Refinancing your student loans can potentially lower your monthly payments, save you money on interest over the lifetime of the loan and make it easier to manage your loan payments.
While many private student loan refinance companies offer loans that can help you achieve these goals, there are also important differences to consider. Eligibility requirements, loan terms and fees can vary from one lender to the next, and the interest rate you receive may depend in part on which lender you use. There may also be additional benefits and features, such as discounts or free services, that vary depending on the choice you make.
Whether they’re fun features or important fine-print terms, the potential differences means its important to carefully consider your options before choosing a lender.
Even if you qualify, there’s a lot to consider before applying for refinancing and accepting a loan offer.
Refinancing your student loans generally offers up to six benefits:
- Lowering your interest rate. If you have good to excellent credit and low monthly debt obligations relative to your monthly income (or a co-signer with these qualifications), your new loan may have a lower interest rate than the weighted average interest weight of your current loans. Reducing your interest rate can decrease the overall cost of repaying your loans.
- Changing interest-rate type. If you currently have a variable-rate loan and want to lock in a rate and corresponding monthly payment, refinancing to a fixed-rate loan could be a good idea. Likewise, if you have a fixed-rate loan and think you’ll be better off with a variable-rate loan, you may need to refinance to switch.
- Lowering your monthly payment. You may be able to lower your monthly payment by choosing a longer loan term or qualifying for a lower interest rate. Having a lower monthly payment can free up money for other necessities, or you can pay more than the required monthly payment to pay off your loans early.
- Consolidating multiple loans into one. Combining multiple loans together, especially if you’re currently paying multiple servicers, can make it easier to track and manage your expenses.
- Releasing a co-signer. If you initially took out private student loans with a co-signer, and the lender doesn’t let you release a co-signer, your only option if you want to take on full responsibility for the loan is to refinance the loan in your name. Or, refinance with a co-signer and use a lender that may let you release the co-signer later.
- Transfer parent loans. Some parents take out student loans to help pay for a child’s education, with an understanding that the child will repay the debt after graduating and finding work. Having the child refinance his or her student loans, and including the parent’s loans, lets you transfer the legal responsibility for the debt to the child.
Refinancing can carry significant risk — especially if you’re considering refinancing federal student loans.
There are a few potential disadvantages, regardless of whether you’re refinancing private or federal student loans. These include:
- Losing discounts. Some loans or lenders may offer several benefits, including an interest rate or principal reduction, or an above-average interest rate autopay discount. You may lose these if you refinance your loans.
- Increase your monthly payments. Paying more each month will get you debt-free quicker, but it can also put a strain on your budget. This can happen even if you lower your interest rate, when your new term is shorter than the term on your current loans.
Additionally, some drawbacks that are specific to refinancing federal student loans with a private student loan.
- No income-driven repayment plans. Federal student loans may be eligible for income-driven repayment plans, which can lower monthly payments depending on your income. Access to these programs can make it easier to continue making student loan payments, as the required payment could drop all the way to $0, which can keep a low income from hurting your credit or causing you to default on the loan. The remaining balance of eligible student loans on income-driven plans may also be forgiven after 20 to 25 years of making payments.
- No forgiveness programs. Some federal student loans are also eligible for forgiveness, discharge or cancellation under certain circumstances. For example, you may be able to get loans forgiven after making 120 qualifying monthly payments while employed by a government or nonprofit organization. Loan balances may also be discharged due to death or total and permanent disability, which isn’t always the case with private student loans.
- Less forgiving deferment and forbearance options. If you’re having trouble making payments due to the loss of a job, sickness or taking on a low-payment service job (such as in the Peace Corps), you may be able to defer your payments or put your loans into forbearance. If you have federal subsidized student loans, the government may even pay the interest on the loans during deferment. Private lenders often also offer forbearance and deferment options, but they may not be guaranteed, could be harder to qualify for, might last for shorter periods and your loans will generally accrue interest.
- Quicker defaults, with more severe consequences. If you don’t make payments on your student loans for long enough, you may default on the loan and immediately owe the entire remaining balance (likely plus late payment fees). Federal loans may go into default after 270 days of nonpayment, and there are ways to get them out of default, and in some cases restore your credit. Private student loans often go into default much sooner, and there may not be a way to restore the loan or your credit.
Considering all these pros and cons, how they apply to your situation and possibilities for the future when you’re thinking about refinancing your student loans can help lead you to an informed and fruitful decision.
To zero in on the best student loan refinance companies, SimpleTuition started by identifying the 14 largest national lenders that offer private student loan refinancing. We scored each lender on the following criteria and the seven lenders with the best average score received the “top lender” designation.
High and low interest rates: We found the lowest and highest possible annual percentage rate (APR) with either fixed- or variable-rate loans, and compared with the average lowest and average highest APR. We awarded top marks to whichever lenders had below-average APRs.
Application or origination fees: Does the lender either charge a fee for applying for student loan refinancing or have an origination fee that’s charged once you agree to take out the loan? None of the 16 largest student loan refinancing companies charge either fee (these aren’t common with student loan refinancing in general), so they all got top marks.
Ability to refinance Parent PLUS loans: Does the lender either let you refinance a Parent PLUS loan with your loan or offer Parent PLUS loan refinancing for parents? Points were taken away if the lender didn’t offer either option.
