How to Refinance Student Loans   

Carol Katarsky Updated: December 16, 2022

Struggling with student debt? You’re not alone.

As of 2022, approximately 45 million people owe more than $1.75 trillion in student debt — and the average debt load per borrower is about $35,000. Approximately 70% of college graduates leave school with at least some debt.

Refinancing is essentially a do-over for your student loans. When you refinance, you can get a new interest rate, new terms, and a new lender. Millions of people have reduced their monthly payments by refinancing or have saved thousands in interest over the life of their loans.

You might benefit from refinancing, too. In this article, we’ll talk about:

How to refinance federal student loans

Refinancing your federal student loans is replacing them with a private loan. Your private lender will pay off your current loan(s) and you'll begin a new repayment plan under the new loan terms.

One big benefit of refinancing your federal loan with a private lender is landing a lower interest rate.

Some federal student loans have interest rates of 7% or higher. While those rates don’t go up with market fluctuations, they also don’t go down. Refinancing is one of the few ways you can reduce your interest rate on a federal loan.

If you’re considering federal student loans, here are the steps you should take.

1.  Consider whether you were eligible for federal loan benefits 

Refinancing with a private lender means you’ll have to forfeit certain benefits that come with federal loans, including access to:

  • income-driven payment plans
  • student loan forgiveness, such as through Public Service Loan Forgiveness (PSLF)
  • deferment and forbearance options
  • guaranteed death and disability discharge

Keep in mind not all loan forgiveness programs are available to all borrowers. So these benefits may not be applicable to you. 

Some private lenders do offer flexible repayment options including deferment or forbearance if you experience economic hardship. (Note: Their terms and conditions may not be the same as Uncle Sam's, so check the fine print.) If those protections are important to you, make sure you look for a private lender that offers them.

2.  Get quotes from your top lenders

The next step is to see what interest rate you can get from private lenders.

Most private lenders offer a student loan calculator that lets you input general info about your finances and will give you a ballpark estimate of the interest you could save.

Once you’ve picked a short list of lenders, it’s time to get a more specific quote. Fill out an application — this usually takes about 15-20 minutes. At this stage, most lenders will do a “soft pull” on your credit, which won’t ding your credit score.

The documents you need may include:

  • a recent pay stub from your employer
  • billing statements from the student loans you’re looking to refinance
  • a driver’s license or passport
  • address verification, such as a bank statement or utility bill
  • proof of graduation

3.  Wait for approval

Once you get offers from several different lenders, choose the one with the best rates and terms for you. The lender will then do a “hard pull” on your credit score and offer final approval. This process may take anywhere from a few days to a few weeks, depending on whether the lender requests additional information from you. 

Once you’re approved for refinancing, the private lender will pay off your federal loan(s) in full and issue you a single new loan, with a new interest rate. Your former federal loan servicer(s) should notify you that your existing loan with them has been closed.

Important: Keep making payments on your old loan until you get confirmation it has a zero balance. If you stop paying before the refinance process has finished, you could find yourself accruing penalties on a loan you thought was closed. (And hurting your credit score as well.) 

How to refinance private student loans

If you have private student loans, refinancing is more of a no-brainer than it is with federal loans. When you refinance a private loan, you’re not losing federal protections. If you're able to score a lower interest rate with a different private lender, you have a powerful incentive to do so. Even lowering your interest a little bit may save you thousands over the life of your loan.

Here are the steps to take:

1.  Research your options

Start your research on new lenders. There are plenty of options available, and which one is right for you depends on your priorities. Some factors include: 

  • the interest rate they offer
  • their customer service
  • additional perks
  • flexibility and protections for economic hardship
  • easy access to your account and customer service (mobile apps, virtual chat, etc.) 
  • online reviews and customer satisfaction
  • a record of ethical lending practices

2.  Get quotes from your top lenders

Once you’ve narrowed it down to your four or five top lenders, fill out their applications. Most reputable lenders don't charge an application fee, so you might as well take the opportunity to shop around for the best rate.

