5 Tips to Get the Lowest Interest Rate When Refinancing Your Student Loans
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SoFi offers student loan refinancing at competitive fixed rates with no surprise fees. Enjoy lower monthly payments with flexible terms that fit your budget.
Swapping your private student loan for a new, cheaper model can make it easier to pay off your debt.
Interest rates on student loan refinance offers have ticked down over the past year, with fixed rates today starting around 4%. For private borrowers paying down debt with rates in the high single digits or above, refinancing to a more competitive rate could save thousands of dollars in the long run.
Refinancing private student debt has few, if any, downsides. (Federal borrowers should think twice before refinancing — more on that below.) But to get a good deal, you need to put your best financial foot forward and do your due diligence before choosing a lender. Here are five tips to help you snag a low interest rate when you refinance.
Improve your credit score
Before you even consider refinancing, you need to do a quick financial checkup. Refinance lenders are looking for candidates with steady employment, stable income and a history of on-time payments. While many lenders will accept borrowers with fair credit, they reserve the best rates for borrowers with good-to-excellent credit, according to Experian.
That means you need to shoot for a score in the upper 700s to be eligible for the lowest rates.
“The higher your credit score, the better off you’re going to be when you refinance,” says Connor Pierce, a certified student loan professional with Student Loan Planner.
If your credit score isn’t strong enough, you can consider refinancing with a cosigner (more on that below). Otherwise, you’ll need to take the time to improve your finances first.
Payment history and credit utilization are the most important factors in the credit-scoring model, so be sure you’re paying all your bills on time and looking for opportunities to lower your revolving credit. Lenders may also take into consideration your debt-to-income ratio, salary trajectory and savings, so it can help to focus on these as well.
Note that with private student loans, there’s no real penalty to refinancing multiple times if you can get better terms. Unlike with mortgage refinance, student loan refinance products have few added costs. There are typically no origination or application fees. So while you want strong credit before you refinance, you don’t need to wait until you’re a perfect candidate. If your credit score and income increase a couple years down the line (or if your finances are similar but rates drop), you can always refinance again.
Use a cosigner
As with any loan, you can boost your chances of approval and improve your terms if you have a credit-worthy cosigner.
While there are no hard rules, you generally want to use a cosigner who has good-to-excellent credit and reliable income. Cosigners can be particularly helpful for recent graduates who may not have had the time to build up their credit and employment history.
It’s important that you don’t enter into this agreement lightly. When a person cosigns for a loan, they are liable to pay if you cannot. Be sure you know exactly what you have to do to remove the cosigner later on. Some lenders offer cosigner release after as few as 12 monthly payments, but others require customers to pay for a few years or flat out refuse to take cosigners off the loan.
Shop around
Lenders have different requirements and underwriting models, so your refinance offers can vary from company to company.
“Depending on the lender, depending on how they look at you as a borrower, you’re going to get different rates,” Pierce says.
Aim to get quotes from at least a few different companies before you make a decision. Most lenders offer prequalification quotes so you can get an idea of your terms without having to go through a hard credit inquiry. Start by using an online marketplace to get several quotes at the same time. But be aware that these sites don’t always feature all major lenders, so you may have to do some additional rate shopping.
Choose a shorter repayment term
Repayment terms on refinance loans typically range from five to 20 years. Some borrowers look to refinancing as a way to lower their monthly payment, so they’re specifically looking for a longer term that will slash their bill.
Yet generally speaking, the best rates are tied to the shortest terms, Pierce says.
Opt for the shortest term your budget can comfortably afford. There are no prepayment penalties with student loans, so you can always pay extra if you end up being able to afford more than you originally planned.
Look for discounts, cash bonuses and membership benefits
Several professional organizations offer member discounts for refinancing with a certain company. These are particularly common in the medical field, with organizations including the American Medical Association, American Dental Association and the American Psychological Association all partnering with lenders to offer rate discounts to members.
You may also see companies advertising cash bonuses or working with corporate partners to offer deals to employees.
Still, you shouldn’t blindly refinance with one company simply because you can get a discount there. The same rules apply for shopping around to find the best deal.
Bonus tip: After you refinance, you can knock another 0.25% off your interest rate by signing up for auto pay, where your payments are deducted from your account each month. All major lenders offer this deal.
Should you refinance federal student loans?
As the Trump administration slashes staff at the Education Department and floats proposals to change forgiveness programs, federal borrowers who are anxious for stability might be tempted to refinance right now.
But they should think twice before doing so. When you refinance federal loans, you give up all federal borrower benefits, including flexible forbearance programs and income-driven repayment.
If refinancing didn’t make sense for you six months ago, it probably still doesn’t, Pierce says.
“With all the uncertainty, you don’t want to make a terminal decision,” he says. “You can always go refinance later. You can’t ever bring your loans back to the federal system.”
SoFi can help you consolidate your student loans
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