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Published: Jul 22, 2022 14 min read
Illustration of two rows of students form behind wearing a graduation cap and gown
Janice Chang for Money
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In an ideal scenario, refinancing your student loans can help you secure a lower interest rate, reduce your monthly loan payments or both.

However, refinancing isn’t a smart move — nor is it always possible — for every student loan borrower. And there are several downsides to refinancing federal student loans that you should be aware of.

Still, if you refinance your student loan under the right conditions, it could save you thousands of dollars over the life of your loan.

Keep reading to learn whether refinancing is the right move. And if so, let our step-by-step guide walk you through the process.

Table of contents:

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How to Refinance Your Student Loan

Here’s a closer look at who can benefit the most from student loan refinance and exactly what is required to refinance your student loans.

1. Decide if refinancing is the right decision

Student loan refinancing can certainly help some borrowers, but the benefits of refinancing are sometimes overstated.

Your personal situation is what matters most. Here are some general scenarios where refinancing makes sense:

  • Your personal finances have improved since you took out your current loan(s). If your credit score, job situation and debt-to-income ratio is much better than when you first took out the loan, it may make sense to refinance. This also applies to the financial situation of your co-signer, if you have one.
  • You have private student loans. Only private lenders will refinance your student loans. Private lenders tend to have less generous terms than federal student loans, but if you already have private loans, there’s far less risk in refinancing.
  • The new loan fits your needs. Ideally, your new loan will have a lower rate and/or a lower monthly payment with a repayment period that fits your needs.
  • You’re OK with giving up federal borrower protections and programs. When you refinance a federal student loan, it becomes a private loan and you lose all eligibility for federal forbearance, loan forgiveness, income-based repayment and financial-hardship programs. Once you refinance, there’s no going back.

Also weigh these pros and cons before you refi your student loans.

Pros
  • You can take advantage of market fluctuations to lower the interest rate on your loans.
  • You can choose the length of your repayment term (usually between five and 20 years).
  • New rates or term length can lower or raise your monthly payments.
  • You'll have the option to add or remove a co-signer.
Cons
  • You won't be eligible for any repayment perks tied to federal positions, like military or volunteer service.
  • You won't be eligible for federal student loan forbearance or forgiveness plans (neither the existing options or any new plans announced in the future)
  • Private lenders usually don't offer income-based repayment options.

Thinking about your long-term goals with refinancing will prepare you to better evaluate different lenders’ loan repayment options. Are you trying to pay off your student loan debt as quickly as possible or reduce your monthly payments? Or is student loan consolidation (i.e. lumping all your private and/or federal loans into one monthly payment) your primary goal?

Once you have your goal, you can think more about the terms to look for.

2. Check your credit score

Just because you’ve decided refinancing makes sense for the type of student loans you have doesn’t mean you’ll actually get the better loan terms you want.

Most lenders have fairly strict requirements for whom they’ll let into their club. For starters, you’ll generally need a credit score between 650 to 680 — but that’s only to meet basic eligibility requirements.

PRO TIP: To receive the best student loan refinance rates, you should have a FICO score of about 750 or above.

To make sure you’re in that ballpark, check your credit score before you start applying anywhere. And to avoid any surprises when you're finalizing the terms of your new loan, get your FICO score, which is essentially a brand-name version of your credit score. Many lenders look at your FICO score — or they set outright FICO score requirements — when determining their loan rates.

If you get your credit score from a bank, credit-card provider or personal-finance app, the score you see might not always be your FICO score. If not, you can purchase the most accurate and up-to-date versions of your FICO score directly from FICO at myFICO.com. Alternatively, you can access a version of your FICO score for free from the credit bureau Experian.

If your score comes back lower than you anticipated, then your next step should be pulling your credit report to find out what’s affecting your score. Or you can find a co-signer (more on that below).

