When you refinance student loans, you pay off your existing loans with a new loan with new terms from a private lender. The primary benefit of refinancing is that you can save money over the life of the loan if you’re able to lower your interest rate.
While certain lenders will refinance federal and private loans together, you’ll lose access to federal benefits and protections if you refinance a federal loan, so it only makes sense if you don’t plan to use any federal programs.
So can you refinance student loans? Here’s what to know about who is eligible for refinancing, types of student loans that can be refinanced, and more.
Who Is Eligible for Student Loan Refinancing?
A borrower generally needs to meet specific credit score, income, and degree requirements to qualify for a student loan refinance. Ideally, a borrower will qualify at better terms than their existing loans, such as at a lower interest rate. As mentioned, the main goal of refinancing is to lower your interest rate so you can save money over the life of the loan.
The process of refinancing student loans involves shopping around for a lower interest rate and then filling out an application for a refinance. Once a refinance is approved, your new lender pays off your old lender. After you receive the new loan, you make payments to your new lender. Here are some of the common requirements to qualify for a student loan refinance.
Credit Score Requirement
Your credit score is a three-digit number that summarizes how well you pay back debt. For refinancing student loans, you’ll typically need to have a credit score in the high 600s to qualify.
You may need to raise your credit score before you apply for student loan refinancing. You may be able to raise your credit score by doing the following:
• Pay your bills on time
• Dispute errors on your credit report
• Keep your credit utilization rate — the amount you use on your revolving accounts such as credit cards — low compared to your total available credit
• Increase your credit limits
• Remove negative entries to your credit report (if old collection accounts show up on your credit report, request that they be removed)
Recommended: How Do Student Loans Affect Your Credit Score?
High Enough Income
Student loan lenders often require you to show proof of a certain level of income in order to qualify for a student loan refinance. They want to make sure you can repay your new loan.
They will want to know how your income compares against the amount of debt you have and they’ll calculate your debt-to-income (DTI) ratio to find out if you qualify. A DTI ratio compares the amount you owe each month to the amount of income you bring in—it’s your total monthly debt payments divided by your gross monthly income. It’s a good idea to shoot for a debt-to-income (DTI) of under 50%, though a lower DTI (such as under 35%) is even better.
Wondering “Can I refinance my student loans if I don’t have a high enough DTI ratio?”
To improve your DTI ratio, consider making more payments toward your debt, avoid taking on more debt, increase your income, and postpone making large purchases so you’re not using as much of your credit.
In most cases, you’ll have to have a degree or leave college in order to qualify for a refinance. Some lenders won’t allow a refinance if you attended a school that didn’t allow students to accept federal aid dollars.
What Types of Student Loans Can Be Refinanced?
Can you refinance private student loans? Can you refinance federal student loans? Yes, if you choose a lender that refinances both, but note that you can only refinance with a private lender — you cannot refinance federal loans and private loans into a new federal loan. (When you combine several federal student loans into a single loan through the federal government, that’s federal student loan consolidation, which is different from refinancing and generally doesn’t save you money.)
Private Student Loans
Private student loans are issued by a credit union, bank, or online lender, not the federal government. They typically carry a higher interest rate compared to the interest rate on federal student loans.
You may be able to get a lower interest rate on your existing private student loans if you refinance. You may want to consider prequalifying for a loan, which means that a lender will do a soft credit check. Checking with several lenders can help you compare the interest rates among lenders. It might be a good idea to consider refinancing private student loans if you know you’ll get a lower interest rate. A student loan refinance calculator tool for comparing refinance rates can help.
Federal Student Loans
Federal student loans come directly from the federal government and specifically, from the U.S. Department of Education. Can you refinance federal student loans? Yes, but refinancing your federal student loans turns your student loans into private student loans—and you’ll lose access to federal benefits and protections.
When you refinance federal student loans, you lose access to federal loan programs like income-driven repayment, which sets your payments at an amount based on your family size and income. It could also mean that you might forgo loan forgiveness, which means you don’t have to pay back some or all of your loan. You should consider whether it makes sense for you to give up these federal loan programs before you refinance.
Why You Might Consider Refinancing Your Student Loans
If your main goal is finding a way to pay less on your student loans and you’re able to find a lower interest rate on your student loans, refinancing might make a lot of sense for you.
It can also be a good option if you’re interested in merging your student loans together to simplify your payments. And if you’re sure you won’t need to access federal benefits because you have a reliable income and job security, it may also be a better option than federal student loan consolidation, which usually doesn’t end up saving you money.
Recommended: How Student Loan Refinancing Works
Why You Might Avoid Refinancing Student Loans
Despite the attraction of saving money with a possibly lower interest rate or merging several loans together, you might not want to lose out on federal student loan protections. You could lose out on temporary loan payment relief (deferment or forbearance) or loan forgiveness and discharge.
Losing out on federal student benefits may hurt you later on. Be sure to consider what you’ll do if you lose your job or have trouble making your student loan payments down the road.
Can You Refinance Student Loans While Still in School?
You may not be able to refinance your student loans while you’re still in school. However, your best bet is to ask your lender directly. Refinancing with a co-signer may help you improve your application and secure better terms.
If you decide you want to go for it, you can submit a formal application, which includes the lender looking into details like the ones listed above, like income degree requirements and personal details. At this point, a lender does a hard credit check. Once your old loan is closed, you’ll then make regular payments to your new lender.
Student Loan Refinancing With SoFi
So can you refinance student loans? Lenders generally review information like your credit history, income, debt-to-income ratio, and other factors to determine what type of interest rate and loan terms you may qualify for.
Refinancing can save you money over the life of the loan—especially if you can refinance at a lower interest rate. But it’s important to understand that if you refinance a federal loan, you’ll lose access to federal benefits and protections.
If you’re considering refinancing your student loans, SoFi offers flexible terms, competitive rates, and no fees.
Can you refinance your student loans if you didn’t graduate?
Yes, you can refinance your student loans if you didn’t earn a degree, though it may be more difficult. Ask various lenders the same question: “Can I refinance my student loans?” and learn more about your refinancing options. If you have federal student loans, you can also look into other options to reduce your monthly repayment amount, such as extending your loan term (although you’ll end up paying more in interest over the life of the loan) or explore whether you might qualify for an income-driven repayment program or forgiveness. Contacting your loan servicer is a good place to start.
What credit score do you need to be able to refinance student loans?
Every lender is different and requires different requirements to be able to refinance. Your personal qualifications also matter. However, in general, it’s important to have a credit score in the high 600s in order to qualify for a refinance. Ask lenders for more information before you make a final decision. You may also want to use a calculator tool for comparing refinance rates.
Can both federal and private student loans be refinanced?
You’re asking good questions if you’re wondering, “Can I refinance federal student loans?” or “Can I refinance private student loans?” The quick answer is that yes, both federal and private student loans can be refinanced, but you must refinance both types into a private student loan, and you’ll lose access to federal benefits and protections if you refinance federal student loans.
Photo credit: iStock/Andrii Sedykh
SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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