How to Refinance Student Loans: Step-by-Step Guide & Best Lenders

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Stanley tate

Student Loan Lawyer

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Refinancing student loans saves you, the borrower, money by replacing existing debt with a lower-interest private loan. It’s relatively straightforward to refinance student loans: find a bank, online lender, or credit union who will refinance your loan, apply, and (hopefully) be approved.

The main benefit of refinancing is that you could get an interest rate reduction, meaning less money paid over the life of the loan and lower monthly payment amounts. It can be an excellent personal finance decision, depending on your loan refinance rates.

Here’s how to qualify for student loan refinance:

  • Have a good credit history
  • Maintain a steady income
  • Get a cosigner if you don’t meet one of these eligibility requirements

Disclaimer: I do recommend some products with affiliate links in this article, but rest assured, I’ve seen them work over years of experience as a student loan lawyer. I started this business to help a friend, and I’ll treat you with the same respect. Book a call with me if you need personalized legal advice.

What are the requirements to refinance student loans?

The requirements to refinance student loans are:

  • good credit score — minimum 650, preferably above 680
  • steady income — typically more than $30,000/year and a solid debt-to-income ratio (DTI)
  • optional cosigner — if you fall short of the other two requirements, you may get another person who does to cosign the loan with you

You can refinance either federal loans or private loans; both are eligible. Most refinancing loan servicers will lend to both U.S. citizens and permanent residents alike.

Each loan provider has different eligibility requirements on top of these basic ones. Many loan servicers won’t lend in Nevada, for instance. Some don’t provide a cosigner option. Read everyone’s requirements carefully to choose what’s best for your situation.

How long can you refinance student loans for? You can refinance student loans for up to 20 years with most lenders. Many banks, credit unions, and online lenders offer 5, 7, 10, 15, and 20-year terms.

How to refinance student loans, step-by-step

What is the student loan refinance process? The student loan refinance process involves 4 steps:

  1. Compare rates from various lenders
  2. Choose a lender
  3. Fill out your loan application
  4. Continue paying off loans until refinancing is fully approved

Let’s walk through how to execute each one of these.

1. Compare rates from various lenders

Compile a list of all the lenders who would refinance your student loan. Compare the interest rates they would offer you. You’ll probably just want to go with the lowest interest rate. However, there are other considerations: namely, loan term options and repayment protections.

Consider pre-qualifying at multiple lenders to compare rates most accurately. Pre-qualifying should trigger “soft” credit checks that won’t affect your credit significantly.

How interest works, so you can compare rates like an expert

If you don’t understand interest rates, they can significantly impact how much you owe on student loans over time. Here’s a breakdown:

  • Definition of interest rates. Interest rates refer to an annual percentage rate at which interest is added to your loan balance. If your interest rate is 5% and your loan balance is $1,000, over one year, $50 will be added, and your new total at the end of that year will be $1,050.
  • Daily interest accrual. Typically, annual student loan interest rates accrue daily. It sounds weird, but loan servicers simply take the interest that would be added over a year and divide that number by 365 so that they can add it to the loan balance every day.
  • Simple interest. Interest does not accrue on the previous day’s interest. This means student loan interest is simple interest, not compound interest. This is true of all federal student loans and most private student loans.

2. Choose a lender

Once you’ve examined your options and chosen the best loan for your situation, it’s time to make your choice. Select the lender that works best for you, based on factors like:

  • Lowest rates
  • Best repayment terms and protections
  • General eligibility (some lenders won’t lend in your state, some require higher minimum loan amounts than others, all underwriting criteria are slightly different, etc.)
  • Least concerning customer reviews

Lenders like CommonBond, LendKey, and SoFi are more established student loan experts.

Bonus tips when choosing a lender:

  • Look for a refinance loan with flexible repayment options, such as the ability to miss a payment every 12 months (Earnest)
  • Some refinance loans come with perks like career planning, job search assistance, entrepreneurship support, etc. that may be helpful to you (SoFi)
  • Interest rates that you see online almost always include a 0.25% autopay interest rate discount, where you have to set up automatic payments from your bank account to get that rate
  • Don’t apply for loans that allow lenders to do a “hard” credit check until they’re your final choice; other
  • Typical credit scores needed for borrowers to refinance range around 650
  • Credible refinance lenders should never charge upfront fees, like an “origination fee” or “pre-payment penalty”
  • in the unlikely event that you see the words “compound interest,” run and don’t look back

3. Fill out your loan application

Make sure you fill out the application correctly to avoid rehashing your information or delaying your approval. When you fill out an online student loan refinance application, you need to:

  • Provide identification (driver’s license, social security card, or passport)
  • Upload loan statements
  • Upload proof of income, such as pay stubs
  • Consent to a hard credit check

If applying with a cosigner, you also need to provide the cosigner’s info.

If you miss anything on the application, don’t worry. The lender will contact you to set things right. Most refinance lenders have robust customer service.

4. Continue paying off loans until refinancing is fully approved

Don’t accrue late fees and credit dings at the last minute by skipping on-time payments of current loans. You need to keep making monthly student loan payments on your current loans until the student loan refinancing is fully approved.

Though the application process may take minutes, the approval process may take multiple weeks. Don’t ignore your loan repayment plan until then!