This process usually takes about 15-20 minutes per lender and requires some documentation — including a pay stub and a billing statement from the loans you're refinancing.

The lender will do a “soft pull” — this won’t affect your credit score — and give you an initial offer.

3.  Pick a lender and pull the trigger

Once you’ve chosen an offer, let the lender know you’ve accepted. They’ll have to formally approve you and do a “hard pull” on your credit in the process. This may take a few weeks if the lender requires additional documentation, but often you’ll have a solid answer within a few days.

Once you accept the offer, your new lender will handle all the paperwork to transfer your existing loans and issue you a single new loan.

Remember, keep paying on your old loan until you’re certain that it has a zero balance to ensure you don't rack up interest or penalties by accidentally missing a payment. 

Where to refinance

There are plenty of choices when it comes to refinancing your student loans. Here are some things to consider when you’re selecting a lender.

The interest rate they offer

This is the most important factor for most people. Get a ballpark idea by using the lender’s online calculator. (Most lenders have them.)  You can do this before you ever fill out an application.

Their customer service

How good is it? What are people saying about them in online reviews? Do they have a way for you to reach them via your preferred communication method? (If you hate the phone, you're going to hate it even more when you have to call about a problem with your last loan payment.) If you prefer to use chat, email, etc. for resolving issues, make sure you look for lenders who offer those options. 

You’ll be living with this new lender for a while (unless you refinance again), so be sure it’s a relationship that won’t cause you headaches.

Their protections

Some private lenders offer borrower flexibility, such as deferment or forbearance for borrowers facing economic hardship, interest-only payments for a set period of time, or loan forgiveness due to death and disability. 

This is an especially important consideration if you’re refinancing federal loans with a private lender. Once you refinance, you'll lose any of those protections that come with federal student loans. (Note: Not every borrower qualifies for all of these programs. So first find out which benefits your loans have.) 

Whether you qualify for any type of loan assistance is often at the discretion of the lender. Look for a lender that offers formal programs and policies that provide some protection.

What are the pros and cons of refinancing student loans?

Refinancing can bring big benefits but there are also some drawbacks to consider. 

Pro: You can score a lower interest rate

When you refinance a student loan, a private lender pays off your old loan and issues you a new one with a new interest rate. Ideally, that interest rate will be lower and/or offer other benefits such as better payment terms.

Each lender’s method of determining your new interest rate is different. The lender may take into account your:

  • FICO score
  • income
  • overall debt
  • degree and career
  • future earning potential

It's unlikely any two lenders will give you the exact same offer.

However, you’re especially likely to score a lower interest rate in two situations:

  1. When your credit score is better now than when you took out your original loans, if you’re refinancing private loans.
  2. When private lenders offer interest rates lower than federal interest rates. Many federal student loans have higher interest rates than the lowest rates offered by private lenders. The current rate for undergrad Direct Student Loans dispersed after July 1, 2022 is 4.99% and some older loans are around 7%. Current graduate and Parent PLUS loans are between 6-8%.

But some private lenders are offering interest rates under 4% on the low end. If you have good credit and can score a rate that low, you could save thousands by refinancing your federal loan with a private lender.

The government has its own alternative to refinancing with a private lender: loan consolidation. This allows you to lump all your small loans into one bigger loan which can make handling payments easier — which also makes it less likely that you accidentally miss a payment. But this option, won’t snag you a lower interest rate. Instead, your rate will be the weighted average of interest rates on all your loans, rounded up by 1/8th of a percent.

In plain English, that means sometimes consolidation may slightly increase your interest rate. 

Pro: You can reset your terms

Another good thing about refinancing is that you can reset the length of your loan.

If you're struggling to make your monthly payment now, you can stretch out the terms to lower your monthly payment.

Or, if you want to pay if off faster and save a ton on interest, you can opt for a shorter payment term. But be aware that will also increase your monthly payment.

