6 Options For Refinancing Private Student Loans

By Jon O'Donnell Updated on March 4, 2022

There is good news for Americans feeling overwhelmed by high-interest student loans. A variety of factors have transformed the student lending industry in recent years, giving college grads more options than ever to take control of their student debt. Whether it’s lowering monthly payments, consolidating multiple loans, releasing a co-signer, or paying it off faster – borrowers are making their debt more manageable by refinancing under better terms.

Is refinancing right for you? It depends. There is no single “right” answer for all borrowers. The best way to make a sound financial decision is explore all of your options. That’s why we’ve done some of the legwork for you, examining refinancing options for six common situations:

1. If you want to lower your interest rate...

Many student loans originated prior to 2013 have interest rates of 6.8% or more. Borrowers with good credit might be able to get significantly lower rates by refinancing. For example, SoFi offers fixed rates as low as 3.375% for 5-year loans, 4.49% for 10-year loans, and 5.25% for 20-year loans.

Even small interest rate discounts can add up over time. A borrower with $100,000 in debt could save more than $20,000 over a decade by refinancing from 7.9% to 4.49%.

Most lenders have both fixed and variable interest rates. Variable rates can change, but in the short run, they can be very attractive. Citizens has variable rates as low as 2.38%. CommonBond also has a hybrid rate that is fixed for the first 5 years and variable for the next 5 years.

2. If you're struggling to make your monthly payments...

A lower interest rate would help decrease monthly payments, but there are other options as well. If you’re not earning much now, but you expect your income to rise, and interest-only period might help. People who refinance with certain lenders can choose to make immediate full payments or make two years of interest-only payments first.

Lengthening the payback time frame is a surefire way to lower monthly payments, although it can increase the total cost depending on the interest rate. Most private lenders offer a variety of terms when people refinance. College Ave allows borrowers to design their own timetable, picking any number of years between 5 and 15.

Many lenders offer a discount – typically .25 percentage points – if you sign up for autopay. Citizens One has an additional .25 percent loyalty discount if the borrower or cosigner has other qualifying accounts with the bank, making it possible to save .5 percent overall.

Monthly savings by refinancing can vary, depending on the amount owed and the borrower’s financial history. But people who refinance with Citizens One save an average of $137 a month, people who refinance with SoFi save an average of $316 a month, and those who refinance with CommonBond save an average of $323 a month.

3. If you want to get out of debt faster... 

Making extra payments or refinancing to a shorter time frame are both options to get out of debt faster. None of the lenders we profiled had penalties for prepayment. And people with good credit might be able to save enough by refinancing to a lower interest rate that they can pay the same amount each month and get out of debt sooner. (For example, a graduate student with $60,000 of debt can pay it off in 11 years instead of 15 by lowering the interest rate from 6.8% to 3.2%)

Refinancing can lead to significant savings over time. SoFi reports that borrowers who refinance with them save an average of $17,208 over the life of the loan. It’s even higher with CommonBond, where the average refinancer saves $24,046 on their total repayment.

Finding extra money where you can is helpful. SoFi, CommonBond and College Ave all have referral bonuses that you can apply to your loan. 

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4. If you want to consolidate multiple loans into a single payment...

Refinancing is a good way to simplify your finances and consolidate multiple loans from different lenders into a single monthly payment. And now It’s faster than ever to find out what that payment would be.

Many refinance lenders require statements from each of your loan servicers, showing how much is left to repay on your loans. However, College Ave pulls that information from your credit report, saving a lot of time. Its application takes about 3 minutes. Citizens One and CommonBond also have applications that take between 2 and 5 minutes to complete. You can get an instant decision with no application fees, and there’s no need to worry about the effect on your credit score.

Both private and federal loans can be consolidated through refinancing, however, you should use caution before refinancing federal loans. If you refinance them with a private firm, you will lose eligibility for income-based repayment plans and loan forgiveness. It’s important to weigh the benefits of a lower rate against any tradeoffs before you give up potential federal benefits.

5. If you want to release a co-signer from responsibility...

For many college graduates, refinancing offers a chance to move student loans into their own names and release a co-signer from responsibility. If your own credit is strong enough, there is no need to have a relative or family friend vouch for you. If you still need help qualifying, though, there are new options for releasing cosigners even after you refinance. Citizens One has a program where after 3 years of consistent payments, you can release cosigner from your refinanced loan.

6. If you want to use home equity to pay off your student loans...

For homeowners who have built up some equity, SoFi has partnered with Fannie Mae to offer a new program to pay off student loans as part of refinancing a mortgage. SoFi unveiled its new offering in November 2016. You can consolidate student loans with your existing mortgage, then refinance the total amount at a lower rate (with a loan-to-value limit of 80%). The company estimated that 8.5 million households could potentially qualify, although it’s a good idea to discuss it with a financial advisor first.

Find out what's available to you...

You may not be able to change the fact that you have student loans, but there are new options to help you take charge of them. Among all of the companies that specialize in student lending, we consider the ones mentioned above to be the best, based on their interest rates, transparency, product offerings, track records, ease of applying, and customer service.

We recommend that you check into the lenders listed here - and start saving today.

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