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.
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.
Do I need a cosigner?
You have a bad deal on your loans: You can’t afford your lender’s repayment plan, your interest rates are unreasonably high. But you can’t qualify for a refinancing loan on your own. In this situation, you might want to consider refinancing with a cosigner.
A cosigner is someone with stronger qualifications who takes on partial responsibility for your debt by applying with you and signing on to your loan. The most common cosigner on student loans are the student’s parents or relatives.
The process for applying with a cosigner works varies by lender. Some consider your cosigner’s information alone when determining your eligibility and rates. Others look at a combination between the two. Some only consider your cosigner’s credit to help you lower your rates — you’ll have to meet the basic eligibility requirements on your own.
It’s important to note that not all accept cosigners to begin with, so make sure your lender does before starting your application.
Signing a loan as a cosigner can be a risk — they’re taking on a debt load that they won’t personally benefit from but could hurt their credit. It can also damage your relationships if you fall behind on your repayments.
Luckily, many student loan refinancing options come with the opportunity to apply for cosigner release. Cosigner release allows you take your cosigner’s name off of your loan. To qualify, you typically make two or three years of on-time payments and be able to meet the lender’s credit requirements on your own. Some lenders let you keep your current rates and terms, while others might adjust them to reflect your solo creditworthiness.
How cosigner release works with student loan refinancing
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.
Top reasons to refinance student loans
If done right, refinancing can potentially save you thousands in interest payments. But saving money isn’t the only reason you might want to consider refinancing. These are some of the most common reasons borrowers decide to trade in their student loans.
1. Lower your monthly repayments
Took out a student loan without really thinking about how much it was going to cost you each month? You’re not alone. Private lenders generally don’t offer income-based or graduated repayment plans, meaning you could be on the hook for $800 a month as soon as you graduate.
While refinancing might not give you an income-based repayment plan, getting a longer loan term can make your monthly repayments more affordable.
2. Have more flexibility with repayment
While no lender is more flexible than the government when it comes to repayment plans, not all are created equal. Some offer more extensive forbearance options and in-school deferment so you don’t have to worry about your repayments if you’re planning on going back to school or want to make a career change. Some even offer support to entrepreneurs.
3. Combine multiple student loans
The truth is that most Americans wth student loans have more than one — and with multiple servicers. Keeping track of it can feel like a full-time job that you just don’t have time for.
Refinancing to consolidate your student debt into one loan (hopefully with more competitive rates) can make repayments a whole lot easier. It can also make it easier to apply for forbearance if you have an unexpected financial crisis — like getting laid off.
4. Take a cosigner off a loan
If your lender doesn’t offer cosigner release, the only other option you have to take them off your loan is to refinance it in your name. Not sure you’ll qualify on your own? You can You can even with a different cosigner.
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.
- Cosigner options. Maybe you don’t have the best credit or make quite enough money to qualify for lower rates. In that case, you’ll want to find a lender that allows you to refinance with a cosigner.
- 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 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.
When you see the range of current variable rates listed on a lender’s website, you might think you’ll always get a rate within that range. But that’s not exactly how it works.
Lenders calculate variable rates by giving borrowers either a smaller fixed rate called a margin rate or a smaller range of set rates — usually between 2% and 10% — and adding it to a benchmark rate like LIBOR or the Wall Street Journal Prime Rate. Benchmark rates change every one to three months to reflect lending market trends, depending on the type of rate your lender uses.
You can usually find the range of margin rates you might qualify for in fine print under the current variable rates, plus information on what type of benchmark rate it uses. Look for something like this:
*3-month LIBOR + 2.99% to 9.99%
One last thing you’ll want to consider is the maximum variable rate. Lenders often cap variable rates to protect borrowers from skyrocketing benchmark 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.
An in-depth look at how fixed and variable rates work on student loans
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How to apply for student loan refinancing
Applying for student loan refinancing is typically less complicated than applying for a student loan, but a bit more involved than getting another type of personal loan. Many lenders require you to have steady income or employment, good or excellent credit and a few years of credit history. And as we mentioned earlier, many also allow you to apply with a cosigner to help you qualify for a better rate.
You and your cosigner can usually apply online by filling out a simple application that often doesn’t take more than a few minutes. Often the most time consuming part is getting your documents together and waiting for your lender to reach out to your servicers. It can take as long as a month or two total to refinance your student loans.
Documents you might need
Your lender might ask you to provide some or all of the following documents when you apply to refinance your student loans.
- A state-issued ID. Almost all lenders need to see a state-issued identification on top of your Social Security number to make sure you’re you.
- Recent pay stubs. Your pay stubs serve two purposes: They show how much you make and prove that you’re employed full-time.
- Recent tax returns. If you’re self-employed or make a steady income without receiving pay stubs, lenders will often accept recent tax returns as proof of income.
- Statements from your loan servicers. Many lenders ask you to provide a recent statement showing how much you owe that lists your servicer’s contact information.
- A payoff letter. Some lenders also ask you to reach out to your servicer and ask for a payoff letter, or a statement that says how much you’ll owe on your loans in 30 days. Others will do this themselves.
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 Parent PLUS loans
Parent PLUS loans are slightly different than other types of federal loans. They come with higher interest rates and are one of the few cases where refinancing can help lower your overall loan cost. They’re also in the parent’s name, rather than the student’s.
Parents generally have two options for refinancing your parent PLUS loan: Refinancing in your name or refinancing in your child’s name. You’ll still be responsible for repaying your loan when you refinance in your name but you could have lower rates or better terms.
Refinancing in your child’s name allows you to get better rates, but more importantly it allows you to transfer the debt so you can qualify for other types of credit.
Not all lenders are willing to refinance Parent PLUS loans, so look for one that specifically mentions it does before you start your application.
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.