Paying down your student loans can feel like a never ending burden, but it doesn’t need to be. Refinancing your student loans could help you pay off your debt quicker. Money’s picks for the Best Student Loan Refinance Companies offers an analysis of the industry, and ranks the top refinancing companies based on the factors borrowers consider when looking to take better control of their student loan debt.
Money’s Top Picks to Refinance Student Loans
Student loan debt has been categorized as one of the most widespread financial burdens of our time, second only to mortgage loans, according to experts at Experian. Nationwide, 54% of college-bound students took on student loans in 2018 (that includes students in associate, bachelor and graduate degree programs). That year, 2 out of 10 people with student debt were behind on their student loans, and that number is on the rise.
The latest student loan statistics show that the average borrower owes at least $35,359 in student loan debt, and it’s not just a problem affecting the millennial generation. The growing reliance on student loans affects borrowers across all age groups and demographics. According to the U.S. Department of Education, at least 17% of the nation’s population with student debt were age 62 and older in 2019.
If you’re one of the millions of borrowers saddled with student loan debt, it’s important to know your options. For some borrowers, experts say refinancing your student loans can be a smart step to pay down debt at a lower interest rate. To help you get started, Money compared over 16 of the nation’s largest lenders by market share and narrowed down that list with insight from industry experts, selecting the four best student loan refinance companies of 2020.
More on Money’s Top Picks
Pentagon Federal Credit Union: Best Credit Union
|Minimum credit score||Declined to release publicly|
|Fees||No application, origination, or disbursement fee|
|Cosigner release||Yes, after 12 months|
|Interest Rate||Variable rates starting at 3.23% APR|
|Fixed rates as low as 2.01% APR|
Pentagon Federal Credit Union, known as PenFed, is the second-largest credit union in the nation that offers student loan refinancing. But what sets PenFed apart is that it’s one of the few lenders that allows married couples to refinance their student loans together.
When you refinance with your spouse, PenFed determines your interest rate by using the higher of the two credit scores. Additionally, it’s recommended that the spouse with the highest degree should apply as the main applicant to ensure the lowest rate. If one of you doesn’t have a degree, that’s ok. Unlike traditional refinancing, only one person needs to have completed a bachelor’s degree or higher to refinance through PenFed’s Couple Loan.
Joining PenFed is simple and can be done online through three quick steps. To gain eligibility, you must join via an association membership, employment, or military affiliation — a full list of options will be made available to you during the application process. To open your account, you must make an initial $5 deposit to become a member. Once that is completed, you will gain access to member discounts, an advice center, and financial offers.
PenFed offers fixed- and variable-rate options for borrowers — students, parents, and couples — refinancing up to $300,000 in private or federal student loan debt, with repayment terms ranging from five to 15 years. One main advantage of refinancing through PenFed is that it allows members to apply for cosigner release after 12 consecutive on-time payments, which is a shorter time period than other lenders require. Note, however, that PenFed requires a cosigner for loans exceeding $150,000.
PenFed Covid-19 Response:
If you’re facing temporary hardship such as job loss, PenFed offers relief for up to 6 months through forbearance or an adjustment to your repayment plan. During the current crisis, we recommend you contact PenFed so they can evaluate your repayment options if you’re in need of assistance. PenFed doesn’t currently discharge student loans in the event of death or disability.
Laurel Road: Best Student Loan for Medical Students
|Minimum credit score||690|
|Fees||No application, origination, or disbursement fee|
|Prepayment penalty||None. $400 bonus for every referral.|
|Cosigner release||No, you must reapply for a loan to remove a cosigner|
- 5 year: 2.41%-6.25%
- 7 year: 3.97%-6.30%
- 10 year: 4.21%-6.35%
- 15 year: 4.46%-6.60%
- 20 year: 4.71%-6.86%
- 5 year: 3.76%-5.75%
- 7 year: 4.21%-6.20%
- 10 year: 4.32%-6.60%
- 15 year: 4.72%-7.00%
- 20 year: 5.02%-7.23%
Disclosure: While refinancing your student loans may be a good option for some medical school residents, experts say most would be better off if they postponed refinancing their student loans until they finished their residencies.
