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What Goes Into a Student Loan Refinance Rate and How Do They Change?

Kat Tretina
what-goes-into-student-loan-refinance-rate
what-goes-into-student-loan-refinance-rate

Borrowers have a tremendous amount of student loans. It’s estimated that the total federal student loan debt is at $1.6 trillion, and private student loan debt exceeds $123 billion.

With so much debt, many borrowers are turning to student loan refinancing to lower their interest rates and repay their loans. But how does student loan refinancing work, and how are student loan refinance rates determined? Here’s what you need to know before refinancing your loans.

How does student loan refinancing work?

Student loan refinancing is a process where you work with a private lender to take out a loan for the amount of your current education debt. You can refinance federal or private student loans and qualify for a lower interest rate, different repayment term, and even a lower monthly payment. Refinancing your loans can help you save money over time or pay off your loans faster.

How are student loan refinance rates determined?

When thinking about refinancing, it’s important to know that rates can vary a great deal from lender to lender. And, not all borrowers will qualify for the lowest advertised rates. Lenders determine your individual interest rates based on the following five factors:

1. Interest rate type

What are student loan refinance rates, and how do they work? When you refinance your student loans, you have the option of choosing variable or fixed interest rates.

Variable interest rates tend to start lower than fixed rates. However, they can fluctuate over the life of your loan, impacting your monthly payments and how much interest accrues on your loan.

Fixed interest rates are usually higher than variable rates, but they’ll never change, and your payments will never increase.

Variable rates are best for borrowers who want to pay off their loans as quickly as possible. They can take advantage of the lower initial rate to accelerate their debt repayment and pay off the loan before the rate increases too much.

For borrowers who don’t want to worry about market changes, fixed interest rates make more sense since you’ll have a set monthly payment.

2. LIBOR

When establishing variable interest rates, student loan refinancing lenders look to the London Interbank Rate (LIBOR). The LIBOR interest rate is the rate at which banks are willing to lend to one another.

The LIBOR isn’t the rate you’ll pay when you refinance your loans. Instead, refinancing lenders use it as an index that guides their rates. Lenders will typically charge you the LIBOR rate plus a percentage for their margin.

For example, the three-month LIBOR rate is 0.206% as of November 23, 2020. If a lender’s rates are the LIBOR plus a 2% margin, your interest rate would be 2.206%.

The LIBOR rate is constantly changing, so your rate can increase or decrease based on the LIBOR’s performance.

3. Credit score

Your credit score has a significant impact on what interest rates you’ll qualify for when you refinance your student loans. Lenders tend to reserve the best student loan refinance rates for borrowers who have an excellent credit score, meaning a score between 800 and 850.

Credit Score RangeRatingPercentage of Population
300 – 578Very Poor16%
580 – 668Fair17%
670 – 739Good21%
740 – 799Very Good25%
800 – 850Excellent21%

If you have a lower score, you might still qualify for a loan, but you will likely have to pay a higher interest rate. To improve your loan application, focus on boosting your credit score. Make all of your monthly payments on time, pay down existing debt, and limit new credit applications.

4. Cosigner

If you have less-than-perfect credit or insufficient income, it can be difficult to qualify for a loan with a competitive interest rate on your own. However, some lenders allow you to add a cosigner to your application. A cosigner — someone with good to excellent credit and a steady source of income — applies for the loan with you, sharing responsibility for its repayment.

By adding a cosigner to your application, you become a more attractive candidate for a loan. Lenders are more likely to approve you and give you a lower rate than if you applied by yourself.

5. Loan term

The lowest interest rates are typically associated with shorter loan terms. If you want the best possible rate, opt for a loan term of five to eight years; you’ll get a lower rate than if you applied for a loan with a term of 10 to 20 years. Plus, you’ll pay off your loans earlier, eliminating that burden from your life.

When to apply for student loan refinancing

If you’re trying to decide when the best time to refinance your loans is, you should know that current refinance rates are at historic lows.

Rates can vary from lender to lender, so it’s a good idea to comparison shop before submitting an application. Purefy’s Compare Rates tool makes the process quick and easy; just fill out one simple form, and you’ll get quotes from top refinancing lenders without impacting your credit score.

