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When, Why, and How to Refinance Your Student Loans

Ben Luthi

Student loan refinancing has the potential to simplify your student debt repayment process and save you money along the way. Depending on your situation and your approach, the process could cut thousands of dollars and months or even years off of your term.

But student loan refinancing isn’t for everyone, especially if you have federal student loans. Before you start submitting applications, it’s crucial that you understand both the advantages and disadvantages you’ll face during the process.

Here’s what you need to know about how to refinance student loans, when to refinance student loans and why.

What is student loan refinancing?

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

For example, let’s say you have $20,000 in student loan debt across five federal loans and another $5,000 in private student loan debt. With the process of student loan refinancing, you can get one new loan to pay off all six, essentially consolidating all of your accounts and payments into one.

As the cost of a college education has increased faster than inflation and wage growth, it’s becoming increasingly difficult for college graduates to be able to afford to make their monthly payments. And while the Department of Education offers a consolidation program for federal loans, there’s no way to get a lower interest rate.

Here are some other ways student loan refinancing and federal loan consolidation differ:

  Student loan refinancing Federal loan consolidation
Available for federal loans Yes Yes
Available for private loans Yes No
Requires a credit check Yes No
Can get a lower interest rate Yes No
Can lower your monthly payment Yes Yes
Can opt for a shorter repayment term Yes No
Can request a longer repayment term Yes Yes
Maintains access to loan forgiveness programs and income-driven repayment plans No Yes
Offers deferment and forbearance Usually Yes

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Why refinance student loans?

Refinancing student loans can be an excellent choice, or it can be a poor one. The answer depends on your current situation, your goals and your preferences.

Refinancing student loans can help you take control of your student loan debt repayment plan, but it doesn’t solve everything. Here are some benefits and drawbacks to keep in mind.


  • You can save: If you qualify for a lower interest rate than what you’re currently paying, it could save you hundreds or even thousands of dollars.
  • You can pay off your loans early: You don’t need to refinance to pay off your debt early — you could simply just make extra payments. But if it’s easier for you to pay more without thinking about it, refinancing with a shorter term will help you do that.
  • You can lower your monthly payment: If you’re looking to make your monthly payment more affordable but don’t want it to be tied to your income — which means your payment will go up as your income grows — refinancing with a longer repayment term can help. It can also reduce your debt-to-income ratio, which is a huge factor that mortgage lenders consider when you want to buy a house.
  • You can pick your lender: If you have federal student loans, you didn’t get the chance to pick your loan servicer — they were assigned to you automatically when your loans were disbursed. In some cases, you may have more than one loan servicer, which makes things unnecessarily complicated. If you’ve had a bad experience with your current lender or servicer, refinancing empowers you to pick a new lender based on the features that matter most to you.
  • You can increase your cash flow: If your monthly payment goes down, that gives you more cash flow to put toward your other financial goals or even your lifestyle.
  • You may get customer service: Because there are so many different student loan refinancing options available, you’ll typically get a better customer experience versus a federal loan servicer that’s contracted to service federal loans and doesn’t have any real competition. In fact, many federal loan servicers have been sued and fined by federal regulators due to their poor adherence to the rules.
  • Your life may get easier: If you have student loans with more than one servicer or lender, that means multiple payments to keep track of every month. If you refinance your debt, you’ll combine all of them into just one payment, making the repayment process simpler.

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On the flip side, student loan refinancing isn’t the right fit for everyone. Here are some potential pitfalls that can make it less appealing for some:

  • You’ll lose access to federal benefits: If you’re a federal student loan borrower, refinancing your debt with a private lender means you’ll no longer qualify for student loan forgiveness, some federal student loan repayment assistance programs and income-driven repayment plans. If you don’t anticipate needing any of these, you won’t miss out on much. But if you’re working toward forgiveness or you want an income-driven repayment plan just in case you need it, consider staying where you are.
  • It can be difficult to qualify: According to Purefy data, the average income for people who refinance is $98,156, and the average FICO credit score is 774. That’s not to say you can’t get approved with a lower income or credit score, but it can be tough to make it worth it unless your financial situation is in stellar shape. You can apply with a cosigner to improve your odds, but it can be difficult to find someone willing to take on that responsibility.
  • You can’t go back: Once you refinance federal student loans, you can’t convert your new private loan back into a federal loan. So before you pull the trigger and apply, it’s crucial that you know for sure that refinancing is the best decision for you.
  • You may end up paying more: If you opt for a longer repayment term to reduce your monthly payment, you’ll likely end up paying more interest over the life of the new loan, even if your interest rate is lower. That’s because the loan is taking longer to pay off, so there’s more time for interest to accrue.