3. Compare rates among lenders

To get a big-picture view of the various APRs you may qualify for, you can use lender marketplaces like Credible to see offers from several larger lenders at once, whereas companies like Splash Financial and LendKey can connect you with refinance offers from smaller banks and credit unions.

Unfortunately, there’s no one website where you can search all the major refinance companies simultaneously, so you may have to visit multiple marketplaces.

In all cases, you can provide some basic information — such as your credit-score range, income and/or your current loan amount — to get a pre-qualified rate offer. Browsing around and receiving pre-qualified rates won’t affect your credit. At this point, the companies are doing a “soft” credit check that doesn’t affect your score.

Keep in mind that the lowest interest rate advertised by the company is likely a variable interest rate or variable APR. Variable-rate loans start with a low APR, but they can change frequently over the lifespan of your loan and will rise as benchmark interest rates rise (as they have been lately).

In most cases, you’ll want to go with a fixed interest rate. It will likely be higher than the starting variable rate, but the APR on a fixed-rate loan will never change once you’ve taken it out.

Now is also a good time to weigh the different lenders to ensure you’re getting not only the lowest rates, but also the terms and benefits that best fit your needs.

For example, some lenders allow borrowers to transfer federal Parent PLUS loans into the student’s name, while others offer unique repayment terms or other benefits, like career coaching, to their borrowers.

4. Ensure that you have all the necessary documents

The documents and information you need to apply for student loan refinancing can vary by lender. Here are ones that are commonly required:

  • Government-issued ID
  • Proof of employment or consistent income, which may include W-2s, 1099s or your recent pay stubs
  • Proof that you're a permanent resident or U.S. citizen
  • Proof of graduation
  • Student loan statements
  • Student loan balance

If you have a co-signer, similar information will be required of them, sans proof of graduation and student-loan statements.

For the exact document list, check with the lender you intend to apply with.

5. Apply to multiple lenders

The pre-qualified rates you get from sites like Credible or LendKey may not be the official terms of your refinanced loan.

Once you’ve chosen your top lenders, you’ll have to submit a full loan application to determine your new, official terms.

Lenders have slightly different underwriting rules, and it’s not uncommon for borrowers to be rejected by one lender and accepted by another. Applying to multiple lenders at the same time can increase your chances of being approved and also help you lock down the best rate. This is called “rate shopping.”

When you do this, the lenders are now making “hard inquiries'' on your credit as opposed to the “soft” ones from the pre-qualification stage.

Hard inquiries can ding your credit score in some cases. However, FICO says that multiple hard inquiries around the same time (between 15 and 45 days, depending on the different version of your FICO Score) are treated as one hard inquiry. This allows you to shop without dinging your credit for each application.

Once you send your applications out, it may take a few business days to get a decision from the refinance company.

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6. Consider using a co-signer

Not seeing terms or interest rates that you like? You could ask for a raise so that your debt-to-income ratio improves, or you could work on increasing your credit score. Both are solid long-term solutions.

A quicker option would be to find a credit-worthy co-signer.

In many cases, and especially when it comes to student loans, the co-signer is a parent. Friends, guardians and other relatives are OK too, though. But it can only be one other person, so the person with the best credit score and highest income would likely be the best choice here.

Bear in mind that asking someone to co-sign on your loan means you’re tying them to your financial outcomes with this specific debt. Also note that lenders aren’t required to grant you a co-signer release, which means your co-signer might be stuck on your loan until either the loan is paid off or you decide to refinance again without the co-signer.

If you decide having a co-signer makes the most sense, you’ll likely need to repeat steps No. 2 and No. 5 above. In other words, you’ll want to double check the co-signer’s FICO score and re-apply to the top lenders, now including the co-signer’s proof of income, debts and other applicable information.

7. Read the terms of the loan carefully

Before moving forward, make sure you understand the lender’s policy on forbearance or deferment periods — for example, if you lose your job, what kind of protections do you have? You should also look for information on the co-signer release policy, if there is one.