Best Student Loan Refinance Lenders [September 2021]

  • CommonBond: Lengthy forbearance periods are generous; Fixed APR 2.59-6.74%; Variable APR 2.49-6.84%
  • SoFi: Job search assistance and career planning; No cosigner option; Fixed APR 2.74-6.94%; Variable APR 2.25-6.59%
  • LendKey: Generous forbearance periods; Fixed APR 2.95-7.63%; Variable APR 1.90-5.25%
  • Earnest: Option to skip one payment every 12 months; Fixed APR 2.50-5.79%; Variable APR 1.88-5.64%
  • ELFI: (Education Loan Finance): You get a student loan advisor; No cosigner option; Fixed APR 2.58-5.99%; Variable APR 2.39-6.01%
  • Brazos: Parent Plus loans eligible; Fixed APR 2.15-3.97%; Variable APR 1.87-4.79%
  • EDvestinU: No degree requirement; Fixed APR 3.91-6.28%; Variable APR 1.81-4.18%

Now let’s get into your frequently asked questions. This can be a tricky process for many borrowers, and it’s better to ask upfront than to be surprised after you’ve signed the paperwork.

Should you refinance or consolidate your student loans?

In most cases, you should consolidate your federal student loans into a federal Direct Consolidation Loan before you refinance federal loans with a private loan.

What is the difference between refinancing and consolidating student loans?

  • Refinancing student loans means borrowing a new loan to pay off your current loan(s). This is almost always done to secure a lower interest rate and save money in the long run. Refinancing multiple loans with one private loan is similar to consolidation.
  • Consolidating student loans means combining all your federal loans into one single loan (still federal) with one single monthly payment. Your interest rate does not lower, but you do only have to pay one monthly payment.

Generally, I do not recommend refinancing federal student loans. First of all, during the COVID-19 pandemic, federal loans are in no-interest forbearance. Refinancing would mean you have to start paying and accrue interest. Secondly, there are unique benefits to federal loan programs.

Instead, I recommend student loan consolidation if your loans are all federal. If you want to combine multiple federal loans into one private loan through refinancing, you’ll want to have excellent credit and find a fantastic interest rate to make it worth your while.

If you want to compare your options in-depth, download my free guide: Settlement Vs. Consolidation Vs. Refinancing.

When is the right time to refinance student loans?

The right time to refinance student loans is when interest rates are low. The main point of refinancing private student loans is to find a lower interest rate that decreases your lifetime money spent.

Many lenders allow you to refinance immediately following graduation. However, most students wait until after the 6-month deferment grace period (when you don’t have to pay) before considering student loan refinance.

While we are currently student loan forbearance due to COVID-19, do not refinance federal student loans into a private loan. Unlike federal student loans impacted by the CARES Act and executive orders, private refinance loans are still requiring monthly payments, and interest will accrue.

Can I refinance my loans with bad credit?

In most cases, you cannot refinance your student loans with bad credit (a score under 650) unless:

  • you get a cosigner with great credit and steady income, or
  • you improve your credit score (pay down that credit card debt!)

Will my credit score drop if I refinance student loans?

Yes, your credit score will drop a little if you refinance student loans, but it is not a lot. Student loan refinance has a minimal impact on your creditworthiness.

2 things will (slightly) hurt your credit report:

  1. Hard inquiry or inquiries (credit checks)
  2. The average age of loans will decrease as you get rid of an older existing loan and borrow a new one

What are the risks of refinancing student loans?

The risks of refinancing student loans include:

  • Loss of federal loan advantages through the Department of Education, such as income-based repayment and student loan forgiveness
  • A temporary dip in credit score
  • Can be a decades-long investment if you apply for a 20-year term repayment period

What student loans can be refinanced?

Both federal and private student loans can be refinanced. Student loans for graduate degrees, medical school, and law school are additional loan types eligible for refinancing.

Federal Parent PLUS loans are eligible for some refinance options, but not all. Each private lender determines whether they will refinance Parent Plus loans.

If you can find a lower interest rate refinance loan for a private student loan, then you should consider taking the minor hit to your credit in exchange for less money spent in the long run.

Again, if you choose to refinance, you’ll lose the advantages of federal loans such as income-based repayment plans and loan forgiveness programs, like the Public Service Loan Forgiveness.

Should I choose a fixed or variable rate loan?

You should choose whichever interest rate is best for you in the long term. Fixed interest rates are safer, more predictable, and usually better overall. Fixed-rate loans do not change their interest rates based on economic indices, unlike variable rate loans.

If you’re comfortable agreeing to a variable interest rate that will probably go up over time, you’re free to do so. Be warned, when variable interest rates rise, so make your minimum monthly payments!

However, at the time of writing this article, variable interest rates are unusually low. At the end of the day, it’s up to you and your risk tolerance.

Get my in-depth guide to lowering your payments here.

Can I refinance to release a cosigner?

If someone cosigned your private student loan, you can refinance your student loan by yourself in order to release your cosigner from your debt.

Of course, you will need a qualifying credit score and steady income to borrow on your own and complete a cosigner release.

Not sure which option is best for you? Let’s talk.

Refinancing private loans into lower-interest private loans is a great way to save money and reduce your monthly payments, but federal loans are typically better off consolidated instead.

If any of this is overwhelming, you’re not alone. Refinancing, consolidation, and interest rates can seem overwhelming at first (not to mention the math!). That’s where I come in.

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I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

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