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Guide to Refinancing Private Student Loans

Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

Private student loans are often used to bridge the gap between what a student receives in federal funding and the cost of attending college. While private loans can help students meet educational financial needs, they’re generally more expensive than federal loans and don’t come with federal benefits such as income-driven repayment plans or forgiveness.

But even without federal benefits, there are ways to make private loan repayment easier. If you refinance private student loans with more favorable terms than your existing loans — for example, at a lower interest rate — you can save money over the life of the loan. Here’s what to know about refinancing private student loans to decide if this option is right for you.

Refinancing Private Student Loans

While the majority of student debt is made up of federal loans, about 8.8% is private, according to the Education Data Initiative. For students at public and not-for-profit schools, private loans can help students meet financial needs after other sources of federal aid (such as loans, grants, scholarships, or work-study programs) are exhausted. For students at for-profit schools, private loans may be the only source of funding available.

Private loans don’t come with federal student loan benefits (such as deferment, forbearance, forgiveness, or income-driven repayment plans) to make repayment easier. While some private lenders offer deferment or forbearance options, interest will typically still accrue during this period, increasing the overall balance of the loan.

When you refinance private student loans, you replace your existing loans with a new loan, ideally one with more favorable terms.

Recommended: Types of Federal Student Loans

Can I Refinance My Private Student Loans?

People often think they’re stuck with their existing loans, but you may be able to refinance private student loans to secure better terms. If you have a steady job, a good credit score, and a solid financial profile, you may qualify for a lower interest rate or better terms.

A new interest rate and loan term can mean a lower monthly payment – though you may pay more interest over the life of the loan if you refinance with an extended term. By contrast, a shorter term will likely raise your monthly payment, but you’ll pay off your loan sooner.


💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

Can I Refinance My Private Student Loans With My Federal Loans?

Yes, you may be able to refinance private student loans together with federal loans with a private lender, but the federal government does not consolidate or refinance private student loans.

If you’re paying on multiple federal and private loans, refinancing can simplify your payments because it consolidates all of your student loans into one loan. However, bundling your loans together means losing access to the federal loan benefits and protections mentioned earlier.

Keep in mind some federal loans might have lower interest rates than a private lender. And if you’re taking advantage of loan forgiveness programs or income-based repayment plans that come with federal loans, it may not make sense to refinance and lose access to those options. If you’re not planning to take advantage of federal loan benefits or protections, however, a private student loan refinance can make your repayment journey easier.

How to Refinance Private Student Loans

Wondering how to refinance private student loans? If you’re interested in pursuing a private student loan refinance, here’s how to get started:

Prepare Your Financial Information

To provide a quote, most lenders will need some personal financial information, such as your total student loan debt, income, cost of housing, and an estimate of your credit score.

Check Rates With Multiple Lenders

Private lenders set their own rates and terms, so it’s important to shop around. In addition to getting a rate estimate (which involves a soft credit check that shouldn’t affect your credit score), you’ll want to ask about any other fees (such as an origination fee), if there’s a prepayment penalty, and if they have any deferment or forbearance programs.

Choose a Lender and Apply

As you review the options, consider the amount of interest you’ll pay over the life of the loan and factor in the cost of any fees. Depending on how long the term length is, for example, the lowest interest rate might not translate to the lowest amount of total interest.

When you apply, you’ll need to supply documents that back up the financial information you shared for the initial rate check. Depending on your credit and financial history, applying with a cosigner may help you secure a better interest rate. Be sure to continue to make payments on your existing loans while you wait for your new loan to be approved.


💡 Quick Tip: Need a private student loan to cover your school bills? Because approval for a private student loan is based on creditworthiness, a cosigner may help a student get loan approval and a lower rate.

Can I Get My Private Student Loans Forgiven?

There are no private student loan forgiveness programs similar to the federal loan forgiveness programs. If you have federal loans, you might qualify for forgiveness after 120 qualifying monthly payments (or 10 years) under certain circumstances, such as working in public service.

You may also qualify for federal loan forgiveness after 20 or 25 years of making timely, qualifying, income-based payments. The only way private loans might be forgiven is in the case of death or disability, and even that is on a case-by-case basis.