Maximum repayment terms: If you want to lower your monthly payments, you may want to choose the longest loan term possible. Since student loans can’t have a prepayment penalty, you can still make additional payments and pay off the loans early if you’re able to pay more later. All seven of the top lenders offered up to a 20-year term, but some other large lenders capped out at a 15-year term.
Repayment term choices: While a longer repayment term can decrease your monthly payment, a shorter term could give you a lower interest rate. Which is best depends on your circumstances, so the more choices the lender offered, the more points it received.
Soft credit check prequalification: Some lenders let you see if you can qualify for a loan, and show you estimated loan offers, with a soft credit check (the kind that doesn’t hurt your credit score). It’s a great way to compare offers without a full commitment, and all seven lenders offered this.
Ability to release a co-signer: You may need a co-signer to qualify for refinancing, or to help you get a lower interest rate. But some lenders let you release the co-signer and take full responsibility for the loan after making some consecutive on-time payments and passing a credit check. Four of the seven lenders got top marks for offering a co-signer release option.
Autopay discount: Many lenders offer a 0.25 percent interest rate discount if you sign up for autopay. We took a point away if the lenders didn’t offer any discount, and gave extra points to the few lenders that offered a larger autopay discount option.
Offers unemployment protection or forbearance: If you’re having trouble making payments, some lenders let you temporarily suspend your monthly payments without having to pay a late payment fee or defaulting on the loan. Most of the top lenders offered up to 12 months of reprieve over the lifetime of the loan, and one received a higher score for offering up to 18 months.
Extra credit: Anything else that might appeal to borrowers, such as SoFi’s free career coaches or CommonBond’s promise to fund the education of a child in need, earned the lender extra credit.
In descending order, the following private student loan refinancing companies got the best average score:
- Laurel Road
- Citizens Bank
- Education Loan Finance
More details about our Top Student Refinance Lenders
- Higher chance of approval with our network of not-for-profit lenders
- 2 minute rate check with no impact on your credit score
- No handoffs – you'll be with our fully trained customer care team from your application to your final payment
- Available for private, federal, undergraduate and graduate school student loans
- Never any application or origination fees, or prepayment penalties
- Save over $24,000 on average and pay no fees!
- Refinancing and consolidation of private and federal student loans
- 5, 7, 10, 15, and 20 Year Repayment Terms
- Unemployment protection – put your payments on hold while they help find you a new job
- Social good - for every fully funded degree through CommonBond, they fund the education of a student in need abroad for a year
- Easy, entirely online application process
- Get a personalized rate offer with no impact on your credit within 2 minutes
- No origination or application fees
- No prepayment penalties
- Available for private, federal, undergrad, and graduate school student loans
- Borrowers save more than $20,0004 over the life of their loan on average when refinancing with Laurel Road
- No application or origination fees
- Unemployment protection: If you lose your job, they will pause loan payments and help you find a new job
- No minimum income requirement
- Career support to help you advance in your career and enhance your personal brand
- Available for both private and federal loans
- Lower rates based on your full financial profile, not just your credit score
- Save money on your student loans by refinancing with Earnest
- Flexible terms and lifetime service provided in-house
- No fees for origination, prepayment, or loan disbursement
- Two-minute rate check with no obligation or impact to your credit score
- Great rates and flexible terms that could lower your overall monthly payment amount each month.
- Make just one payment each month so you don't have to worry about multiple payments and due dates
- No fees ever – $0 application, origination or late fees
- 0.25% interest rate reduction while enrolled in automatic payments (included in lowest listed APRs)11
Refinance Student Loans: The Guide
Many of the 44 million Americans who have used student loans to pay for college could benefit when they refinance student loans borrowed in pursuit of their degree. Graduates (and parent borrowers, too) can often lower a monthly payment, find a better interest rate, and/or combine their several loans into one convenient payment. Our Guide to Refinance Student Loans provides a quick overview to help you make the right decision about whether or not to refinance student loans.
What is student loan refinancing?
Student loan refinancing describes the process of taking out a new loan where the proceeds are used to pay off an existing federal student loan(s) and/or private student loan(s).
Who can refinance student loans?
Anyone who holds education debt, including federal student loans, private student loans, or federal parent loans, is eligible to refinance student loans. However, lenders have credit, income, and other requirements that can severely limit a borrower's eligibility for refinancing.
What is student loan consolidation?
Student loan consolidation is a form of refinancing available from the US Department of Education that is available only for federal student loans and parent PLUS loans. Learn more about consolidation.
How does one refinance student loans?
To refinance student loans, a prospective borrower chooses a refinancing lender, and completes an application. If a co-signer is required, the co-signer must also complete a section of the application. Once the student loan refinance is approved, the new lender will work with the borrower to identify the student loans to be refinanced.
The lender will do most of the leg-work involved in contacting the previous lenders, but the borrower is often called-upon to verify account details. There are stories of borrowers refinancing as many as 25 (!) student loans into a new loan. In cases where there are many existing loans, this part of the process can take a few days to a few weeks. Once details on each of the existing student loans are in hand, the new lender finalizes the process by releasing money directly to the previous lenders.
Important! Continue to make regular payments on the existing loans until the new loan is funded.
Is student loan refinance right for me?
Refinance student loans with your personal objectives in mind. Are you trying to save money on your monthly payment? Are you trying to lower your total cost of borrowing? Are you trying to streamline your finances by replacing several loans with one new loan? Those three considerations are the main drivers of why graduates and parents refinance student loans. If refinancing helps you meet one of these objectives, then it might be the right step for you.