Compared to other borrowers, medical school and other graduate students have a tendency to carry the highest amount of student loan debt. Once they graduate, most students will have built little to no credit history, which could limit their refinancing options. If you’re a medical resident or fellow, Laurel Road is one of the few fintech lenders that offers a refinancing option you can qualify for before you’re earning a full physician’s salary. In fact, it pioneered this type of residency refinancing loan in the student lending industry.
Laurel Road’s Medical School loan refinancing is available to borrowers who want to consolidate their federal and private loans to have a single payment. Interest will not compound during your residency and you’ll have the option to reduce payments to as little as $100 per month for up to four years, before you start your standard repayment.
If you’re a resident, eligibility will be based on your credit profile, monthly debt payments, and income projections at the end of your training period. Residents and fellows that have signed contracts to practice may qualify for Laurel Road’s standard rate offers.
Additionally, Laurel Road offers a refinancing option for up to $50,000 for those that have associate degrees in eligible healthcare fields. However, parents borrowing for children pursuing an associate degree are not subject to the $50,000 maximum amount.
Laurel Road Covid-19 Response:
If you’re experiencing economic hardship due to the Covid-19, Laurel Road is offering a 3-month forbearance option. If you are still unable to meet your payments once that initial 3-month period is over, you can request an additional 3-month forbearance. For more information, Laurel Road is posting immediate issues related to student loans on their Coronavirus Response page. This resource consists of a financial guide centered on the current pandemic and discusses how to better navigate hardship.
Earnest: Best Student Loan for Customizing Repayment
|Minimum credit score||650|
|Fees||No application, origination, or disbursement fee.|
|Prepayment penalty||None, as well as no late payment charges|
|Cosigner release||No cosigner release|
|Interest||3.21% to 6.67% variable and fixed rates.|
Variable rates are not available in AK, IL, MN, NH, OH, TN and TX
A growing player in the fintech lending space, Earnest also has the backing of student loan giant Navient. If you’re looking for a hands-on approach when managing student debt, Earnest offers multiple types of repayment options for student and parent refinance loans at competitive rates.
One feature that sets Earnest apart is its underwriting approach, which factors in your earning potential to determine your interest rate and payments. Your earning potential will be based on what field you majored in, what industry you work in, and your history on on-time payments. This student loan can be especially appealing to recent graduates or borrowers that may not have sufficient credit history to qualify for refinancing elsewhere.
Earnest also offers a “Precision Pricing” option that chooses a loan term based on your ideal monthly payment amount. Term lengths are available at 1 to 3 month intervals between 5 to 20 years, which amounts to 180 different options.
To refinance your student loan through Earnest you must have a minimum loan balance of $5,000, or $10,000 if you reside in California.
Earnest offers forbearance relief for borrowers going through financial hardship. They also provide a deferment option of up to 180 days for active-duty military members. You may also skip one payment every year, up to 12 times over the life of the loan. Finally, in the event of death or total and permanent disability, Earnest will discharge all of your private student loan debt.
Earnest Covid-19 Response:
In response to the current coronavirus crisis, Earnest is offering its borrowers 3 months of delayed payments through their disaster forbearance program. They are also promoting their Coronavirus Response Center, a web page that addresses common questions about hardship, disaster forbearance, and their other payment postponement options. In order to apply, you have to demonstrate evidence of how you’ve been financially impacted by the pandemic (furlough, job loss, or illness). Response times are currently between 1 to 2 business days from the date it is received.
Credible: Best Student Loan Marketplace
When it comes to shopping around for refinance rates, online marketplaces can help you compare multiple lenders at once to save both time and money. Credible’s online marketplace specifically caters to student loan refinancing, and it’s free for users.
Instead, partner lenders pay Credible a commission once you sign up. Although Credible only features 10 lenders, this marketplace stands out because it provides personalized quotes based on the financial information you provide. That means you don’t have to leave Credible’s site to view the rates you would get with the lender of your choice.
Credible’s lenders include a mix of banks, fintech companies, and state loan authorities such as Massachusetts Educational Financing Authority (MEFA) and Rhode Island Student Loan Authority (RISLA). While those loan authorities don’t always offer rates as low as some lenders such as SoFi, they do offer other advantages such as income-driven repayment (particular to RISLA), or higher approval rates.