If your private loan payments are draining your bank account, consider calling your lender to discuss your options instead of falling behind on payments. You may be able to negotiate new terms to make it easier to pay on time. Or as mentioned, you can consider refinancing private student loans. Refinancing might allow you to find better loan rates or terms than those of your existing loans.

What Should I Consider Before Refinancing?

If you’re thinking of refinancing, odds are you’re hoping to lower your interest rate, simplify your repayment process, and save money. In order to get a low rate that will make refinancing worth it, it’s a good idea to look at your overall finances before you apply.

Lenders make offers based on a variety of factors including (but not limited to) proof of a stable job, a healthy cash flow, a good credit score, and a reliable history of paying back previous debts. If you need to, take a few months to work on improving your credit score to increase your chances of getting a better interest rate.

If you’re planning on refinancing your federal loans with your private loans, make sure you won’t miss out on federal advantages down the road. For instance, if you plan to return to school full-time, you could be eligible to defer your federal loans while you’re back in school. Once you refinance your student loans, you’re no longer able to defer payment or have access to any other federal loan benefits.

Recommended: What Is Considered a Bad Credit Score?

Refinance My Private Student Loan

If you’re wondering: Should I refinance my private student loans? It can help to look at the interest rates on your loans and your monthly payment amount. If you can refinance private student loans with better terms than your existing loans and you won’t need access to federal benefits for any federal loans, refinancing might be a good option for you.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Can you refinance a student loan?

Yes, you can refinance private and federal student loans with a private lender. When you refinance, you replace your existing loans with a new loan, ideally one with more favorable terms. If you refinance federal loans, however, you will lose access to federal benefits and protections.

Can student loans be forgiven if refinanced?

No, if you refinance federal student loans, you’ll have a new private loan with new terms and no longer have access to federal benefits and protections, including forgiveness. Private lenders do not offer programs similar to the federal loan forgiveness programs.

Why would you refinance student loans?

Refinancing student loans allows you to replace your existing loans with a new loan with new terms. You may be able to save money if you refinance with a lower interest rate or if you shorten your term length to pay off your loan faster. Refinancing can also give you the opportunity to change the terms of your existing loan to remove a cosigner and simplify your repayment process by replacing multiple loans with a single loan.


SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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What’s the Average Student Loan Interest Rate?

Student loans, like any loans, have an interest rate (and, sometimes, other loan fees). While interest rate accrual on existing federal student loans was paused from March 2020 through August 2023 due to the Covid-19 forbearance, the 2023 debt ceiling bill officially ended the payment pause, requiring interest accrual to resume on Sept. 1 and payments to resume in October 2023. And of course, any new student loans — federal or private — will have an interest rate that impacts the total cost of the loan.

So what is the average student loan rate? While it would be difficult to nail down the average rate of all active student loans held by borrowers, we know the interest rates of new federal student loans, as well as the range of rates for private student loans.

What Is The Average Student Loan Interest Rate?

The interest rate on a student loan varies based on the type of student loan. Federal student loans issued after July 1, 2006, have a fixed interest rate. The rates on newly disbursed federal student loans are determined annually by fixed formulas specified in the Higher Education Act of 1965 (HEA).

These are the federal student loan interest rates for the 2023–24 school year:

•   5.50% for Direct Subsidized or Unsubsidized loans for undergraduates

•   7.05% for Direct Unsubsidized loans for graduate and professional students

•   8.05% for Direct PLUS loans for graduate students, professional students, and parents

All three of those rates have risen from the 2022-2023 school year, and the undergraduate rate has doubled since the 2020-2021 school year.

Federal Student Loan Rates by Borrower Type
Source: Studentaid.gov

This means that the average rate for the three main types of federal student loans is 6.87%:

Average Interest Rate for All Federal Student Loans
Source: Studentaid.gov

Private student loan interest rates vary by lender and each has its own criteria for which rates you qualify for. Private student loans can have either fixed interest rates that remain the same over the life of the loan or variable rates that can start lower than a fixed interest rate but then go up over time, based on market changes.

