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Student Loan Refinancing: What are the Best Options?

Refinancing student loans can be a smart financial move for some borrowers. With student loan refinancing, you take out a new loan from a private lender to pay off your existing student loans. This allows you to consolidate multiple student loans into one new loan with hopefully better terms.

Some potential benefits of refinancing student loans include:

  • Lower interest rate to save money on payments
  • Consolidate multiple loans into one monthly payment
  • Flexible loan terms like 10-20 years
  • Option to remove cosigner(s) from your loan

However, refinancing federal student loans into private loans means you lose access to federal borrower benefits and protections like income-driven repayment and deferment options.

This guide will explain what you need to know about student loan refinancing and how to choose the best refinancing lender for your situation.

Overview of Student Loan Refinancing

Student loan refinancing involves taking out a new private student loan to pay off your existing federal and/or private student loans. This is done to try and get a lower interest rate or otherwise improved loan terms compared to your current loans.

Some key things to know about student loan refinancing:

  • You can refinance both federal and private student loans, but federal loans will become private when refinanced
  • Credit score, income, and debt-to-income ratio determine eligibility and loan terms
  • Most lenders require a minimum credit score in the high 600s and a steady income
  • No prepayment penalties or origination fees from reputable lenders
  • Can potentially release cosigner(s) after making on-time payments

The main goals of refinancing student loans are typically:

  • Lower interest rate to reduce monthly payments
  • Consolidate multiple loans into one payment
  • Change loan term length (e.g. 10-20 years)
  • Remove cosigner(s) from loan obligation

Refinancing is not recommended for all borrowers though. You should carefully consider the pros and cons of your financial situation.

Pros and Cons of Student Loan Refinancing

Here are some key pros and cons borrowers should be aware of when it comes to refinancing student loans:

Lower monthly payment – If you qualify for an interest rate reduction, refinancing can lower your monthly student loan payments. This creates cash flow savings each month Loss of federal benefits – Refinancing federal loans turns them into private loans, so you lose access to federal borrower protections and relief programs
Single payment – Refinancing allows you to consolidate multiple student loans into one new loan with just one monthly payment. Simpler to manage Qualifying can be difficult – Having a good credit score and stable income are key requirements to qualify and get the best rates when refinancing. Those with less-than-ideal finances may not be approved
Shorter/longer-term – You can change the repayment term when you refinance. Shortening the term saves on interest paid over the life of the loan. Lengthening the term lowers the monthly payments Missed signup bonuses – Many lenders offer discounts for signing up for auto-pay or referring other borrowers. You miss out on these bonuses when refinancing later
Removing cosigner(s) – Many lenders let you apply to release cosigner(s) after 12+ on-time monthly payments. This removes liability from the cosigner Reset grace period – Any remaining grace period on the loans will be reset when refinancing. The new loan repayment starts right away or after a short grace period
No prepayment penalties – Most lenders don’t charge prepayment penalties if you pay off a refinanced loan early. This provides flexibility if you come into extra money Variable rates could rise – If you refinance to a variable rate, the interest rate could go up over time as rates rise, raising your payment
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Overall, refinancing makes the most sense if you can qualify for a substantially lower rate and comfortable repayment term while knowing the trade-offs of losing federal loan benefits. Do the math to see if it makes financial sense for your situation.

How to Choose the Best Student Loan Refinancing Lender

If you’ve decided refinancing could be beneficial, choosing the right lender is key to getting the best new loan terms. Here are some tips for picking the best student loan refinancing company:

  • Shop and compare rates from 3-5 lenders
  • Review loan options (terms, fixed vs. variable rates)
  • Compare fees and discounts offered
  • Look for cosigner release options
  • Check customer service reviews
  • See if they service loans themselves or use a third-party servicer

Some of the top national lenders to consider for refinancing include:

  • Earnest
  • SoFi
  • Splash Financial
  • Laurel Road
  • ELFI
  • CommonBond
  • LendKey

Get rate quotes from multiple lenders to see who offers the lowest rate based on your credit profile and income. Look at both fixed and variable rates. A variable starts lower but can go up over time.

