How Do I Know If I Should Refinance My Student Loans?

Jon O'Donnell Updated on May 13, 2019

Refinancing can be a smart way to consolidate your student loans, cut your interest rate, lower your monthly payments, and get out of debt faster. But like all financial decisions, there are factors to consider.

The student lending landscape has changed dramatically in recent years with the addition of innovative consumer-focused options. In a recent analysis we found that people who refinanced with private lenders saved an average of $259 a month and $19,231 over the life of the student loans.

By asking yourself a few simple questions you can determine how to best go about refinancing your loans...

11 Questions Reveal If You Should Refinance Your Student Loans

What are your primary goals?

Refinancing your student loans can help you achieve many goals:

  • lowering your payments,
  • bundling your loans into a single bill,
  • cutting your interest rate, or 
  • getting out of debt sooner.

But your strategy may differ depending on which goal is most important to you. For example, one way to lower your payments is to lengthen the payback timetable. But if your priority is to get out of debt sooner, you might want to keep your payment level or pay a bit more each month. Consolidating all of your loans into a single bill can simplify your finances, but if retaining federal benefits is important to you, it might make sense to leave certain loans out when you refinance. Be clear about what you hope to achieve by refinancing.

How much do you owe?

Most banks require that you have a minimum of $5,000 in student loan debt if you want to refinance. Maximum amounts might also apply. Some lenders have an upper limit for different types of degrees. To determine your payoff amount, add up your current balances and include any unpaid interest. The higher your debt is, the more you will benefit from refinancing to a lower interest rate. If you are close to paying off your loans, or are potentially eligible for loan forgiveness, it might not be as helpful.

What kind of loans do you have?

Do you have federal loans, private loans, or both? You can refinance federal loans with a private lender, and you can consolidate some or all of your loans into a single bill.  Before you decide, look at the source of each loan and what benefits they might carry.

What are the interest rates on each loan?

Most students have loans at a variety of interest rates. Chances are, many of them can be refinanced to a lower rate. Small changes in the interest rate can add up to huge savings over time. But if any of your loans have rates that are lower than what the marketplace can offer, you can set those aside. Refinancing is not an all-or-nothing proposition. Most modern student loan refinancing companies have online applications that take less than 15 minutes to complete. You can get an instant rate quote with no application or origination fees. The best bet is to shop around with a few lenders to get personalized quotes based on your credit profile. This refinance calculator can help you compare the impact of different rates (use our consolidation calculator instead if you have multiple loans you’d like to combine).

What is your credit score?

Private lenders are often able to offer lower rates than the government because they can be selective about their borrowers. Not everyone who applies is approved. Generally, the better your credit, the lower the interest rate you’ll receive. Most private lenders want you to have a FICO score of at least 650, a low debt-to-income ratio, and a steady job. If your credit profile isn’t as strong as you’d like, there are steps you can take to make yourself a better candidate for refinancing.

Are you eligible for loan forgiveness?

People who work in public service jobs like teaching or the military may qualify for forgiveness of federal student loans after 10 years of consistent payments. Refinancing with a private lender would disqualify you from federal loan forgiveness, but it might make sense if the savings from a lower interest rate are greater than the amount that might be forgiven. Weigh the tradeoffs before making a decision.

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Are you using (or likely to use) income-based repayment plans?

One of the benefits of government loans is the ability to postpone or decrease your monthly student loan payments during periods of unemployment or financial hardship. If your salary is low or you’re considering changing jobs, it might make sense to stick with high-interest loans so you can remain eligible for federal repayment plans. However, if you’re earning a good salary and can make your monthly payments without any income-based adjustments, you should see if you can get a better rate with a private lender. Refinancing could save you thousands of dollars in interest over the life of your loan.

Are you still in school or thinking of going back?

Many lenders require proof of graduation to refinance student loans. The best candidates for refinancing are people who have finished college, started working, and built up their credit history. If you’re still in school and don’t have a steady job, you might not qualify for refinancing. If you have graduated but are thinking of going back for another degree, you may want to take advantage of deferment or forbearance options. The federal government offers those, but not all private lenders do. Be sure to ask what the lender’s policies are before pursuing refinancing.

Do you need a co-signer, or do you want to release a co-signer?

If your credit isn’t as strong as you would like it to be, you might want to consider asking a parent, spouse, or family friend to co-sign the student loan refinance application with you. A co-signer not only improves your chances of getting approved, but can also help you get a lower interest rate on the new loan. Some lenders have programs that let you release co-signers from refinanced loans after 36 consecutive on-time payments.