Private lenders may also offer different interest rates if you have a cosigner on your student loan. The interest rates on private student loans can vary anywhere from 4% to 17%, depending on the lender, the type of loan, and on individual financial factors including the borrower’s credit history.

Recommended: Types of Federal Student Loans

How Are Interest Rates Determined?

As mentioned previously, the interest rates on federal student loans are set annually by fixed formulas specified in the HEA. The rates are tied to the financial markets — federal law sets them based on the 10-year Treasury note and a statutory add-on percentage with a maximum rate cap.

Since July 2006, all federal student loans have fixed interest rates. Although federal student loans are serviced by private companies or nonprofits selected by the federal government, these loan servicers have no say in the federal interest rate offered.

For private student loans, the lenders set their own rates, though they often take cues from federal rates. Each lender has their own algorithm and credit standards. The rates quoted for student loans vary based on each applicant’s individual situation — though generally the better a potential borrower’s financial history is, the better rate they may be able to qualify for.

To learn more about private and federal student loans check out our student loan help center. If you’re looking to reduce your interest rate, student loan refinancing may be right for you.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

How Is Student Loan Interest Calculated?

After a three-year payment pause, the debt ceiling bill officially ended the Covid-19 forbearance, requiring federal student loan interest accrual to resume on Sept. 1 and payments to resume in October 2023.

Interest on federal student loans typically accrues daily. To calculate the interest as it accrues, the following formula can be used:

Interest amount = (outstanding principal student loan balance × interest rate factor) × days since last payment

In other words, you will multiply your outstanding loan balance by the interest rate factor. Then, multiply that result by the days since you last made a payment.

To calculate that interest rate factor you can divide the interest rate by the number of days of the year (365). For example, let’s say you have an outstanding student loan balance of $10,000, an interest rate of 4.75%, and it’s been 30 days since your last payment. Here’s how to calculate your interest:

$10,000 x (4.75%/365) = $1.30 daily interest charge
$1.30 x 30 days = $39
Interest amount $39

Many private student loans will also accrue interest on a daily basis, however, the terms will ultimately be determined by the lender. Review the lending agreement to confirm.

Recommended: When Do Student Loans Start Accruing Interest?

What to Look for in a Student Loan Interest Rate

When you take out a federal student loan, you’ll receive a fixed interest rate. This means that you’ll pay a set amount for the term of the student loan. In addition, all of the terms, conditions, and benefits are determined by the government. Federal student loans also provide some additional perks that you may not find with private lenders like income-driven repayment (IDR) plans.

The Saving on a Valuable Education (SAVE) Plan is one of the IDR options to consider if you’re a federal student loan borrower. The SAVE Plan is the most affordable repayment plan for federal student loans, according to the U.S. Department of Education. Borrowers who are single and make less than $32,800 a year won’t have to make any payments under the SAVE Plan. (If you are a family of four and make less than $67,500 annually, you also won’t have to make payments.)

Private student loans can have higher interest rates and potentially fewer perks than federal student loans. You may want to take advantage of all federal student loans you qualify for before comparing private loan options.

Average Interest Rates for Student Loans FAQ

Here are some common questions about the average interest rates of student loans:

What Is a Good Fixed Interest Rate for Student Loans?

When it comes to cost, the lower the interest rate, the better. The lower the interest rate, the less a borrower will owe over the life of the loan, which could help individuals as they work on other financial goals. If you’re taking out federal loans, the student loan interest rate is set by federal law, so you don’t have a choice for what is and isn’t a reasonable interest rate.

When it comes to private student loans, it’s wise to shop around and compare your options to find the most suitable financing solution. Since every lender offers different terms, rates, and fees, getting quotes from multiple lenders may help you select the best option for your personal needs. Keep in mind that the rate you receive on a private student loan is largely dependent on your credit score and other factors, whereas federal student loan interest rates are based on HEA formulas and not your creditworthiness.

Also keep in mind that private student loans do not have the same borrower protections as federal student loans, including IDR plans or deferment options, and should be considered only after all federal aid options have been exhausted.

Is $30K In Student Loans Bad?