And always confirm that there are no origination fees or prepayment penalties. (These are both uncommon for student loans. None of the major lenders have them, but it never hurts to double check.)

8. Fill out the paperwork

Once you’ve been approved, what’s left is mostly paperwork. And luckily, you can complete this process entirely online with most lenders.

Again, always review the documents you receive carefully and check the fine print before signing anything. Confirm the loan terms you were approved for match the ones you applied for. For instance, make sure the APR of your loan is the fixed or variable rate you wanted. If all looks good, sign and return the requested documents to your new lender.

After you do this, you can expect one final item: the Notice of Right to Rescind.

Thanks to the Truth in Lending Act (TILA), you will have an additional buffer of time to cancel the loan if you want to, even after you’ve signed the dotted line.

By law, the lender is supposed to send you a separate and clearly titled Notice of Right to Rescind. This right gives you three business days to back out, and the clock starts ticking once you’ve received the notice — not once you’ve signed the loan agreements.

9. Keep making payments until the loan payoff is complete

When you refinance a loan, your new lender must then pay off your old lender. It may take a little while for that process to finalize, so be prepared to continue making your payments until you’ve received notice from your new lender that the debt transfer is complete.

Once the process is complete, remember to set up autopay with the new lender — this can chip a little more off your interest rate (usually a 0.25% rate discount).

How to refinance student loans FAQ

When to refinance student loans?

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Refinancing your federal or private student loans may be able to save you money under the right conditions. While current interest rates are higher than they were earlier in the pandemic, you may still be able to find a lower rate if your credit score and personal finances have improved since you first took out your loan.

Can you refinance federal student loans?

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Yes, you can refinance federal student loans. Doing so will turn them into private student loans because only private lenders offer this service. You will not be able to refinance through the federal government. What this means is that your loans through the Department of Education will lose their government perks (including the current student loan payment pause, Public Service Loan Forgiveness, and any possible future federal loan forgiveness) when you refinance them. Because of this caveat, you should carefully weigh whether potentially better loan terms with a private lender is worth giving up your federal-loan perks.

How to refinance private student loans?

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The process for refinancing student loans, which is laid out above step-by-step, is the same for private and federal loans alike. Refinancing private student loans actually comes with fewer downsides than federal loans. In short, you should first decide whether refinancing makes sense for you and whether you meet the minimum requirements for refinancing. If so, shop around using marketplaces like Credible or LendKey, narrow down your top lenders, apply and pick the lender with the best terms.

How often can you refinance student loans?

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You can refinance your student loans as many times as you want. There's no limit. However, refinancing only makes sense if you are able to lock in better loan terms. It may make sense to refinance again if you (or your co-signer) have improved your credit score or landed a higher-paying job since the last time you refinanced.

How long does it take to refinance student loans?

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The amount of time it takes to refinance your student loan will vary by company. Generally, companies estimate that it takes three weeks or fewer from start to finish. Browsing around for loan terms and getting pre-qualified may only take a few hours. The official application process shouldn't take more than a day if you have your documents ready. The loan approval process takes about three business days but may take longer if you have a co-signer. The bulk of the process is waiting for the final paperwork to clear and for your new lender to pay off your old lender. That may take a few weeks.
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Summary of Money’s guide to refinance student loans

  • First, determine if refinancing your student loans is a good financial move. It’s not right for everyone, especially those with federal loans with moderate or low interest rates.
  • Next, you’ll want to check your credit before shopping around. Generally, you’ll need a score of at least 650, but oftentimes much higher to get a lender’s lowest rate.
  • If you don’t have the credit score needed to get the loan terms you want, consider using a co-signer who has a higher credit score.
  • Apply to several of the top lenders you come across. It can increase your chances of getting approved and help you lock in the lowest rate available to you.
  • From there, a bit of paperwork is all that’s separating you from a new loan with better terms. Even after you sign, continue to make your student loan payments with your old lender until you’re notified that the debt transfer is complete.