  • Your interest rate may go up over time: Federal student loans are only offered with fixed interest rates, which means your rate will remain the same for the life of your loan. If you refinance with a variable interest rate, though, your rate will change over time based on current market rates. Variable rates can be appealing because they usually start off lower than fixed rates, but they’re not suitable for most borrowers.
  • The savings may be negligible: Depending on how much of an interest rate decrease you get and the new repayment term, you may not actually save much money. Make sure you use an online student loan refinancing calculator to ensure the savings are worth the potential drawbacks.

When should you refinance student loans?

The best time to refinance student loans can vary from person to person. Because a high credit score and annual income will get you the best results, it’s a good idea to take some time to work on building your credit before you apply.

Depending on your career choice, you may start earning a solid income right out of the gate. But in many cases, it may take some time to get to a good spot.

Here are some other key indicators that show that you might be ready to refinance your student loans:

You have job security

If you have federal student loans, refinancing them will cause you to lose your access to income-driven repayment plans. This means that if you lose your job, you won’t be able to get a reduced monthly payment with a private lender.

And while many offer deferment and forbearance, they’re generally short-term solutions. If you have job security, it means you’ll have fewer concerns about not being able to make your payments.

Your credit is in good shape

The higher your credit score, the better your chances of qualifying for favorable terms. If you’ve had the chance to start building credit while you were in college or even before that, you may not need to wait long to get to where you need to be.

But if you’re just starting to build credit now, it can take some time to establish enough of a positive history to get approved.

You have a cosigner

If your credit isn’t quite there yet, but you have a creditworthy cosigner willing to apply with you, it may be better to apply now rather than wait. Some lenders even offer a cosigner release program, which allows you to remove your cosigner from your loan once you’ve made a certain number of payments and your credit has improved enough to qualify on your own.

You’re not working toward loan forgiveness or repayment assistance

The federal government offers two forgiveness programs, one for teachers and another for people who work for government agencies — from federal to local — or eligible not-for-profit organizations. If you think you qualify for one of those, it may not be a good time to refinance.

The same goes for if you’re eligible for a repayment assistance program, such as ones offered through the military, the Health Resources and Services Administration and other government agencies. Even some states offer these, but you typically can’t get help with private loans.

You’re a parent whose child has graduated

It’s not uncommon for parents to take out loans on behalf of their children in school. But once they graduate, you may be able to transfer the debt to your child through some lenders. Just make sure they’re on board, and their credit and income are in a good enough place to get approved. You may even need to cosign, which doesn’t remove the debt from your credit report, but it’s a step in the right direction.

You want to combine student loans with your spouse

PenFed Credit Union offers a Spouse Loan, which allows you to combine your student loan debt with your spouse. This can be a good option if one spouse has a much higher income or credit score than the other. Instead of two separate student loan balances, you’ll have just one between the two of you.

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Who is eligible for student loan refinancing?

The eligibility criteria can vary from lender to lender. However, in general, you may be able to get approved if your credit score is in the mid-600s and your income is at least $30,000.

Lenders will also look at your debt-to-income ratio, which is the percentage of your monthly income that goes toward debt payments. For example, let’s say you earn $5,000 per month before taxes and you have the following debt obligations:

  • Mortgage: $1,200
  • Student loans: $350
  • Auto loan: $225
  • Credit cards: $140

In total, you pay $1,915 toward debt every month, which amounts to roughly 38% of your income. You’ll generally want a debt-to-income ratio below 50%, but again, meeting that requirement won’t guarantee approval.

And, of course, you may not need to meet all of these requirements if you have a cosigner who does. Just keep in mind that when someone cosigns a student loan refinance, they’re equally responsible for making payments if you don’t. The debt will also show up on their credit report, so their credit score can dip if you miss a payment, and it will count toward their debt-to-income ratio, too.

The good news is that the top student loan refinance lenders allow you to get prequalified before you submit an application. This process involves a soft credit check, so there’s no negative impact on your credit score. But it gives the lender enough information to give you an idea of whether you qualify and what the terms would be. These details aren’t finalized until you submit an official application and the lender runs a hard inquiry on your credit reports, but it can still give you an idea of whether it’s a good fit for you.

How do I refinance student loans?

The process of refinancing your student loans is fairly straightforward, but if you’re not careful, you could miss out on an important step. Here’s how you can approach refinancing your student debt.