As of June 2020, most of Credible’s partner lenders require a minimum credit score of 680 in order to qualify for refinance. According to Credible’s website, borrowers with good credit scores can obtain interest rates starting at 3.16% fixed and 2.17% variable.
Student loan refinancing opportunities are available for undergraduate, graduate, and Parent PLUS loans. To date, none of Credible’s lending partners charge prepayment penalties, origination, application, or other hidden fees.
Credible’s Partner Lenders Include:
- Advantage Education Loan
- Citizens Bank
- College Ave
Student Loan Refinance
Student loan debt in the U.S. reached an all-time high of $1.4 trillion in the first quarter of 2019, according to Experian data. That’s an increase of 116% in 10 years and represents one of the country’s most significant and widespread financial burdens to date.
With interest rates near historic lows, refinancing your student loans — whether federal or private — can save you money by replacing existing education debt with a new loan under a private lender. The new loan generally has a lower interest rate, and can offer a shorter or longer repayment term depending on whether you’re trying to pay off your debt quicker or lower your monthly payments.
Loan terms for refinanced loans typically range from 5 to 20 years and can feature either fixed or variable rates. Getting a low interest rate can get you on the path to pay down your student loan faster, but there are also drawbacks to refinancing.
Refinancing your student debt could cost you, especially if you have federal student loans. (More on that below).
Here’s what you need to know.
Your Student Loan Refinance Questions Answered
Is student loan refinance the same as consolidation?
People often confuse student loan refinance with consolidation, but they are not the same. Student loan refinance involves replacing an existing loan with a new loan featuring different terms. This involves combining multiple loans, including both private and federal, into a single loan.
Consolidation, on the other hand, refers to combining all of your federal student loans into one Direct Consolidation Loan with a single interest rate. Consolidation is different from a student loan refinance, mainly because this option is only available for federal student loans and borrowers will retain benefits associated with federal loans.
If you choose to refinance and have federal student loans, you’ll be giving up your federal student loan protections including student loan forgiveness, deferment, forbearance, and income-driven repayment plans.
Before choosing to refinance your student loan, experts recommend you take a careful look at the types of loans you have.
|Private Loan Refinance||Direct Loan Consolidation|
|Replaces one or more existing loans — federal or private — with a new private loan.||Combines your existing federal student loans into one federal student loan.|
|Available for federal and private loans, depending on the lender.||Available for federal student loans only.|
|Interest rates are determined by your credit history and potential market trends. This may result in a lower interest rate.||Your new interest rate will be the result of the weighted average of the interest rates on the loans you’re consolidating, so this option does not reduce the amount of interest you’re paying each month.|
|Credit history will be verified.||No credit check necessary to be approved.|
|Fixed- or variable-interest rate loans.||Can consolidate variable rate loans into a fixed-rate loan.|
|Multiple repayment terms available, often 5 to 20-years.||Consolidation loans offer several repayment options besides the standard 10-year repayment plan and can extend the term of the loan to between 12 to 30 years.|
|Parent PLUS loans can be refinanced under the adult child, relieving parents of debt.||Parent Plus loans cannot be consolidated under the adult child’s name.|
|You lose all benefits associated with federal student loans.||Retains all benefits and protections available to federal student loans.|
Who is eligible for student loan refinance?
To qualify for student loan refinance, private lenders require you to have good to excellent credit, a steady source of income, and a low debt-to-income ratio. You can refinance your student debt if you have private student loans, federal student loans, or both, but keep in mind that once you refinance federal loans they become private. That means you’ll give up certain protections, such as student loan forgiveness and income-driven repayment.
Refinancing may not be the right option for many, and qualifying borrowers should compare lenders and evaluate if this option meets their needs and long-term financial goals. Once you refinance your student loans, the process cannot be reversed.
Standard Requirements for Student Loan Refinance
Most lenders require credit scores above 650, though you’ll need a higher score to qualify for the lowest advertised rates. If your credit is too low or you have insufficient credit history, you’ll likely have to apply with a cosigner that has a strong credit report and a stable income.
You’ll need stable income to qualify for refinance. Lenders will evaluate your debt-to-income ratio (DTI) or the percentage of your gross income that goes toward paying your debt each month. Most companies require you to have a low DTI to qualify, but some may accept written job offers as sufficient evidence.