Pro: You can replace multiple loans with a single loan

If you’re like many people, you have a number of federal and private loans with different lenders and servicers. This can present real logistical difficulties in keeping track of your loans, making on-time payments, and even knowing how much you owe.

Refinancing replaces multiple loans with a single loan so it’s much easier to keep track of payments and payoff timeframes. You only need to pay one lender, and you can easily see the status of your student debt at a glance.

Con: You lose federal protections for federal loans

The biggest potential drawback to refinancing federal loans is that you lose certain protections including deferment and forbearance options, loan forgiveness, death and disability forgiveness, and income-driven repayment plans.

If you’re worried about losing protections when refinancing a federal loan, some lenders do offer their own hardship programs. Make sure you look for them — and get the details on how they work — before you make a decision.

Con: You lose access to student loan forgiveness for federal loans

Another drawback to refinancing is that, when you refinance federal loans, you lose access to forgiveness programs including Public Service Loan Forgiveness.

This program forgives your loan after about 10 years of qualifying payments but it’s notoriously picky, even if you work for a qualifying employer. If you work in public service, it’s a good idea to do your homework sooner rather than later to make sure you’re on track to qualify. If not, it may be worth it to see if you can score a lower interest rate through refinancing.

If your federal loans are enrolled in an income-driven repayment plan, you could also be eligible for forgiveness after a period of 20-25 years, depending on the program. You'll lose access to that option if you refinance a federal loan.

Pro/con: Lender eligibility requirements will determine your interest rate

This is a pro if you have a good credit score. If you don’t, you may be better off sticking with the interest rate on your federal loan.

Lenders look at your FICO score, earning potential, degree, income, and other factors when determining the interest rate they'll offer you on a refinanced loan. As with any other loan, you’re not guaranteed a good interest rate.

If you’re not sure how attractive of a candidate you are, it can’t hurt to fill out applications with a few of your top lenders. It only takes a few minutes, you have no obligation to accept the offer, and most lenders will do a “soft pull” for your initial offer, which doesn't affect your credit score.

If the numbers aren't in your favor, you can spend some time improving your credit score and then apply again in a few months.

5 quick steps to refinance your student loans

1.  Ask yourself some questions

How beneficial refinancing is depends on your specific financial situation and goals. It's a better option for some people than others.

2.  Find out how much you could save

Figure out how much you could potentially save on your interest rate and/or with a shorter payment term. You can use one of the many free, online refinancing calculator to get a ballpark estimate based on your financial situation.

3.  Compare lenders

There are plenty of lenders who will refinance your loan — and some are better than others.

4.  Get a quote from your top lenders

Once you’ve narrowed it down to a short list of lenders, fill out an application and get an initial quote. Most lenders do a “soft pull” during this process which doesn’t impact your credit score.

Once you get an initial offer, you can make a side-by-side comparison to determine which lender has the best interest rate, terms, and monthly payment.

The lender will ask you for some documentation during the application process. Some of what you may need includes:

  • balance statements for your current loans
  • a driver’s license or passport
  • bank statement or utility bill to verify your address
  • pay stubs from your employer
  • proof of graduation

5.  Accept an offer

Once you accept your top lender’s offer, they'll need to do a “hard pull” on your credit and approve it. This process may take anywhere from a day or two to several weeks. 

Once you’re approved, your new lender will handle all the paperwork to pay off your existing loans and issue you a new loan. You should receive notice from your previous servicers or lenders that your loans have been paid off in full. (Keep making your monthly payment until they notify you the loan has been closed. The last thing you want is to miss a payment by accident and rack up penalties and interest on a loan you thought you refinanced.)

Done right — and with the right lender — refinancing can save you thousands over the life of your loan and potentially hundreds of dollars in your monthly payment.

What is student loan refinancing?

When you refinance your student loans, you pay off your existing student loan debt by taking out a new loan, generally with a different lender. The new lender purchases and pays off your old debt and then provides you with a new loan with new terms.