If you owe $30,000 in student debt, you’re right in line with the national average. More than 40 million consumers have outstanding student debt as of 2023, and the average borrower owes about $35K, according to TransUnion®.

Is a 4.75% Interest Rate Good?

With interest rates on private student loans ranging anywhere between 4% and 17%, and the three types of federal student loan rates averaging 6.87% for the 2023-2024 school year, a 4.75% interest rate in 2023 is lower than what most students can get on a new student loan.

How Can I Reduce the Interest Rates on my Student Loans?

The interest rate on federal student loans, while fixed annually for the life of the loan, does fluctuate over time. For example, the rates for Direct Subsidized and Unsubsidized loans for undergraduates doubled from 2.75% in 2020–21 to 5.50% in 2023–24.

To adjust the rate on an existing student loan, borrowers generally have two options. They can refinance or consolidate the loans with hopes of qualifying for a lower interest rate.

Refinancing a federal loan with a private lender eliminates them from federal borrower protections such as income-driven repayment plans or Public Service Loan Forgiveness. The federal government does offer a Direct Consolidation Loan, which allows borrowers to consolidate their federal loans into a single loan. This will maintain the federal borrower protections but won’t necessarily lower the interest rate. When federal loans are consolidated into a Direct Consolidation Loan, the new interest rate is a weighted average of your original federal student loans’ rates.

Refinancing student loans with a private lender may allow qualifying borrowers to secure a lower interest rate or preferable loan terms. Note that extending the repayment term will generally result in an increased cost over the life of the loan.

To see how refinancing could work for your student loans, take a look at the student loan refinance calculator.


💡 Quick Tip: Federal parent PLUS loans might be a good candidate for refinancing to a lower rate.

The Takeaway

The average student loan interest rate varies depending on the loan type. The interest rate for federal Direct Unsubsidized and Subsidized loans is set annually by federal law and fixed for the life of the loan. The interest rate on private student loans is determined by a variety of factors including the borrower’s credit history and may range anywhere from 4% to up to 17%.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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Should I Refinance My Federal Student Loans?

Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

Federal student loan borrowers had a three-year break from making payments. Now that the payment holiday is over, you may be thinking about refinancing your federal student loans. Refinancing can either help you pay down your loans faster (by shortening your term) or lower your monthly payment (by extending your term).

Refinancing is not a simple decision. These frequently asked questions about federal student loan refinancing may help you decide what’s right for you.

What Is Federal Student Loan Refinancing?

If you graduated with student loans, you may have a combination of private and federal student loans. The latter are loans funded by the federal government. Direct Subsidized Loans and Direct PLUS Loans are both examples of federal student loans.

Interest rates on federal student loans are fixed and set by the government annually. Private student loan rates are set by individual lenders. If you’re unhappy with your current interest rates, you may be able to refinance your student loans with a private lender and a new — ideally, lower — interest rate.

Recommended: Types of Federal Student Loans

Can I Refinance My Federal Student Loans?

It is possible to refinance federal student loans with a private lender. However, you lose the benefits and protections that come with a federal loan, like income-based repayment plans and public service-based loan forgiveness. On the plus side, refinancing may allow you to pay less interest over the life of the loan and pay it off sooner.


💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.

How Are Refinancing and Consolidation Different?

Student loan consolidation and student loan refinancing are not the same thing, but it’s easy to confuse the two. In both cases, you’re signing different terms on a new loan to replace your old student loan(s).

Consolidation takes multiple federal student loans and bundles them together, allowing borrowers to repay with one monthly bill. Consolidation does not typically get you a lower interest rate (you’ll see why in the next paragraph). Refinancing, on the other hand, rolls your old federal and private loans into a new private loan with a different loan term and interest rate.

When you consolidate federal student loans through the Direct Consolidation Loan program, the resulting interest rate is the weighted average of the original loans’ rates, rounded up to the nearest eighth of a percent. This means you don’t usually save any money. If your monthly payment goes down, it’s usually the result of lengthening the loan term, and you’ll spend more on total interest in the long run.

