Refinancing Private Student Loans

By Jon O'Donnell Updated on May 7, 2019

Paying student loans is a fact of life for more than 70 percent of college graduates – but paying too much for those student loans doesn’t have to be. Many people don’t realize that once they’ve been out of school for a few years, they could be eligible for lower interest rates on their private student loans.

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Unlike federal loans, which charge everyone the same rate of interest, the terms of private loans vary based on certain factors at the time you apply. If those factors change, you might be able to renegotiate and get a better deal. The key word is “change.” If you took out student loans prior to 2014 and are paying more than 4 percent interest, there are at least two big developments that could save you money if you refinance:

  • Industry-wide changes. Several innovative start-up companies have entered the student lending industry in recent years, transforming the experience of taking out student loans much like Travelocity revolutionized buying plane tickets and Amazon changed buying books. These companies have brought lower interest rates, faster applications, and a greater emphasis on customer service. To remain competitive, traditional banks have responded by revamping their offerings with more flexible and affordable payment plans. All of this competition is good news for borrowers, who are getting more choices and better deals.
  • Credit profile changes. Private loans are based on your credit profile when you apply. Students who are about to start college or are still enrolled generally don’t have much of a credit history. Graduates who’ve been working for a while often have much higher FICO scores. Chances are, if you graduated and are currently employed, you are much less risky to banks now than when you took out your loans.

How does student loan refinancing work?

Refinancing is paying off existing debts by taking out a new loan, with new terms. By refinancing student loans, many borrowers can get a lower interest rate and consolidate multiple bills into a single monthly payment. A recent analysis by the National Student Loan Union found that people who refinanced student loans saved an average of $259 a month and $19,231 over the life of the loan. Some borrowers saved more, and some less, depending on the size of their debt and their credit histories.

What are the benefits of refinancing student loans?

The biggest benefit to refinancing is saving money. Even small decreases in the interest rate can add up to huge savings over time. But there are also other benefits, as well. People with multiple loans from different servicers can consolidate their debts into a single monthly bill. When you refinance, you can choose a shorter or longer time frame for paying off the loan, depending on your goals. Most refinancing companies offer a variety of term lengths from 5 to 20 years. When you refinance, you can remove a co-signer and take out the new loan in your own name. Or you can add a co-signer to boost your chances of being approved and getting a low interest rate. Lastly, almost all modern student loan refinancing companies pride themselves on their customer service. Many companies offer networking events, career counseling, financial planning, and so forth. These perks can be helpful as you grow in your career.

What are the risks of refinancing student loans?

Many lenders are willing to refinance both private and federal student loans. But it’s important to note that if you add federal loans into the mix, you give up forbearance, deferment, or income-based repayment options on those loans. You also become ineligible for loan forgiveness programs. Before refinancing federal loans, it’s important to weigh the amount of money you’d save against the potential value of the benefits you’d be giving up.

Other risks are the same as with any loan you might get. Most lenders offer both fixed and variable interest rates. Variable rates are lower and can be very appealing in the short term, but they can change over time. Consider your risk tolerance carefully before choosing a variable rate. Also, if you refinance your student loans to a longer time frame (ex. 20 years instead of 10) you will likely pay more overall, even if the interest rate is lower.

Who should consider refinancing?

People who took out their loans before 2014 and are paying more more than 4% interest should definitely consider refinancing. People who have multiple loans from different lenders also could benefit by streamlining their debts into a single monthly payment. Most banks that offer student loan refinancing have stringent underwriting standards. They are looking for borrowers with reasonably good credit, a low debt-to-income ratio, and steady employment. But even if your credit isn’t perfect, there may be ways to qualify.

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What do you need to do to refinance private student loans?

The first step in conquering your student loan debt is to gather some documents. You will need your most recent student loan statements, last month’s pay stubs, your most recent tax return, proof of graduation, and a driver’s license or passport. Once you’re ready, it’s just a matter of choosing some companies and comparing rates.

There are dozens of companies that specialize in student lending, but not all are created equal. Here at the National Student Loan Union, we regularly review student lenders. The following are the companies we consider the nation’s best banks for student loan refinancing, based on their interest rates, transparency, product offerings, track record, ease of applying, and customer service.

We recommend that you start here

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Frequently asked questions (FAQs):

Q:  How long does the application take? 

  • A:  Most companies that offer student loan refinancing have very simple applications. Potential borrowers can get rate quotes in less than 5 minutes with no impact on their credit scores.

Q:  Does it cost money? 

  • A:  No. With most lenders, there are no application, origination, or disbursement fees, and there is no penalty for prepayment.

Q:  Will it affect my credit score? 

  • A:  The initial rate inquiry is considered a “soft pull” and does not affect your credit. If you execute a new loan, it will have a short-term effect, but the benefits are usually worth it.

Q:  What if I don’t qualify at this point?  

  • A:  If you don’t get approved right away, don’t despair. You can try another company, work on building your credit, or consider getting a co-signer.

Q:  How long does it take to start saving, once my application is approved?  

  • A:  It depends on the bank. Generally, you should see the payoff post with your original lender approximately 3-4 weeks after you receive your final disclosure. It’s important to continue making payments to your original lender until you’ve confirmed that the payoff has posted. 

Ready to lower your student loan payments and get out of debt faster? Find out how much you can save right now with these industry leading refinancing lenders.

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