For many graduates, refinancing results in lower interest rates and/or lower monthly payments. It can also provide an opportunity to extend your repayment term, which can further reduce your monthly payments.

Can anyone refinance student loans?

If you have a good credit history and stable employment, you’re probably a terrific candidate for student loan refinancing.

But even if you’re not a ready-made candidate for refinancing, you may still be able to refinance with a cosigner.

You can refinance both federal and private student loans, but lenders look for certain criteria when they review a loan application. Lenders will want to see:

A good credit score

Your credit score is a numerical representation of your credit history. If you have a score between 690 and 850, you'll likely be in a good position to refinance.

A low debt-to-income ratio

Your debt-to-income ratio tells lenders how much money you’ll have available each month for payments. You can calculate your ratio by adding all your monthly debt payments and then dividing by your gross monthly income (what you earn before taxes). Lenders typically want to see a number less than 36%.

A responsible repayment history

Your credit score is tied to your repayment history. Lenders look for low-risk candidates — people who’ve made timely payments on their bills, credit cards, and student loans.

A solid employment history

Candidates with full-time jobs have more success refinancing their student loans. Lenders see an applicant with a steady job and income as more likely to pay back their loans.

A college degree

If you’ve already graduated from college, refinancing might be a good option. Lenders approve borrowers who have graduated at higher rates than those who haven't.

Applicants that meet these criteria have a better chance of getting approved for refinancing.

What’s the difference between consolidating and refinancing?

Both consolidating and refinancing your student loans may allow you to stop making multiple payments to different lenders each month, but the two processes work in different ways and have varied benefits.

With student loan consolidation, you combine multiple student loan payments into a single monthly payment and eliminate the need to keep track of several payments or balances. You may also see a reduction in your monthly payment if consolidation allows you to pay off your balance over a longer period of time.

But consolidating loans doesn’t always mean you pay less.

In fact, if you’re consolidating federal loans through a Direct Consolidation Loan, your interest rate may go up slightly because your combined interest rate average will be rounded up. And if you extend your loan term, you may end up paying less per month, but more over the life of the loan.

Refinancing, on the other hand, typically saves you a lot of money.

With student loan refinancing, you take out an entirely new loan to pay off your existing student loan or loans. You may consolidate multiple loans in the process, or you can refinance a single loan or even previously consolidated loans.

Refinancing will allow you to reduce your interest rate and (if you choose) lower your monthly payment at the same time. You’ll save money every month, as well as over the life of your loan.

How much can I save by refinancing my student loans?

People who refinance their student loans are often able to lower their monthly payments by $250 a month or save over $16,000 over the life of the loan.

How can refinancing create such staggering savings?

There are a few factors at work.

Interest rates may have dropped since you took out your original loans, or you may have built up your credit in the years since graduation, making you eligible for a reduced interest rate and better loan terms.

If you have federal loans, you have a standard fixed interest rate that’s the same for all borrowers regardless of your financial profile. This rate is often higher than the offers from private lenders because it has to account for high-risk applicants who are more likely to default or not finish their degrees.

Refinancing with a private lender that considers your specific financial circumstances could result in a lower interest rate.

When can I refinance my student loans?

You can apply to refinance your loans any time, but you may be a good candidate for refinancing right now if:

You need more money in your bank account

A new car note, saving to buy a house, having to pay for   childcare could be the push you need to refinance and start saving some cash each month.  

You have a high interest rate

For people with interest rates of 6.5 percent or higher, refinancing will likely result in lower interest rates and monthly savings.

You have good credit (or a cosigner)

Lenders look for borrowers they trust to repay their loans, and a strong credit score is a positive indicator. (And your credit is probably better now than it was when you first applied for a loan as a teenager.) If you have a score under 690, a cosigner could help.

You have a low debt-to-income ratio

A low debt-to-income ratio assures lenders that you’ll have money in the bank each month to meet your loan payment. If you have a ratio between 20 and 36%, you’re in a good position.

To calculate your 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).