If you have insufficient credit history, don’t have sufficient income, or have a low credit score, a cosigner could help you qualify. A cosigner is a parent or relative that applies for the loan with you and takes on the responsibility of paying it back if you can’t. Cosigners must have sufficient income and strong credit.
A college degree isn’t always necessary to refinance your student loans, but having a degree gives you more options. Most lenders require you to have at least a bachelor’s degree to qualify for refinancing, and a small portion accept borrowers with associate’s degrees.
Most, if not all lenders require you to be a U.S. citizen or permanent resident to be eligible to refinance your student loans. If your student loans are foreign, it’s recommended that you build sufficient credit in the United States to qualify for refinancing.
Can refinancing my student loans hurt my credit score?
Refinancing your student loans won’t put a major dent in your credit score, but it will knock off a few points. When you’re shopping around most banks, credit unions, and online lenders will conduct a soft credit pull to give you an estimate of the interest rates available to you. If you decide to move forward with a full application, the lender will conduct a hard credit inquiry, which can deduct as much as five points from your credit score.
“I never worry about the initial hard inquiry when taking out a private student loan, you can quickly recover those few points within a couple of months,” said Rod Griffin, senior director of public education and advocacy at Experian. “Instead, I would focus on the long-term implications of consolidation or refinance, such as ensuring that you continue to make payments on time. Your scores will recover from that initial application.”
According to Experian, hard inquiries tend to knock 5 to 10 points off of your FICO score and are conducted with a formal application. When you’re shopping around, you may see several soft inquiries on your credit report however these will not impact your credit score.
Could it be more difficult to refinance my student loans if I have an associate degree?
It depends on the lender. While most private lenders require that you have a bachelor’s degree from a four-year institution, some lenders accept refinancing for associate degrees that meet certain criteria. You may be asked for evidence of your current enrollment status as well as your school’s accreditation as recognized by the U.S Department of Education and state.
Did the recent federal rate cut affect student loan refinancing?
There are many elements at play when it comes to how interest rates are determined, including market conditions. However, the Fed’s decision to cut rates to 0% earlier this year is not a determining factor in how private lenders set their interest rates in regard to refinancing your education debt. That being said, experts suggest you shop around to evaluate lenders with competitive rates before you put in a formal application.
Many lenders have temporarily stopped offering to refinance loans to borrowers with federal student loans, in light of a program put in place to help federal borrowers during the public health crisis.
Most federal student loan borrowers currently have their monthly payments suspended through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The program lasts through September 30, 2020. No interest will accrue on federal student loans during this time, either. (Read more about the CARES Act and student loans here.)
Refinancing federal loans is always risky, as you have to give up certain benefits and repayment protections offered by the government. And this instance — where lawmakers provided relief to federal borrowers but not private student loan borrowers — is another example of that, says Seth Frotman, executive director of the Student Borrower Protection Center.
“It’s incredibly important to ensure that you are utilizing and exhausting all of your federal student loan options first,” he says. “We now see the ramifications (refinancing) could have on borrowers, and the distinction between how Congress is treating federal and private student loan borrowers during the coronavirus crisis.”
Frotman, who previously served as assistant director and student loan ombudsman for the Consumer Financial Protection Bureau (CFPB), advises those considering to refinance their loans to take a look at the terms and conditions of their financial hardship before moving forward.
How can I reduce how much I borrow for college?
While refinancing your student loans may feel like a smart option to reduce your monthly payments, there may be other solutions that could improve your financial situation in the long-term.
Here are some expert tips on how to save money and fund your education
Federal work/study programs can be available on or off campus to undergraduate, graduate, and professional students with financial need. According to the U.S. Department of Education, the programs are often centered around work that’s related to your field of study.
Most colleges and universities, award students with need- or merit-based scholarships to fund your higher education. Filling out your Free Application for Federal Student Aid (FAFSA) is a requirement to accessing those institutional scholarships, as well as many outside grants or fellowships. Community scholarships target a variety of student populations, including first-generation and minority students.
If you’re not eligible for a federal work/study job, you can still ask for a part-time job or paid internship in your school or community. If you have the time to be able to handle both your coursework and a job, this extra form of income can help you pay for a portion of your studies.