When you refinance federal and/or private student loans, you’re given a new interest rate. That rate can be lower if you have a strong credit history, which can save you money. You may also choose to lower your monthly payments or shorten your payment term (but not both).

Recommended: Student Loan Consolidation vs Refinancing

What Are Potential Benefits of Refinancing Federal Student Loans?

Potential Savings in Interest

The main benefit is potential savings. If you refinance federal loans at a lower interest rate, you could save thousands over the life of the new loan.

Plus, you may be able to switch out your fixed-rate loan for a variable rate loan if that makes more financial sense for you (more on variable rates below).

Lower Monthly Payments

You can also lower your monthly payments. That typically means lengthening your term and accepting a higher interest rate. (Shortening your term usually results in higher monthly payments but more savings in total interest.)

Streamlining Repayments

Refinancing multiple loans into a single loan can help simplify the repayment process. Instead of multiple loan payments with different lenders, refinancing allows you to combine them into a single monthly payment with one lender.

Not sure which route to take with your student debt? Use our Student Loan Help Center to explore your options.

What Are Potential Disadvantages of Refinancing Federal Loans?

When you refinance federal loans with a private lender, you lose the benefits and protections that come with government-held student loans. Those benefits fall into three main categories:

Deferment / Forbearance

Most federal loans will allow borrowers to put payments on hold through deferment or forbearance when they are experiencing financial hardship. Student loan deferment allows you to pause subsidized loan payments without accruing interest, while unsubsidized loans will still accrue interest.

Student loan forbearance allows you to reduce or pause payments, but interest usually accrues during the forbearance period. Some private lenders do offer forbearance — check your lender’s policies before refinancing.

Special Repayment Plans

Federal loans offer extended, graduated, and income-driven repayment plans (such as Revised Pay As You Earn, or REPAYE), which allow you to make payments based on your discretionary income. It’s important to note that these plans typically cost more in total interest over the life of the loan. Private lenders do not offer these programs.

In the coming months, REPAYE will be phased out and replaced by the SAVE Plan, which promises to cut payments in half for some low-income borrowers. According to the Department of Education, SAVE will be the most affordable repayment plan, with some borrowers not having to make payments at all.

Student Loan Forgiveness

The Supreme Court has blocked President Joe Biden’s mass forgiveness plan for federal student loan borrowers. However, other loan forgiveness options are still available.

•   Public Service Loan Forgiveness (PSLF). Teachers, firefighters, social workers, and other professionals who work for select government and nonprofit organizations may apply for this program. Changes made by the Biden Administration will make qualifying easier — even for borrowers who were previously rejected. Learn more in our guide to PSLF.

•   Teacher Loan Forgiveness. This program is available to full-time teachers who complete five consecutive years of teaching in a low-income school. Find out more in our Teacher Loan Forgiveness explainer.

•   Income-Based Repayment Plans. With some repayment plans, you may be eligible for forgiveness if your student loans aren’t paid off after 20 to 25 years (and in some cases under the new SAVE plan, after 10 years).

Private student loan holders are not eligible for these programs.

Potential Advantages of Refinancing Federal Student Loans

Potential Disadvantages Refinancing Federal Student Loans

Interest Rate. Opportunity to qualify for a lower interest rate, which may result in cost savings over the long-term. Option to select variable rate, if preferable for individual financial circumstances. Loss of deferment or forbearance options.These programs allow borrowers to temporarily pause their payments during periods of financial difficulty.
Adjust Loan Term. Get a lower monthly payment, usually by extending the loan term, which could make loan payments easier to budget for, but may make the loan more expensive in the long term. Federal Repayment Plans.No longer eligible for special repayment plans, such as income-driven repayment plans.
Get a single monthly payment.Combining existing loans into a new refinanced loan can help streamline monthly bills. Loan Forgiveness.Elimination from federal forgiveness programs, including Public Service Loan Forgiveness.

FAQs on Refinancing Your Federal Loans

Who Typically Chooses Federal Student Loan Refinancing?

Many borrowers who refinance have graduate student loans, since federal unsubsidized and Grad PLUS loans have historically offered less competitive rates than federal student loans for undergraduates.