1. Determine your student loan payoff goals

The very first thing you’ll want to do is to think about what you want to do with your student loans. For example, consider whether you want to:

  • Pay them off early
  • Cut your interest rate
  • Extend your repayment term to drop your monthly payment
  • Work with a lender that’s a better fit for you
  • Consolidate your monthly payments to simplify your process

You’ll also want to consider whether you’re eligible for student loan forgiveness or repayment assistance and if that’s how you want to eliminate your debt over time. If that’s the case, refinancing may not be for you. Otherwise, understanding what your goals are can help you find the right approach to the refinancing process.

2. Compare student loan refinance rates

Each lender has its own set of interest rates and criteria for determining eligibility. As such, it’s absolutely critical that you take time to shop around and compare rates from multiple lenders before you submit an application.

In other words, avoid the urge to go with the first offer you see, even if you got a letter in the mail or the bank or credit union you do your regular banking with offers refinancing.

Again, getting prequalified with these lenders doesn’t guarantee you’ll get those terms. But it can give you an excellent view of which lenders offer the best terms.

That said, getting prequalified with multiple lenders individually can be time-consuming. To save time and compare your options more easily, consider using Purefy’s rate comparison tool. Go through the prequalification process like you would with an individual lender, and Purefy will provide rate quotes from multiple lenders in one place.

As you compare rates, it’s important to make sure that you’re comparing apples to apples. Note whether each lender is offering fixed rates or variable rates. In most cases, it’s better to go with a fixed-rate loan, even if the variable-rate option looks cheaper. That way, you don’t have to worry about your rate going up over time.

3. Pick your best option

As you go through the process of comparing student loan refinance rates, you’ll also want to consider other features. For example, what are the repayment options offered by each lender? How do they compare in terms of customer satisfaction? Are there any features, such as unemployment protection or relationship discounts, that can give one lender an advantage over the others?

As you consider these questions, you’ll be able to narrow down your list of options to one. If you’re using the Purefy Compare Rates tool, click on that lender, and you’ll be directed to their website for the next step.

4. Apply with your lender of choice

Now it’s time to submit an official loan application. The lender will typically ask you to provide personal information, including your name, date of birth, Social Security number and contact information.

You’ll also need to share information about your student loans, including payoff amounts, so the lender knows how much you need to borrow.

In most cases, you’ll likely also need to provide certain documents, such as pay stubs, bank statements, a government-issued photo ID and more. Check with the lender beforehand to find out which documents you’ll need, so you can have them ready.

Once you submit your application, the lender will run a hard credit check and give you a final offer based on your application details. You’ll get to choose whether or not you want to accept the offer.

5. E-sign and enjoy your savings

If you decide to accept the lender’s offer, you’ll be required to sign the loan agreement electronically. Once everything is finalized, the lender will use your loan funds to pay off your existing student loans directly.

This process can take some time, though, so it’s important that you continue to make your monthly payments, so you can avoid late fees and potential damage to your credit report. If you end up overpaying, your previous lenders will refund you the difference.

When you get confirmation that the refinance has been completed, enroll in automatic payments to ensure you never miss one. Many lenders also offer an interest rate discount if you’re on autopay. Then you can enjoy your savings or take advantage of any other features you’ll get with your new loan.

Should I refinance student loans?

The decision of whether or not to refinance your student loans is a personal one. Even if you can save by refinancing with a private lender, it may be better to hold onto your existing loans, especially if they’re federal loans and you don’t want to lose access to the benefits the Department of Education provides.

Take your time to consider your situation, your goals and all of your options. If you’re not completely sure, there’s no shame in waiting until you have enough certainty to move forward.

And again, taking the time to shop around and compare rates and other terms is an important step in determining whether you should refinance your student debt. If you can qualify for a much lower interest rate than what you’re paying now, it may be a no-brainer. But if the savings are relatively meager, it may be better to wait until your financial situation improves.

Finally, if you qualify for a student loan forgiveness or loan repayment assistance program, it’s highly unlikely that the savings gained through refinancing will outweigh the benefit of those programs. In some cases, you can get tens of thousands of dollars forgiven or paid on your behalf.

As you thoroughly think through the process, you’ll be able to decide for yourself if refinancing your student loans is the right path forward for you.

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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 11-21-2022. 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.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 2.24% APR to 7.99% 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 4.24% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 3.49% APR to 8.24% 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.

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 3.94% to 8.48% 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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