Before settling on a university and looking into federal or private student loans, experts suggest that you take a careful look at your financial aid award letter. Look at how much the school is offering you in financial aid and compare it to your other offers. Determine the cost of attendance, how much you’ll receive in grants or scholarships, and how much you’ll have to pay out of pocket via savings, federal loans, or private loans.
Once you graduate, your options will become more limited. If you have a federal student loan, there are multiple repayment plans, such as income-based repayment or graduated repayment. Federal student loans also provide the unique benefit of public student loan forgiveness for borrowers who work in a public sector job for at least 10 years.
Student Loan Refinance Checklist
Refinancing your student loans can come with a number of benefits, such as reducing your interest rate, lowering your monthly payment, removing a cosigner, and combining multiple loans to have a single monthly payment. However, it may not be the best option for some students, especially those who only have federal student loans.
Experts recommend that you shop around and weigh your options with various private lenders first, as rates and terms can vary widely.
Here’s a checklist of things to consider before refinancing your student loans:
Talk to a Financial Advisor
Refinancing can be a big step, that’s why experts recommend you speak to a certified financial planner that has experience working with student loans and can provide you with educational resources on how to better manage your student debt.
According to Bill Wozniak, vice president of marketing at InvestEd, a financial planner or advisor can help you review your financial situation and determine which repayment plan or solution is best for you, ideally before you start school or while you’re in school and have more options available.
“You really want to think about it and understand the entire process before you consider refinancing that loan, especially with federal student loans. On the other hand, for most or many private loans — depending on the interest rate you have — refinance could still be very helpful,” said Wozniak.
Evaluate Your Credit
A credit report is a detailed document that includes your personal information, credit history, public records, credit inquiries and disputes. Your lenders and creditors provide this information to the three main credit bureaus, Equifax, Experian, and TransUnion, which use this data to calculate your FICO credit score. Your FICO score will essentially serve as a determining factor the great majority lenders will use to evaluate your creditworthiness or ability to pay back your loans.
Some banks, credit card issuers, mortgage and auto lenders allow you to view your credit scores for free through the FICO Score Open Access program.
You can also see all three of your credit reports, which contain your full credit history, once every 12 months through AnnualCredit Report.com. Keep in mind, however, that your credit reports will not contain your credit score. In order to obtain your credit score, you will have to make a payment directly to one of the three main credit bureaus — Experian, TransUnion or Equifax — or be enrolled in a program or service that offers it.
The benefit of evaluating your credit report is that it allows you to check for any incorrect items in your credit history and contest them directly with the credit bureaus to boost your score. Keep in mind, however, that removing incorrect information from your credit report won’t automatically improve your credit score, as changes to your credit may take up to 30 days to update.
Consider the Types of Loans You Have
In order to refinance your student loans, you will have to do so through a private lender. If you have federal student loans, that means you could be setting yourself up to lose exclusive benefits provided through the U.S. Department of Education, such as public service student loan forgiveness or income-driven repayment plans. Make sure you’re confident you won’t need to use these benefits later on.
Loans that are often refinanced include:
- Undergraduate Loans
- Graduate Student Loans
- Federal Loans
- Parent Loans
- Private Loans
Know Your Options
Before diving into a refinance, experts recommend you evaluate your lender’s credit score, annual percentage rate (APR), and debt-to-income ratio (DTI) standards. Making a rushed decision could be a double-edged sword. For example, you could have a lower monthly payment, but the new term could potentially add years and interest to your loan.
Compare Interest Rates
Verify whether your lender provides fixed or variable interest rate options. Experts suggest you should also keep track of the current economic conditions. If interest rates are low, it may be a good option to lock in a fixed rate. If you choose a variable interest rate, keep in mind that your payment may increase in the future depending on external economic factors. Make sure your interest rate reflects your long-term goals.
Define Your Repayment Term
If you’re refinancing your student loan, you may just want to pay off your loan as soon as possible. But keep in mind that when you refinance, you are essentially entering a new loan agreement. When you refinance, you’ll obtain a revised payment schedule and a new interest rate and repayment terms. If you plan to pay off your loan sooner than expected, make sure the lender won’t penalize you for early repayment.
