When Does It Make Sense To Refinance Your Student Loans?

Jon O'Donnell Updated on May 14, 2019

There’s no better time than the present to rethink your financial situation. You’ve probably heard that a student loan refinance could save you money, but is it the right move for you? To know for sure, you must consider how a student loan refinance could help and if you are in the best position to refinance your student loans.

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Refinancing your federal or private student loans may be right if:

You need to save money. When you secure a loan with a lower interest rate, you’ll save money with each monthly payment and you may be able to pay down the loan faster. If you need more money in your budget now, you can also refinance for a longer term – spreading payments out to reduce your monthly obligation.  You can also still consider refinancing your student loans even if you've consolidated already.

Your current interest rate is high. If your private or federal student loans carry interest rates of 6.5 percent or higher, you’re likely to save money by refinancing. Parents can also often get a good deal by refinancing parent PLUS loans, which typically have higher interest rates.

You don’t plan on taking advantage of federal repayment options.  If you refinance your federal student loans, you’ll no longer be eligible for income-driven repayment plans like IBR or ICR.  The federal government has created several income-driven repayment plans – including Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE) and the Revised Pay As You Earn (REPAYE) plan – which lower monthly payments if you earn a low wage, lose your job or experience economic hardship.

You don’t work in public service, as a teacher or in a non-profit. If you’re a federal employee, teacher or work in a public service field, you may be eligible to have your federal student loans forgiven after making consistent payments over a set period. If you refinance, you lose this benefit. If you are eligible for any of these programs, it’s wise to consider whether student loan forgiveness or refinancing will save you more in the long run.

You're in a good position to refinance student loans if:

You or your co-signer have good credit. A strong credit score shows you’re a trustworthy borrower. FICO scores in the 690 to 850 range will give you the best shot at refinancing for a low interest rate. If your credit isn’t where you want it to be, a parent or other trusted adult with strong credit can co-sign for you, agreeing to take responsibility for the loan if you can’t pay it. 

Your debt-to-income ratio is low. If your debt-to-income ratio is low, that signals to lenders that you are a good candidate for a lower interest loan to refinance your student loan debt. To get your debt-to-income ratio, add all your monthly debt payments (car payment, student loan payment, credit card payment) and divide that by your gross monthly income – what you earn before taxes. If you have a steady income and your debt-to-income ratio is in the 20-to-36 percent range, refinancing is a safe choice and lenders are likely to offer you a lower rate to refinance.

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What are the next steps to a student loan refinance?

Once you’ve made the decision to refinance, these next two tasks should be first on your to-do list:

1.  Use a refinance calculator to know what your savings should look like.

You can find several student loan-refinancing calculators online that allow you to estimate your potential savings. This one is a good place to start.

2.  Shop around for lenders.

You can do a lot of legwork online to learn what terms and interest rates each lender offers to find your most money-saving, manageable option. Find out whether a lender provides flexible repayment options and discounts for things like automatic debit, and ensure its customer service department is reachable and responsive should you have questions or problems.

Most refinancing companies allow you to check your prospective rate before filling out a full application, and these checks won’t negatively affect your credit score.

Think you’re ready to refinance but need a little more information? Find out what you need to know before starting the process.

Published in: Refinance

About the Author
Jon O'Donnell

Jon is a writer and marketer for Nitro who is passionate about bringing transparency to the student loan process along with providing families with the information needed to make smart financial decisions. He also just recently refinanced his student loans allowing him to pay them off 5 years faster all while saving an additional $152/month. As he continues to pay them off himself, he strives to help others do the same. Jon also has a long history of connecting people with educational opportunities to help them improve their careers and their overall personal finances. In his free time you can find him reading travel blogs and researching destinations around the world in search of his next adventure. Read more by Jon O'Donnell

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Earnest empowers people with the financial captial they need to live better lives.

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Using technology, data, and design to build affordable products, Earnest's lending products are built for a new generation seeking to reach life's milestones. The company understands every applicant's unique financial story to offer the lowest possible rates and radically flexible loan options for living life.

  • Commitment-free 2 minute rate check
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  • Skip a payment and make it up later
  • Online dashboard is designed to make it easy to apply for and manage your loan

Click here to apply with Earnest and to see how much you can save.

#2 View More Details

Many ELFI customers save hundreds per month month and thousands over the length of the loan term.

  • APR: 2.80% - 6.69%
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Visit ElFi View Loan Disclosure

Education Loan Finance is designed to assist borrowers through consolidating outstanding education loans into one single loan that effectively lowers your costs of education and/or makes repayment very simple. Education Loan Finance - backed by the strength of SouthEast Bank - combines the benefits of traditional education loan refinancing with the superior products, service, and support found in the private market.

Education Loan Finance (ElFi) review

Check out their low rates today to see how much you can save.

  • Get Your Rate. With Education Loan Finance's Find My Rate tool, you can complete a short application to receive a preliminary quote on your eligible rates and terms, all without affecting your credit score.
  • Apply in Minutes. Education Loan Finance's online application is fast and simple.
  • Outstanding Personalized Service. Our Personalized Loan Advisors specialize in student loan refinancing and help busy professionals find the option that's right for them.
  • Student Lending Experience: Education Loan Finance isn't a start-up company - we have a longstanding history and expertise in serving student loan borrowers.