You have solid employment

Lenders have more confidence in borrowers who have full-time, steady employment, so if you’re bringing in a regular paycheck, you’re a better candidate for refinancing.

If you’re considering refinancing your student loans, taking a close look at your finances can help determine whether now is the right time for you to apply.

Why should I refinance my private student loans? 

Refinancing your private student loans is a big decision, and only you can determine whether it’s right for your particular financial situation.

But there are a few factors that can help you decide. Here are some of the advantages you might see:

Lower interest rates

You may be able to get a lower interest rate by refinancing, especially if you've improved your credit score and repayment history since you took out your original private loans.

Lower monthly payments

Getting a better interest rate on your student loans means you can lower your monthly payment even if you keep your repayment term the same. You could also reduce your monthly payment even more by spreading your repayment period out over a longer time frame.

More flexible choice of payback schedules

Your financial circumstances are unique to you, and most companies that refinance student loans allow applicants to choose a repayment timetable that meets their particular situation. You'll likely be able to choose from a term between five and 25 years.

Consolidating multiple loans into a single bill

Refinancing allows you to combine multiple loans into a single monthly payment. You’ll be able to keep better track of what you owe and be more likely to avoid missing a payment, which hurts your credit score and can rack up additional interest and fees.

Quick applications and good customer service

The application process for student loan refinancing is streamlined and often takes less than 15 minutes. If you took out college loans before 2014 or are paying more than 4% interest, you're most likely to benefit from refinancing your student loans.

Refinancing your private student loans can have a lot of benefits, but look carefully at the terms of any potential new loan to ensure you're getting a deal that makes the most sense for your finances.

Three big issues to consider are:

Longer payment terms

If you choose to lower your monthly payment by extending the repayment term, you'll end up paying more interest —and thus more money in total — over the life of the loan. 

Variable interest rates

Very low interest rates and their resulting low monthly payments can look great when you're refinancing. Just be careful about focusing on short-term relief and ignoring the long-term implications. An interest rate that suddenly starts increasing could put you in a difficult situation if you’re not prepared.

Loss of federal loan protections

Federal student loans come with certain loan options such as loan forgiveness, loan forbearance or deferment, and income-based repayment plans that private student loans generally don't. Those programs can save you thousands of dollars. But, not all federal loans qualify for them. And some private lenders do offer options to pause or reduce your payments if you run into a hardship such as a serious illness. Make sure you fully understand what federal programs your loans qualify for, and, if those benefits are important to you, look for a lender who offers something similar. 

Why should I consider refinancing my federal student loans? 

Many of the same advantages you’d get from refinancing private loans apply to federal student loans as well.

If you refinance your federal student loans with a private lender, you could benefit from lower interest rates and lower monthly payments — because federal loans use a “one size fits all” fixed interest rate.

By refinancing, you may be able to get a lower interest rate based on your personal good credit scores, a cosigner’s strong credit, or assets like your home equity. Refinanced loans often have the option of fixed, variable, or hybrid interest rates.

You could also consolidate multiple loans into a single monthly bill or change the length of your repayment term.

However, if you have federal loans, there are specific questions you’ll want to ask yourself before refinancing.

Will I lose needed benefits?

Refinancing removes your eligibility for federal income-driven repayment options. If you have a low or unsteady income, are currently unemployed, or are changing careers, you may consider waiting to refinance until your financial condition improves.

Could my loans be forgiven?

People who refinance federal loans lose access to any student loan forgiveness programs. For example, if you're a federal employee, a teacher, or you work in a public service field, you could qualify for student loan forgiveness after 10 years of consistent payments. Refinancing eliminates that option.

With private loans, you’ll likely have the option to extend your payment term or take a new loan at a variable interest rate. Make sure you consider the long-term impacts of these decisions.

What do I need to get approved to refinance my student loans?

You can likely gather the materials you need and submit the online application to refinance your student loans in less than an hour.