In order to qualify for a lower interest rate, it’s helpful to show strong income and a history of managing credit responsibly, among other factors. The one thing many refinance borrowers have in common is a desire to save money.

Do I Need a High Credit Score to Refinance Federal Loans?

Generally speaking, the better your history of dealing with debt (illustrated by your credit score), the lower your new interest rate may be, regardless of the lender you choose. While many lenders look at credit score as part of their analysis, however, it’s not the single defining factor. Underwriting criteria varies from lender to lender, which means it can pay to shop around.

For example, SoFi evaluates a number of factors, including employment and/or income, credit score, and financial history. For full eligibility requirements for student loan refinancing, check here for current eligibility.

Are There Any Fees Involved in Refinancing Federal Loans?

Fees vary and depend on the lender. That said, SoFi has no application or origination fees.


💡 Quick Tip: Federal parent PLUS loans might be a good candidate for refinancing to a lower rate.

Should I Choose a Fixed or Variable Rate Loan?

Most federal loans are fixed-rate, meaning the interest rate stays the same over the life of the loan. When you apply to refinance, you may be given the option to choose a variable rate loan.

Here’s what you should know:

Fixed Rate Refinancing Loans Typically Have:

•   A rate that stays the same throughout the life of the loan

•   A higher rate than variable rate refinancing loans (at least at first)

•   Payments that stay the same over the life of the loan

Variable Rate Refinancing Loans Typically Have:

•   A rate that’s tied to an “index” rate, such as the prime rate or SOFR or LIBOR

•   A lower initial rate than fixed rate refinancing loans

•   Payments and total interest cost that change based on interest rate changes

•   A cap, or maximum interest rate

Generally speaking, a variable rate loan can be a cost-saving option if you’re reasonably certain you can pay off the loan somewhat quickly. The more time it takes to pay down that debt, the more opportunity there is for the index rate to rise — taking your loan’s rate with it.

What Happens If I Lose My Job or Can’t Afford Loan Payments?

Some private lenders offer forbearance — the ability to put loans on hold — in cases of financial hardship. Policies vary by lender, so it’s best to learn what they are before you refinance. For policies on disability forbearance, it’s best to check with the lender directly, as this is often considered on a case-by-case basis.

Do Refinance Lenders Allow Cosigners / Cosigner Release?

Many private lenders do allow cosigners and some allow cosigner release options. SoFi allows cosigners, but no option for cosigner release for refinanced student loans. However, if you have a cosigner and your financial situation improves, you can apply to refinance the cosigned loan under your name alone.

The Takeaway

Is refinancing the right option for you? It depends on how much you may save (to get an idea, use our student loan refinancing calculator) and whether you qualify for a lower interest rate from a student loan refinance. Another important factor to weigh is how likely you are to benefit from the protections that come with federal student loans. In general, many borrowers refinance federal graduate student loans and PLUS loans, since those have historically offered less competitive rates.

If refinancing feels right for you, you can check your rates in two minutes with SoFi. SoFi’s student refinance loan is a private loan and does not have the same repayment options/benefits offered by federal programs.You should explore and compare federal and private loan options, terms, and features to determine what is best for you and your situation.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.


SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Refinancing Student Debt With a Cosigner

If you’re interested in possibly refinancing your student loans, but you don’t think your credit history is strong enough, there are options that might help. One is to refinance student loans with a cosigner.

A cosigner could potentially help you qualify for a refinanced loan. But is taking out a new loan with a cosigner the right choice for you? There are pros and cons to carefully consider in order to decide if student loan refinance with a cosigner makes sense for your personal situation.

What Is a Cosigner on a Loan?

A cosigner is someone who legally agrees to pay your debt, such as your student loan debt, in the event that you can’t make payments yourself. The exact terms will vary based on the loan type and lender, but in general, this person signs your loan with you and accepts responsibility for your loan if you don’t make payments.

A cosigner can potentially be used for several different types of loans, from taking out a mortgage to borrowing for a car.


💡 Quick Tip: Some student loan refinance lenders offer no fees, saving borrowers money.

Can a Cosigner Refinance a Student Loan?

