refinancing.

But when does it make sense to refinance grad school loans, and how do you do it? This comprehensive guide will tell you everything you need to know.

What does it mean to refinance graduate student loans?

Student loan refinancing is a process that involves replacing one or more existing loans with a new one through a private lender. You can refinance federal student loans, private student loans or even both together.

When you refinance grad school loans, you’ll stop making payments on your old loans and switch them to the new loan.

There are many reasons to consider refinancing your student loans, but there are also some potential drawbacks to keep in mind. It’s important to understand both to ensure the best path forward.

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What types of graduate student loans can be refinanced?

You can refinance any type of graduate student loan with a private lender. That includes Direct Unsubsidized Loans, Direct PLUS Loans and graduate private student loans.

Some lenders may also offer specialized student loans for various graduate programs. That can include law school loans, MBA loans, medical school loans, and more. These loan types are also eligible to be refinanced.

As a recent graduate student, you may be particularly interested in refinancing because there’s a much higher potential for you to save as you pay down your student loan balances.

What are the average interest rates for graduate student loans?

One of the biggest reasons you may want to refinance Grad PLUS Loans or other types of graduate student loans is because of the savings. In fact, 76% of people who have refinanced their student loans say their top reason was to obtain a lower interest rate.

Graduate student loans are more expensive than undergraduate student loans. To give you an idea of how much, Direct Unsubsidized Loans charge 4.3%, and Direct PLUS Loans charge 5.3% in the 2020-21 school year. In contrast, undergraduate Direct Subsidized and Unsubsidized Loans charge just 2.75%.

In other words, if you took out Direct PLUS Loans, you’re paying almost double the amount of interest as someone with the same balance in undergraduate loans.

With private student loans for graduate students, the cost can be even higher. Depending on your creditworthiness when you first took out the loans and the type of interest rate you chose, it could be under 2% or upwards of 10%.

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Why refinance graduate student loans?

There are many reasons to consider refinancing your graduate student loans.

Refinancing can save you money

Figuring out how to pay off grad school loans can be challenging because you not only have more debt, but you’re also paying higher interest rates on your debt. With student loan refinancing, you could potentially qualify for a lower interest rate.

To give you an idea of how that would impact your repayment plan, let’s say you have $71,300 in student loan debt with an average interest rate of 6.5% and a 10-year standard repayment plan.

If you managed to refinance the full balance with the same repayment term and a 4.5% interest rate, you’d save a whopping $8,479 over 10 years. What’s more, your monthly payment would drop from $810 to $739, freeing up some cash flow for other financial goals and needs.

Refinancing can provide you with flexibility

You can change your repayment plan with federal student loans, but there isn’t much flexibility with your options. The standard repayment plan is 10 years, but there’s no way to get on a plan with a shorter repayment timeframe.

Conversely, you can extend your repayment term through an income-driven repayment plan, but repayment terms are fixed with those plans — you’ll either get 20 or 25 years, depending on which plan you choose.

With student loan refinancing, however, lenders typically offer a wide range of options between five and 20 years. If you can afford to pay off your debt faster, getting on a shorter repayment term will save you both time and money. But if you need a lower monthly payment, you can adjust the term in a way that works best for you.

And don’t forget that with all of this, you still may get a lower interest rate.

Refinancing can make for a better experience

If you have more than one lender or loan servicer for your student debt, refinancing all of your loans into one can simplify the repayment process. What’s more, refinancing allows you to choose your lender based on what’s most important to you — for federal loans, the Department of Education assigns your loan servicer to you when your loans are disbursed.

But some private lenders can provide better customer satisfaction than some federal loan servicers. They may also provide additional features that can add value, such as unemployment protection, interest rate discounts, promotions on other financial products and more.

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When not to refinance graduate loans

While there are some clear benefits to refinancing your graduate student loans, there are also reasons to avoid it. Here’s where it might not make sense to refinance Grad PLUS Loans or other types of graduate student loan debt.

Your income or job situation is murky

If you have federal student loans, one of the biggest benefits is the ability to get on an income-driven repayment plan. The monthly payment on $71,300 worth of debt over 10 years is incredibly high, and while graduate students typically earn more than undergraduate students out of the gate, that doesn’t mean you can afford your student loan payments.

If you’re struggling to keep up with your payments, getting on an income-driven repayment plan may be a better option than refinancing, at least in the short term. There are four federal income-driven repayment plans, and your monthly payment could range from 10% to 20% of your discretionary income.

The same goes if you’re not sure about your job security. Once you refinance your federal loans, you can’t reverse the process later. So unless you’re confident in your ability to make your new monthly payments, stick with what you have.