If you had a co-signer on your original student loans but want to release that person from responsibility now that you’re out of school, refinancing can be a great way to do that. By refinancing, you pay off your old loans and replace them with a new loan in your own name.

How much can you afford to pay each month?

If you’re having difficulty making your monthly payments, refinancing to a lower interest rate could help. You can also consider extending your payoff timetable. Many lenders offer terms of up to 15 or 20 years. If you extend the term, your monthly payment will be lower, but you may pay more total interest over the life of the loan even if you have a lower rate.

If you can afford to pay a bit more each month, refinancing to a shorter term could dramatically speed up your loan payoff. Shorter-term loans have lower rates, and accrue less interest.

Are you a homeowner?

Some lenders have programs that let you pay off student loans as part of refinancing a mortgage. If you’re a homeowner who has built up some equity, you might be able to consolidate your student loans with your existing mortgage, then refinance the total amount at a lower rate. As many as 8.5 million U.S. households could qualify, although it’s a good idea to discuss it with a financial advisor first. You will also want to read the fine print to make sure you understand whether the mortgage has fixed or variable interest.

Take the first step

Refinancing can be really helpful, particularly if you have a good credit score and are earning a steady income. With consumer-friendly online applications, it’s easier than ever to shop around and compare rates. We highly recommend that you get at least three quotes before making a decision.

Here at the National Student Loan Union, we regularly evaluate student loan refinancing companies based on a comprehensive 23-point assessment. The following lenders topped our rankings for 2017, based on their interest rates, transparency, product offerings, track records, and customer service.

Find out how much you can save right now with this tool.

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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Special offers for medical resident and fellow refinance products

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  • Minimum credit: 650
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Visit Splash View Loan Disclosure

Splash Financial is a leader in student loan refinancing with new rates as low as 2.49% 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.

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  • Co-signer release program - you can apply for a cosigner release form your loan after 12 months of on-time payments
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Click here to see more of Splash's offerings and to see how you can save money.

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

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Visit CommonBond View Loan Disclosure

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.

#3 View More Details

SoFi is the leading student loan refinancing provider. 

  • Fixed rates: 2.74% - 6.94% APR
  • Variable rates: 2.25% - 6.59% APR
  • Minimum credit: 650
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Visit SoFi View Loan Disclosure

$30 billion+ in refinanced student loans. SoFi has some of the lowest interest rates and, unlike the other lenders we reviewed, there's no maximum on the amount you can finance. Some state restrictions may apply.

  • Serious savings: Save thousands of dollars thanks to flexible terms and low fixed or variable rates.
  • No hidden fees, no catch: No application or origination fees. No pre-payment penalties.
  • Fast, easy, and all online: Simple online application and access to live customer support 7 days a week.
  • Access to member benefits: SoFi members get career coaching, financial advice, and more—all at no cost.
  • 98% of surveyed members would recommend SoFi to a friend

Save thousands on your student loans and pay off your loans sooner. Find your rate.

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Ability to apply for cosigner release after 24 consecutive payments. 

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Visit NelNetBank View Loan Disclosure

Give Your Life’s Journey a Jump-Start.

If you’re ready to put student loans in your rearview mirror, Nelnet Bank student loan refinancing offers low rates and flexible terms to help you start getting ahead.

  • VARIABLE RATES: 1.95% - 5.63% APR See Disclaimer
  • FIXED RATES: 2.55% - 5.59% APR See Disclaimer
  • AUTO DEBIT SAVINGS: We’ll knock .25% off of your interest rate when you enroll in auto debit. See Disclaimer
  • NO ORIGINATION FEES: No application, origination, or prepayment fees on Nelnet Bank loans.
  • HARDSHIP PROTECTION: Hardship forbearance helps protect against unexpected loss of income. See Disclaimer

See How Much You Can Save: Estimate your savings with a student loan refinance from Nelnet Bank.

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Works with 300+ community lenders for higher approval chances

  • Fixed rates: 2.95% - 7.63% APR
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Visit LendKey View Loan Disclosure

Connecting student borrowers to a network of over 300 community lenders with low interest rates. 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
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  • 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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Best for borrowers who want to customize their repayment schedule to pay off debt fast.

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Visit Earnest View Loan Disclosure

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

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College Ave Student Loans offers major help and minor stress. We’ll help guide you through the process to find the right loan term and interest rate for you and the family budget.

  • Fast rate check: Get your new rate in 60 seconds 
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I reduced my student loan payment by $152 per month, by refinancing thru Nitro:

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