If you have private student loans, you might have needed a cosigner to qualify if your credit history was too new or not robust enough to qualify on your own.

Creditors review a variety of factors to determine whether or not they will give someone a loan. Things like a lot of existing debt or a low credit score can sometimes serve as an indicator to lenders that an individual could be a credit risk. Adding a cosigner could make a potential borrower appear less risky, since there’s another person (ideally one with a strong financial background) to help guarantee repayment of the loan.

Recommended: Applying for a Student Loan Without a Cosigner

Finding a Cosigner

If you can’t qualify for a loan based on your own credit history or current income, sometimes student loan refinancing with a cosigner who has a strong credit history could help improve your prospects.

You could ask a friend or relative to be a cosigner for refinancing student loans. Being a cosigner can be a hefty responsibility, so treat the request with respect, and perhaps plan to be open and honest about why you need to refinance student loans with a cosigner.

Pros and Cons of Having a Cosigner

Taking out a loan with a cosigner is a significant commitment, so it’s worth considering some pros and cons. What’s right for you will depend on your personal and financial situation.

One of the most notable benefits of refinancing with a cosigner is the potential to qualify for a loan that may not have been an option otherwise. A cosigner could also possibly help you qualify for a lower student loan interest rate than you otherwise may have received. If you have little to no credit history or bad credit, it could help to refinance student loans with a cosigner by giving you an opportunity to begin strengthening your credit.

On the flip side, there can be some cons to refinancing with a cosigner. If you fail to make payments on your loan, your cosigner will be responsible for repaying your debt. As a result, missed payments will likely reflect on both of your credit histories. This could also negatively impact your personal relationship with your cosigner.

In addition, there are pros and cons to the process of student loan refinancing. For instance, if you have federal student loans, refinancing makes them ineligible for federal benefits and protections such as income-driven repayment plans, loan forgiveness for public service, and deferment options. If you want or need access to these programs and benefits, refinancing won’t make sense for you.

Using a Cosigner when Refinancing Your Student Loans

When you’re refinancing your student loans, enlisting a friend or family member to cosign your refinanced loan could help strengthen your loan application.

If you’re trying to find a cosigner, you can start with the people you trust the most. Keep in mind that acting as a cosigner has risks — if you don’t pay back your loans, your cosigner is on the hook. It’s a big request, so take some time to think about how you’ll make it. Here are some tips that may help inform your conversation:

1.    Asking respectfully. You’ll want to broach the subject thoughtfully and respectfully. You’re asking the person for a serious commitment, so asking with tact to show you understand the gravity of your request is crucial.

2.    Showing your dedication. It’s also important to make it clear to your cosigner that you’re going to be making timely payments on the loan. One simple way to do so is by providing them with regular updates.

3.    Illustrating to your cosigner that you understand the intricacies of your loan. They’ll be responsible for the loan if you fail to make payments, so they’ll likely want to make sure you understand the responsibility you’re taking on — and asking them to take on.


💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to career services, financial advisors, networking events, and more — at no extra cost.

Things to Consider if You’re Asked to Cosign a Loan

If you’ve been asked to cosign a loan, be aware that serving as a cosigner can come with consequences for your finances if the primary borrower fails to make payments. If you’re a family member or friend with excellent credit and a well-paying job, you could be a candidate as a cosigner. If you have some hesitation, here are a few steps you can take:

1.    Talking it out with the borrower. The borrower is going to use your name and credit history to take out a loan. It can be helpful to understand why they feel they need a cosigner while making sure they have the means to repay the loan.

2.    Following up often. Keeping the lines of communication open so you are aware of any issues can be helpful for both parties. If need be, you could discuss making payments on their behalf to avoid the effect of a late or missed payment on your own credit score.

3.    Accepting negative outcomes. Even if you’ve done everything you can to ensure the borrower is trustworthy, something might come up where they let you down. Your credit score might take a hit and you might be responsible for making payments yourself. Remember that this could happen, so accepting it as a possibility may be helpful.

Cosigning a loan is a big responsibility that can have implications on your financial future, so take some time to consider if there’s anything you’re not comfortable with.