And, of course, you can always consider refinancing down the road if your income or job situation changes for the better.

You qualify for federal loan forgiveness

If you’re eligible for the Public Service Loan Forgiveness (PSLF) program or Teacher Loan Forgiveness program, it may not make sense to refinance your student loan debt — at least not all of it.

With PSLF, you qualify if you work full-time for a government agency or eligible not-for-profit organization for 10 years while you make 120 qualifying monthly payments. Once you complete the process, you’ll receive forgiveness of your full balance, which can be tens of thousands of dollars.

Teacher Loan Forgiveness, on the other hand, caps forgiveness at $5,000 or $17,500, depending on which subjects you teach. If you’re working toward forgiveness in this program, which requires five consecutive years working in a low-income school or educational service agency, you may choose to refinance a portion of your debt but not all of it.

Your credit and income aren’t ready

Private student loan refinance lenders require a credit check when you apply for a loan. And while the minimum credit score to get approved is typically in the mid-600s, it might not be enough to get you a lower interest rate than what you’re paying right now.

What’s more, lenders will also consider your income, and if your starting salary after graduate school is less than stellar, it might not be enough.

To give you an idea, the average credit score and salary for student loan borrowers who refinance their debt are 774 and $98,156, respectively. That doesn’t mean you have to meet those requirements to get approved. But again, the higher your credit score and income, the better your chances of getting approved with favorable terms.

If you’re not where you want to be but still want to refinance, one solution is to ask a parent to cosign a loan with you. With a creditworthy cosigner, you could get the terms you’re looking for because they’re effectively agreeing to make the monthly payments if you don’t.

Before you enlist the help of a cosigner, though, make sure you both understand the process and responsibilities associated with the arrangement.

How student loan refinancing saves you money

As previously mentioned, student loan refinancing can save you money in a couple of ways. For starters, getting a lower interest rate can save you both in terms of monthly payments and in total interest charges.

The other way student loan refinancing can save you money is through a shorter repayment term. Let’s take our previous example to illustrate: again, you have $71,300 in student loan debt with a 6.5% average interest rate and a 10-year repayment term. 

If you were to get the 4.5% interest rate through refinancing and you choose a seven-year repayment term instead of 10 years, your monthly payment would increase from $810 to $991, but you’d save $13,901 in interest — that’s $5,422 more than you’d save if you kept the same repayment term.

Something to keep in mind, though, is that if you combine a lower interest rate with a longer repayment period, you might not save much, if at all.

With that same example, let’s say you’re able to refinance and get a 4.5% interest rate, but you also choose to extend your repayment term to 15 years. In this scenario, your monthly payment would drop from $810 to $545, but the total interest paid will end up being $1,028 more than on the original loan.

Who is eligible for student loan refinancing?

Minimum requirements typically aren’t too difficult to meet. With creditworthiness, for instance, having a FICO score in the mid-600s can be enough to get approved. And on the salary side of things, $30,000 is a common minimum.

Of course, different lenders have different criteria, so you’ll want to check with the lender directly to get an idea of what to expect.

Just because you meet the minimum requirements, though, it doesn’t mean you’ll get the terms you want. In some cases, it may make sense to wait and work on building your credit and increasing your salary before you refinance your student debt.

In addition to these requirements, others may include being a U.S. citizen or permanent resident and being at least the age of majority in your state of residence — most recent graduate students shouldn’t have a problem with that second one.

In some cases, you may also be required to be the borrower on the original student loans. However, some lenders allow parents to transfer their parent student loan debt to their child if all parties agree.

How to refinance student loans: Step-by-step process

As you work out how to pay off grad school loans, refinancing may be one way you choose to achieve your goal. If that’s the case, here are the steps you’ll want to follow to refinance your student loan debt.

1. Think about your goals

Before you even start looking at lenders and interest rates, it’s important to establish why you want to refinance your student loans. For example, are you just looking to get a lower interest rate? Or are you hoping to pay off your debt sooner or extend your repayment to reduce your monthly payment?

Think carefully about your reasons for considering student loan refinancing because they’ll help you determine the best lender and offer for what you want to do.

2. Compare student loan refinance interest rates

Every student loan refinance company has its own set of interest rates and how it determines which rate you qualify for. So it’s crucial that you take the time to shop around and compare rate quotes from several lenders — if you just go with the first offer you see, you could end up leaving money on the table.

The good news is that student loan refinance companies typically let you get prequalified before you submit an official application. This process requires a soft credit check and no commitment. With the soft inquiry, you can get an initial quote based on what the lender sees on your credit reports.

Note, however, that this is just a quote. You’ll get a final offer from a lender once you’ve submitted a full application, and it runs a hard credit check to get the full scope of your credit history.