Consider Whether They Offer Cosigner Release
Having a qualified cosigner can mean the difference between denial and approval, and could even help you get a lower interest rate and better terms, says Rod Griffin, senior director of public education and advocacy at Experian.
To refinance your student loans, you may be asked to name a cosigner to serve as an additional repayment source. A cosigner may even increase the amount you can receive as principal borrower. While this may be of help to you, remember that a cosigner is just as responsible for the debt as you are, so any missed payments could hurt their credit.
Many borrowers try to refinance their student loans in order to remove a cosigner from their existing loan. But if you have an insufficient credit history or a low credit score, you’ll likely still be required to apply with a cosigner. This is where cosigner release terms are important.
Some private lenders may offer a cosigner release option if certain repayment requirements are met by the primary borrower on the student loan refinance agreement. This allows the cosigner’s credit to be cleared of the debt. The loan will still remain on the cosigner’s credit history, but it will indicate that the loan is paid in full and closed, which may open new opportunities for them to take out new loans.
It’s worth noting that while most companies may advertise cosigner release, this doesn’t mean that they will grant it automatically. Getting approved for a cosigner release is rare. In fact, the CFPB revealed that 90% of private student loan borrowers that applied for a cosigner release were rejected in 2015.
Look for Hardship Options
Private lenders can be more restrictive when it comes to hardship relief. However, some online lenders offer student loan unemployment deferment and forbearance.
Deferment and forbearance programs are a form of payment relief that allow you to temporarily pause payments until you can get back on your feet. A typical forbearance or deferment period with a private lender is about 2 to3 months. Whereas the federal program allows much longer periods of forbearance or deferment.
Experts recommend you check whether your lender offers relief measures for circumstances beyond your control such as unemployment, furlough, disability, military leave, death, or if you decide to continue your studies.
Refinancing Your Student Loan Isn’t for Everyone
Student loan refinance may not be the right option for everyone, especially if you have federal loans. If you decide to refinance a federal loan it could mean losing valuable benefits such as income-based repayment plans, public service loan forgiveness, and more.
There’s no data source that provides a breakdown of which companies have the largest share of student loan refinancing, so to develop a list of the best student loan refinance companies to review we started by looking at the 20 largest consumer lenders by marketplace. This initially left out some new, fintech lenders that focus exclusively on student loan refinancing, and after interviewing industry experts, we decided to include some of those companies as well as online marketplaces. This gave us a well-rounded list of 16 companies, including alternative lenders, traditional banks, credit unions, and fintech companies that specialize in student loans.
To narrow down our selection, the companies had to be licensed to operate in at least 45 states. Furthermore, each company had to offer refinance options for students and parent borrowers. According to data from the U.S. Department of Education, 3.6 million American borrowers hold Parent PLUS loans. That amounts to $96.1 billion in student loan debt. This prompted Money to include companies that offered options for parent borrowers as part of our vetting process.
Additionally, lending institutions also had to demonstrate a solid financial reputation through authoritative sources such as the Federal Deposit Insurance Corporation (FDIC), Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), and the Better Business Bureau (BBB).
The number of complaints and lawsuits filed against each company with the CFPB and the FTC was among our most important vetting criteria. We didn’t consider companies that had recent lawsuits or regulatory actions in the last 3 years. That narrowed down our list to 6 lenders.
To further evaluate each lender’s reputation, we took a look at the CFPB’s Consumer Complaint database, leaving out companies that had over 50 complaints filed against them. While CFPB complaints are only registered once the company responds to the consumer and fails to indicate whether or not the issue was resolved, it does provide some insight as to the relationship they have with the consumer and the areas where they could improve.
Finally, to reach our top 4 picks for best student refinance companies, we evaluated each company based on 16 factors that, according to experts, are important to parents and students.
These can be condensed into the following four categories:
- Eligibility requirements: such as average credit score requirements, minimum income, and evidence of a degree.
- Loan specifications: including the types of loans offered, repayment options, fees, term lengths, and APR rates.
- Customer experience: a demonstrated commitment to the borrower through customer support which comes in line with the company’s reputation. In order to evaluate customer experience, we weighed the CFPB, and student-loan specific reviews as noted by the Better Business Bureau (BBB).
- Financial strength: This involves potential risk, competitive rates, benefits, and resources available to the borrower.