Keep in mind that there’s no limit on how many times you can refinance your loans. If you refinance now and your credit improves or interest rates drop later on, you can refinance your loans again to take advantage of the lower rates.

The 4 Best Companies to Refinance Student Loans

Our Top-Rated Picks for 2022 Offer Low Rates and No Fees

efli-lender
No Maximum Loan Amount

Fixed Rate

5.08% – 8.04% APR 4

Variable Rate

4.78% – 8.49% APR 4
98% of surveyed customers would recommend SoFi to a friend

Fixed Rate

4.49% – 8.99% APR 3

Variable Rate

5.09% – 8.99% APR 3
earnest-logo
Precision Pricing — Pick Your Monthly Payment

Fixed Rate

4.96% – 8.99% APR 2

Variable Rate

4.99% – 8.94% APR 2
Loans Available in All States but Maine and Oregon

Fixed Rate

6.94% – 11.58% APR 5

Variable Rate

Not Offered
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ascent student loans

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Ascent Rate Disclosure

Ascent’s undergraduate and graduate student loans are funded by Bank of Lake Mills, Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentStudentLoans.com/Ts&Cs.

Rates are effective as of 5/1/2023 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized back account each month. For Ascent rates and repayment examples please visit: www.AscentStudentLoans.com/Rates.

1% Cash Back Graduation Reward subject to terms and conditions. Click here for details.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

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.

ISL Rate Disclosure

5 Iowa Student Loan Rate Disclosure:

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.

Earnest Rate Disclosure

2 Earnest Rate Disclosure:


Actual rate and available repayment terms will vary based on your income. Fixed rates range from 5.21% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.24% 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 9.13% 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 9.21%. For loan terms over 15 years, the interest rate will never exceed 9.24%. 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.

Advertiser Disclosure:

THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

Earnest Rate Disclosure

Rates displayed include the 0.25% Auto Pay discount. You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment from a checking or savings account. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.70% APR to 15.15% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.24% APR to 15.55% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination 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. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. 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. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Nine-month grace period is not available for borrowers who choose our Principal and Interest Repayment plan while in school.

Earnest clients may skip one payment every 12 months. Your first request to skip a payment can be made once you’ve made at least 6 months of consecutive on-time payments, and your loan is in good standing. The interest accrued during the skipped month will result in an increase in your remaining minimum payment. The final payoff date on your loan will be extended by the length of the skipped payment periods. Please be aware that a skipped payment does count toward the forbearance limits. Please note that skipping a payment is not guaranteed and is at Earnest’s discretion. Your monthly payment and total loan cost may increase as a result of postponing your payment and extending your term.

Loan Eligibility criteria: Eligible students must: 1) For college Freshmen, Sophomores and Juniors, attend, or be enrolled to attend, a Title IV school full-time. For college Seniors and Graduate students, attend, or be enrolled to attend, a Title IV school at least half-time; and 2) be pursuing a Bachelor’s or Graduate degree. Earnest private student loans are subject to credit qualification, completion of a loan application, verification of application information, self-certification of loan amount, and school certification.

Responsible borrowing tip: Explore all scholarship, grant and federal options before applying for a private loan.

Earnest Private Student Loans are made by One American Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104.

Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

Advertiser Disclosure:

THIS IS AN ADVERTISEMENT. YOU ARE NOT REQUIRED TO MAKE ANY PAYMENT OR TAKE ANY OTHER ACTION IN RESPONSE TO THIS OFFER.

ELFI Rate Disclosure

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 04/01/2023. 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.

ELFI Rate Disclosure

Education Loan Finance is a nationwide student loan provider offered by Tennessee based SouthEast Bank. ELFI is designed to assist students financially with receiving their education. Subject to credit approval. See Terms & Conditions. Interest rates current as of 04/01/2023. Variable interest rates may increase after closing but will never exceed 18.00%. Interest rates may also differ from the rates shown above. The term of your loan, financial history, and other factors, including your cosigner’s (if any) financial history can affect the interest rate. For example, a 10-year loan with a fixed rate of 7% would have 120 payments of $11.61 per $1,000 borrowed. Rates are subject to change.

College Ave Rate Disclosure

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. If a payment is returned, you will lose this benefit. Variable rates may increase after consummation.
Minimum loan amount $1,000, as certified by your school and less any other financial aid you might receive.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 03/31/2023. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

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