Attractive Bonus and Referral Programs:

  • Education Loan Finance Fast Track Bonus**: Education Loan Finance's application process is streamlined and simple, and you can earn a $200 bonus just for closing your loan within 30 days of your initial application.
  • Education Loan Finance Referral Program**: Earn $400 for each new Education Loan Finance Client referred by you!
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Works with 275+ not-for-profit community lenders for higher approval chances

  • APR: 2.38% - 7.50%
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Visit LendKey View Loan Disclosure

LendKey operates student loan programs for over 275 not-for-profit and community lenders across the country. By partnering with these lenders, LendKey is able to give consumers direct access to the best rates available from the most borrower friendly institutions. As the servicer of all loans obtained through its platform, you can rest easy knowing your personal information will be safe and that the best customer service team will be ready to answer your questions from application until your final payment.

LendKey Student Loan Refinance review

  • Lightning fast rate check - 2-minute rate check with no impact on your credit score
  • More lenders, more options - see the best offers from over 275 not-for-profit and community lenders for higher approval chances
  • Life of loan relationship - With LendKey, your personal information will never be sent or passed on to third parties. Their customer service team is with you from the moment you land on their website until you've completely repaid your loan.
  • Unmatched benefits- Community lenders put people over profits and offer unique benefits like cosigner release after 12 on-time payments, interest only repayment options to keep monthly payments low, the largest unemployment protection period in the market, and more.

Get a personalized quote from LendKey now.

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Operates in all 50 states; 2nd largest student loan refinancing lender

  • APR: 2.43% - 7.02%
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Laurel Road is a national online lender with customers in all 50 states, the District of Columbia, and Puerto Rico. Many of our non-bank competitors are not able to lend in all 50 states.Laurel Road has grown to be the second largest player in the student loan refinancing space in large part because of our reputation as the go-to low rate provider.

Laurel Road Student Loan Refinance Review

  • National reach - Online lender that is available in all 50 US states, the District of Columbia and Puerto Rico.
  • No fees & the lowest rates in the space - Laurel Road is the most transparent about the rates they provide customers, and offer the lowest rates where it counts. Our customers will save more than $20,000 over the life of their loans on average. 
  • Customer service reputation - Laurel Road's customer service representatives are no rookies. With 19 years of experience on average, Laurel Road’s Customer Service team delivers an experience that is best in the industry. They work to build meaningful, life-long relationships with our valued customers to improve their overall financial wellness.
  • The stability & security of a bank - They are a division of Darien Rowayton Bank, a stable and secure FDIC-insured bank, regulated by the FDIC and the Connecticut Department of Banking.

Get your personalized, pre-approved rates in less than 5 minutes.

#5 View More Details

For every loan they fund, they contribute to the education of a child in need

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CommonBond was founded in 2011 by three MBA graduates from the University of Pennsylvania’s Wharton School who wanted to help their peers escape from high-interest student loan debt. Its original focus was on grad students, but it has since expanded to cover undergrads as well.

Of all the companies we reviewed, CommonBond has some of the best customer service. The company prides itself on being easy to reach by email, phone, or live chat. It offers networking events, expert panels, insider newsletters, and even has a program help borrowers who lose their jobs to find new ones. CommonBond also makes you feel good about choosing to refinance with them by donating money to an education nonprofit for each loan they write.

CommonBond Student Loan Refinance review

  • Unemployment protections - If you lose your job or decide to go back to school, you can delay your payments for up to 24 months.
  • Social promise - For every loan they fund, they also contribute to the education of a child in need.
  • Hybrid loan option - Offerings include a 10-year hybrid loan with fixed interest for the first five years, and variable interest for the final five.
  • Referral bonus - For every friend you refer who refinances their loans with CommonBond, you’ll earn a $200 cash bonus.
  • Qualification - Borrowers must have graduated at least 2 years prior if they want to apply without a co-signer. And borrowers in 6 states – Idaho, Louisiana, Mississippi, Nevada, South Dakota, and Vermont – cannot currently refinance through CommonBond.

Get a personalized review of your refinancing options with CommonBond today.

#6 View More Details

Offers unemployment protection and career/coaching/networking

  • APR: 2.430% - 8.074%
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Visit SoFi View Loan Disclosure

SoFi, which stands for “Social Finance,” was created by a group of Stanford business students who found themselves with a mountain of debt after graduation. They set out to change the student loan industry and help borrowers like themselves to get lower interest rates. SoFi has some of the lowest interest rates and, unlike the other lenders we reviewed, it has no maximum amount you can finance. However, Nevada residents can’t currently refinance with SoFi. Minimum loan balances are higher in Arizona, Massachusetts and Pennsylvania due to state laws. Additional state restrictions may apply.

SoFi Student Loan Refinancing Review

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Find out what interest rate SoFi can offer you here.

#7 View More Details

Special offers for medical resident and fellow refinance products

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Splash Financial is a leader in student loan refinancing with new rates as low as 3.25% fixed APR which can save you tens of thousands of dollars over the life of your loans. No application or origination fees and no prepayment penalties. Splash Financial is in all 50 states and is intensely focused on customer service. Splash Financial is also one of the few companies that offers a great medical resident and fellow refinance product. You can check your rate with Splash in just minutes.

  • Low interest rates – especially for graduate students
  • No application or origination fees. No prepayment penalties.
  • Co-signer release program - you can apply for a cosigner release form your loan after 12 months of on-time payments
  • Specialty product for doctors in training with low monthly payment

Click here to see more of Splash's offerings and to see how you can save money.

Comments

I reduced my student loan payment by $152 per month, by refinancing thru Nitro:

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