You could save big on your student loan debt by changing up your lender.
We walk you through the basics of student loan refinancing to help you decide if it could help you save and what you need to look for to find the best deal.
LendKey Student Loan Refinancing
Find competitive rates and unmatched loan benefits from LendKey’s network of not-for-profit lenders.
- Maximum amount: $300,000
- Minimum amount: $7,500
- Repayment term options: 5, 7, 10, 15 or 20 years
- Fixed and variable rate options available
- Must be a US citizen or permanent resident
- Must have an undergraduate or graduate degree
Compare student loan refinancing options
How does student loan refinancing work?
Student loan refinancing works like any other type of refinancing: You take out a loan with lower rates and more favorable terms than your current student loan and use that to pay it off in full. Then, you repay your new loan according to your new loan terms. It doesn’t reduce the amount of debt you have, but it can reduce the amount you pay in the end.
When done right, refinancing can have you paying less interest in a more reasonable amount of time that’ll help you save big in the long run.
Should I refinance my student loans?
Refinancing sounds great, but it’s not for everyone. You’ll want to make sure you’re in the right position to get better terms through refinancing before you spend hours researching and comparing lenders.
You’re good to go if:
- You have good credit. Good credit means you’re eligible for lower interest rates and fees. If you don’t know your credit score, it’s worth finding out.
- Your income is more than the amount you owe.Your debt-to-income ratio is often a factor lenders consider when calculating interest rates and fees. A low debt-to-income ratio means you have a higher chance of getting a good deal through refinancing.
- You’re paying high interest rates. The likelihood of finding a better deal through refinancing is higher if your interest rates are steep to begin with.
- You have a graduate degree. It’s not always necessary, but some lenders like to see you’ve put your student loans to go above and beyond with higher education.>
You might want to hold off if:
- You have bad credit. You may be better off sticking with the rates you have if your credit score is less than fair.
- You’re unemployed. It’s harder to find a better deal if you can’t prove to lenders that you have the income to pay off your loans.
- You owe more than you make. A high debt-to-income ratio could result in higher rates and fees, meaning you might have trouble finding a better deal.
- You’re new to the workforce. Savvy recent grads might want to jump on the refinance train as soon as they get their degrees. But they probably won’t get the best rates — lenders prefer people who’ve been working for a while.
How much could I save by refinancing?
Your savings depend on factors such as interest rates and term lengths. Let’s take a look at how much one person could stand to save by refinancing a $40,000 loan with a lower interest rate and shorter term.
Interest rate: 6%
Remaining loan term: 15 years
New interest rate: 3.99%
New loan term: 10 years
|Original loan||New loan||Your savings|
|Term||15 years||10 years||5 years|
They’d save over $12,000 over the long run, but they’d have to pay $67 more each month.
Want to know how much you could save?
Use our debt consolidation calculator to find out how much you could personally save by refinancing. Just click Calculate my savings below and enter information from your new and old loan.
What to look for when choosing a refinancing loan
- Interest rates. Aside from looking at which lender offers lower rates, pay attention to fixed-rate and variable-rate options.
- Fees. Read the fine print and online reviews, and call customer service to avoid being saddled with high or unexpected fees.
- Loan amount. Take extra care to your loan amount if your student debt tops $100,000 — many lenders have ceilings on their refinancing options.
- Term lengths. Even if a lender offers incredibly low rates, you might want to go for another option if you can’t realistically pay off your loan in the term lengths they offer. You’ll also want to avoid taking on a longer term than you need to avoid paying unnecessary interest.
- Customer service. Even after all the research and comparing, it’s likely you’ll run into something that leaves you scratching your head. Great customer service not only puts you at ease but also helps you avoid falling into a cycle of debt if you’re suddenly unable to pay your loans.
- Perks. Loyalty discounts, unemployment protection and better rates for parents, doctors and lawyers are a few examples of perks lenders offer. See if you qualify for any of these — and if they mean you’ll end up paying less than you would with competition.
Fixed vs. variable interest rates
If you’ve already looked at a few refinancing loans, you’ve probably noticed that lenders list two different types of interest rates: Fixed and variable. What does this mean? Let’s take a look.
Fixed interest rates
Fixed rates are what they sound like. You qualify for one interest rate that stays with you throughout the entire life of your loan. Your monthly repayments stay the same and it’s easy to plan your payments. Fixed rates can be a safer option: There’s no surprises here.
Variable interest rates
Variable rates are slightly more complicated. They’re subject to change once every month or three months, depending on your lender. While they typically start lower, they can often get as high as your highest fixed interest rate and rarely stay the same.
When you see the range of current variable rates listed on a lender’s website, you might think you’ll fall into that range. But that’s not entirely how it works. That’s because lenders calculate variable rates by giving borrowers a set rate — usually between 2% and 10% — and adding it to a baseline rate like LIBOR or the Wall Street Journal Prime Rate. Baseline rates change every one to three months to reflect lending market trends, depending on the type of rate your lender uses.
So, when you’re looking at variable interest rates, it’s more useful to compare the range of set rates the lender gives borrowers than the variable rates you see advertised on the site. You can usually find this range in small print under the current variable rates, plus information on what type of baseline rate it uses. Look for something like this:
*3-month LIBOR + 2.99% to 9.99%
Translation: You’ll have to pay at least 2.99% to 9.99% plus the current 3-month LIBOR rate — now 1.63% — in interest if you go with the variable rate from this lender. If the 3-month LIBOR rate changes to 3%, you’ll have to pay between 2.99% and 9.99% plus 3% during those three months.
One last thing you’ll want to consider is the maximum variable rate. Lenders often cap variable rates to protect borrowers from skyrocketing baseline rates. You might have to reach out to your lender to find out what the maximum variable rate is — usually it’s around the maximum fixed rate or slightly higher.
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Federal loans and refinancing
Refinancing is a bit more complicated when it comes to student loans, in part because of the popularity of federal loans. While you can refinance a federal student loan with many private lenders, you’ll have to consider more factors than you would when refinancing a personal loan.
What am I giving up when I refinance my federal student loans?
It used to be that subsidized federal loans almost always came with lower interest rates than private loans, so refinancing didn’t make that much sense. That’s not necessarily the case today.
Still, all federal loans come with unique benefits that you stand to lose, such as:
- Federal forgiveness programs. Professionals like public servants, teachers, nurses and members of the military are eligible to have their a portion of their student debt forgiven through federal programs.
- Loan repayment assistance. Doctors, lawyers and other healthcare professionals may be able to pay off part of their loans through select programs.
- Extended terms. With longer terms, you’re able to make smaller monthly payments over a longer repayment period.
- Income-driven repayment plans. Your payments are determined by what you can afford.
Refinancing vs. consolidation: What's the difference?
Refinancing and consolidating are almost the same except for one key difference: Refinancing involves one debt, while consolidating involves multiple debts. If you have multiple student loans that you want to pay off with one monthly repayment, what you’re looking for is actually a consolidation loan, not a refinancing loan.
So, should you start looking for debt consolidation loans? Not necessarily. Many lenders offer both student loan refinancing and consolidation, but refer to it using just one term to avoid confusion. Ask lenders if there’s a limit to how many loans you can use your refinancing loan for to be sure you’re eligible.
If you’re one of the 44 million Americans with student debt, you may want to look at what you can get out of student loan refinancing. Even if you have a federal subsidized loan, it’s possible you borrowed during a year when interest rates were unusually high across the board.
If you do decide to refinance, make sure you’ve taken a look at all of your options before deciding on a lender.