But going through this process with multiple lenders individually can be a pain. Instead, consider using Purefy’s rate comparison tool to shop around. The tool essentially lets you get prequalified with multiple lenders at the same time. What’s more, you’ll be able to compare all of the offers side by side.

One thing to keep in mind when comparing interest rates is that you may see two types: variable and fixed. While variable interest rates are typically lower, they can increase over time as market rates change. And because we’ve recently seen record-low fixed student loan interest rates, the chances of them increasing again in the future are high.

As a result, it’s usually best to pick a fixed interest rate.

3. Pick a lender

After you’ve compared interest rates, you may find more than one offer that’s either the same or similar. At this point, you can compare other features, such as repayment options, customer satisfaction and other things that could impact your experience.

If you’re planning to add a cosigner to your loan, look into which lenders offer a cosigner release program. With these programs, you may be able to remove your cosigner from the loan once you make a certain number of consecutive on-time payments and you meet the lender’s credit requirements on your own.

Once you’ve vetted all the offers, pick the one that’s best suited to your needs.

4. Submit an application

Visit the lender’s website directly or click through from the Purefy rate comparison tool to be directed to its website, where you can start your online application.

You’ll typically be asked to provide personal information, including your full name, date of birth, Social Security number and an email address and phone number. You’ll also need to share some details about your student loans, including the payoff amounts and the company that’s servicing them. You can typically get the payoff amounts from your loan servicer.

You’ll also usually need to share some documentation for your income — examples include a pay stub, W-2 form and bank statements — and your identity, which is typically just a copy of your government-issued photo ID. Check with your lender to find out exactly which documents you need before you start the application, so you can have them on hand.

Once you hit “submit” on your application, the lender will run a hard credit check, and either decline your application or give you a firm offer based on your creditworthiness. In a lot of cases, the terms will be roughly the same as the initial quotes. But if they’re significantly worse, you may want to check with some other lenders to see if you can do better.

5. Sign the documents and start saving

If you decide to accept the lender’s offer, you’ll need to sign the loan agreement to complete the process. You can typically do this electronically. Once you finish the process, the lender will use the loan funds to submit payment to your existing loan servicers to pay off your loans.

Until you get a notification that the process is complete, though, continue to make monthly payments on your existing loans to avoid late payments. Once your new loan is active, set up automatic payments — you’ll typically get an interest rate discount if you do — and make all of your payments on time going forward.

If you have a cosigner on your loan, start taking steps to improve your credit and increase your income, so you can get a cosigner release or refinance again in the future on your own, so they’re no longer responsible for the debt.

The bottom line

Figuring out how to pay off a large student loan debt burden can be stressful. There are many paths you can take to achieve your goals with your student loans, and it’s important to research all of them.

Student loan refinancing is one of the best ways to refinance graduate student loans because it can give you the chance to cut your interest rate and monthly payments. Refinancing can also help you by giving you additional flexibility with your payments that you might not get with the federal government.

However, refinancing isn’t for everyone. Take your time to consider all of your options and weigh both the benefits and drawbacks of each to determine how to proceed. If you have federal student loans, it’s especially important to consider whether you qualify for student loan forgiveness or you might need an income-driven repayment.

If you’ve decided that refinancing is right for you — or you just want to do your due diligence — consider using Purefy’s Compare Rates tool to get an idea of what you might qualify for. In addition to rates, you’ll also want to compare other features that each lender offers.

Once you’ve decided how to pay off your large student loan debt, whether it’s through refinancing or some other way, it’s important that you take the steps necessary to find the absolute best option for you.

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4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 01/01/2023. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

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Fixed rates range from 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 5.09% APR to 8.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR 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. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

Earnest Rate Disclosure

2 Earnest Rate Disclosure:

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.72% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 4.39% APR to 9.19% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 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%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

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Fixed Rate Loan Terms: 5 years/60 monthly payments, 7 years/84 monthly payments, 10 years/120 monthly payments, 15 years/180 monthly payments, or 20 years/240 monthly payments. Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. This rate is expressed as an APR. Fixed APRs range from 6.94% to 11.58% APR [low to high range with 0.25% auto-debit rate reduction]. Rates are subject to change without notice. Fixed rates will not change during the term. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan including a 0.25% auto-debit rate reduction. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. All estimates are based on information provided by you and are for informational purposes only, accuracy is not guaranteed and may not reflect actual rates or savings and do not constitute an offer of credit. Your actual rate, payment and savings may be different based on credit history, actual interest rate, loan amount, and term, including your cosigner [if applicable]. If applying with a cosigner, we use the higher credit score between the borrower and the cosigner for approval purposes. All loans are subject to credit approval.

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