Before you start the application, you’ll want to have the following on hand:

  • The most recent loan statement for each loan you want to refinance. Make sure it shows your loan servicer's name and address, your repayment start date, an estimated payoff date, the original loan balance, the current loan balance, and the interest rate and type.
  • A driver’s license, passport, or bank statement that can be used to verify your address.
  • Your last month’s pay stubs.
  • Your most recent tax return.
  • Proof of graduation.

To make a decision about your loan, the lender will review your application and check your credit score. A score above 690 is considered good.

In your paperwork, the lender will look for evidence of a low debt-to-income ratio, a solid repayment and employment history, and a college degree. Lenders want to provide loans to people they’re confident can pay back the debt. Each of these criteria helps a lender determine whether you’re a good candidate for a loan.

How will refinancing affect my credit score?

It's true that applying to refinance your student loans could have a slight and temporary negative impact on your credit. But if you do refinance, you may ultimately improve your credit score.

That's because a big part of your credit score is your payment history and how much debt you have. The credit bureaus that determine your credit score consider potential new debt, reports of debt being sent to collections, and how long you’ve had credit.

When you’re shopping for a new lender, your score might drop by a few points because each time a lender checks your credit, your score takes a tiny hit.

You can minimize the impact by limiting your comparison shopping to a 15-day timeframe and by filling out a full application for only the very best offers. Find out everything you can before you apply.

The small hit to your credit score may be worth it in the end if you do end up refinancing.

On-time payments are the most important factor in your credit score. If refinancing means you have a lower debt-to-income ratio and are better able to consistently make on-time payments, refinancing could ultimately improve your credit score.

Am I paying too much for my student loans?

If you could choose to pay less on your student loans, you definitely would. So how do you know if that’s an option?

Chances are if you’re paying more than 4% interest, you could have a lower interest rate — and a lower monthly payment — if you refinance.

How do I choose a lender?

With all the options out there, choosing a lender can feel pretty overwhelming. But don’t worry. With a few simple steps, you can make a well-reasoned decision.

  1. Compare your options. Create a spreadsheet so you can track the most important details of each loan offer and do an apples-to-apples comparison. Information you'll want to keep an eye on includes interest rates, loan terms, and any other factors that are important to you. (Or, just check out our picks for the best lenders for student loan refinancing.)
  2. Give yourself a time limit. Your credit score will take a tiny hit each time a lender performs a credit check, but keeping all your inquiries within a 15-day period can limit the impact. A shorter time frame also means interest rates are less likely to change while you’re shopping.
  3. Make strategic choices. Find out as much as you can about each lender’s expectations and terms before you apply. This will help you minimize credit hits and keep you from wasting time applying to a lender that isn’t a good fit for your financial goals.
  4. Contact lenders. Get in touch with the lenders you’re considering to see what their customer service is like. Once you refinance with a new lender, you’ll have a long relationship with them. Make sure you like how they work and that it's convenient to get in touch with customer service when you need to.

How do I apply for student loan refinancing?

If you’ve decided refinancing your student loans is right for you, start by performing an initial inquiry with at least three different companies. This informal step is not the same as a full application and won't affect your credit score.

Once you have key information (interest rate, terms, monthly payments, and total loan payment) from several companies, compare the results side-by-side. Calculate what your monthly payments would be and how much you’d pay over the life of the loan.

After you’ve made your choice, it’s time to apply. Gather the following documents:

  • information about your loans, including loan amount — both original and current, interest rate, servicer name and address, and payoff date.
  • your driver’s license, passport, or a bank statement to verify your address.
  • your last month’s pay stubs.
  • your most recent tax return.
  • proof of graduation.

The online applications will have prompts for what information you need and when/how to upload your documents.

When will I start saving money?

Once your application is approved, you’ll usually start saving money within three to four weeks. That’s about how long it takes for your new lender to pay off your old loans and request the first payment from you.

One word of caution: Don’t stop making payments on your old loan until you receive an invoice from your new loan servicer. Otherwise, you could end up missing the final payment on your original loan — racking up penalties and dinging your credit score just as you're trying to avoid that.