Evaluate the fees charged by different lenders as well. Many lenders don’t charge origination or prepayment fees, but some may. Read the fine print.

Also, look for discounts and perks offered. Many lenders provide a 0.25% rate reduction for enrolling in auto-pay. See if they offer any other discounts for things like referring a friend or being a customer.

Importantly, check that the lender provides a clear cosigner release option allowing you to eventually remove the cosigner after 12-24 consecutive on-time payments. This should be available with no fees or credit recheck.

Finally, research online reviews of the lender’s customer service. You want responsive support in case any issues come up with your new loan or account management.

By comparing multiple lenders, you can find the right balance of low interest rates, reasonable fees, and strong customer service when choosing a company to refinance with.

How to Apply for Student Loan Refinancing

Once you select your lender, the application process is fairly straightforward. Here are the main steps involved:

  1. Check eligibility requirements – Confirm you meet the lender’s minimum credit score, income, and other requirements. This will require providing information on your existing student loans, income, and debts.
  2. Submit application – Complete the lender’s online application providing your personal information, employment history, income details, student loan amounts, and cosigner information if applying with one.
  3. Review loan offers – If approved, compare the loan offers from the lender to choose the best rate and term option. Make sure you understand the terms and all fees involved before accepting.
  4. Sign loan agreement – Review and sign the final loan agreement documentation, which will include the refinancing loan amount, selected repayment term and interest rate, fees charged, and other terms and conditions.
  5. Wait for the loan to be funded – There is usually a short 1-2 week time period required for the lender to verify application details and fund the new loan.
  6. Existing loans paid off – Once funded, the lender will distribute funds to your existing loan servicers to pay off those balances and the refinancing will be complete!
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Be sure to continue making payments on your current loans until the refinance payoff process is complete. Sign up for electronic statements from the new lender to manage your new consolidated student loan account.

Alternatives to Student Loan Refinancing

Refinancing with a private lender is not your only option. Here are a few alternatives to consider:

  • Federal Direct Loan consolidation – You can consolidate federal loans through the government into a new Direct Consolidation Loan, which averages your interest rates. This preserves federal borrower benefits.
  • Change repayment plans – Adjusting repayment plans for federal loans may provide a lower monthly payment. Options include Standard, Graduated, Extended, and Income-Driven plans.
  • Deferment or forbearance – Temporarily postponing federal loan payments through deferment or forbearance provides short-term payment relief. Interest will continue to accrue in most cases.
  • Request lower payments – Contact your student loan servicer and ask if they have any programs to lower your monthly payment such as interest rate reductions.

For some borrowers, these options allow you to obtain lower payments or other relief without the need to refinance. Always explore federal-based programs first before considering refinancing.

Is Refinancing Right for You?

At the end of the day, carefully weigh the pros and cons of refinancing your student loans to decide if it aligns with your financial situation and goals. While refinancing can mean a lower monthly payment and interest costs over the long run, make sure you understand the trade-offs involved.

Use student loan refinancing calculators and compare rates from multiple lenders. Crunch the numbers to see if the potential monthly savings outweigh the benefits you would lose from federal student loans.

For many borrowers struggling with high-interest rates and monthly payments, refinancing can provide substantial savings that make it worthwhile. But it is a very personal decision based on your specific circumstances.

Do your research, run the numbers for your situation, and consider consulting a financial advisor to determine if refinancing student loans is the right path for you.


While refinancing federal student loans into private loans at a lower interest rate may seem appealing, this complex decision warrants trusted counsel.

Consult with a financial advisor to objectively weigh the long-term trade-offs, run repayment projections, and consider alternatives like income-driven plans.

They can provide personalized guidance on the wisest path for your situation. Additionally, review the legal details thoroughly with an attorney before committing, as you forfeit certain federal borrower protections when refinancing.

Having an expert explain the eligibility requirements, application process, and terms of the new private loan can prevent surprises. Refinancing may lower your rate and payment, but it restricts future flexibility.

With open-eyed financial and legal input on both the advantages and risks in relation to your unique goals and resources, you can determine if the potential savings outweigh the loss of federal benefits.

Don’t go solo—get professional opinions first so you can decide if refinancing your student debt is right for you.

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