If you decide not to cosign, you can let the requester down gently by trying to help them think of some alternative options to secure the loan or money they need.

Refinancing Student Loans With SoFi

If you’re interested in refinancing student loans but your credit isn’t strong enough, enlisting a trusted person with a strong financial background as a cosigner may help you qualify for a loan.

But remember: Refinancing federal student loans makes them ineligible for federal programs or borrower protections. If you think you may need these federal benefits, refinancing may not be right for you.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Do I need a cosigner for student loan refinance?

The specific requirements for refinancing a loan with a cosigner will depend on your credit history and income (among other factors) and the eligibility requirements of the lender. Borrowers who have a less than stellar credit history may find adding a cosigner to their application allows them to qualify for a more competitive interest rate.

Can I consolidate my student loans with a cosigner?

If you are consolidating federal loans through the Direct Consolidation Loan program, you don’t need a cosigner.

Can a cosigner become the primary borrower?

In order for the cosigner to become a primary borrower, the loan would generally need to be refinanced.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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What Happens When Someone Pays My Student Loans?

What Happens When Someone Pays My Student Loans?

Can you pay off someone else’s loan? As a general rule, yes — so if you’re a student loan borrower and someone offers you assistance in paying off your loans, you may want to take them up on it. But it’s important to understand the implications. While a parent, grandparent, or even a mysterious benefactor could pay off your student loans, they may be responsible for a gift tax if they contribute more than the annual limit. The gift could also come with emotional strings attached.

Read on to learn about the tax implications of paying off someone else’s student loans — and how to repay your loans if the responsibility is all yours.

Student Loan Repayment

For federal student loan borrowers, the end of the three-year pause on federal student loan payments has made repayment top of mind again. The resumption of federal student loan payments, which was part of the debt ceiling bill President Joe Biden signed into law in early June 2023, requires interest accrual to resume on September 1, 2023, and payments to resume on October 1, 2023. (Borrowers who held private loans did not have any uniform break in payments.)

Additionally, the President’s plan to forgive up to $20,000 in federal student loan debt was struck down by the Supreme Court in late June 2023. That means federal student loan borrowers no longer have that course of action.

The bottom line: If you have a student loan balance, it needs to be paid. If you have a cosigner — which may be the case if you have private student loans or federal PLUS Loans — then that person is legally responsible for repaying the loans if you are unable to do so. But if your student loans are solely in your name, you are responsible for repayment according to the outlined terms.

Getting Help From Your Employer

More employers are offering student loan repayment as a perk. Through CARES Act legislation, employers can contribute up to $5,250 per employee per year toward student loans without the payment counting toward the employee’s taxable income, through 2025.


💡 Quick Tip: Often, the main goal of refinancing is to lower the interest rate on your student loans — federal and/or private — by taking out one loan with a new rate to replace your existing loans. Refinancing makes sense if you qualify for a lower rate and you don’t plan to use federal repayment programs or protections.

Can Parents Pay Off Their Child’s Student Loans?

Yes they can. But can parents pay off student loans without a gift tax? It depends. If a parent is a cosigner, paying the student loans in full will not trigger a gift tax. In the mind of the IRS, the parent is not providing a gift but is paying off a debt.

However, if a parent is not a cosigner, a gift tax could be triggered, depending on how much they pay.

How the Gift Tax Works

The gift tax applies to the transfer of any type of property (including money), or the use of income from property, without expecting to receive something of at least equal value in return, the IRS says — adding that if you make an interest-free or reduced-interest loan, you may be making a gift.

There are some exceptions. Gifts between spouses aren’t included in the gift tax. That means if you are married and your spouse pays off your loans, that would not trigger a gift tax event. (The IRS includes lawfully married same-sex couples.)

Tuition paid directly to qualifying educational institutions in the United States or overseas is also not subject to gift tax. But student loans are different.

The annual exclusion for gifts is $17,000 in 2023. That means an individual can give you up to $17,000 without triggering the gift tax, which the givers, not receivers, generally pay. If your parents file taxes jointly, they would be able to give a combined $34,000 a year, which could include paying down loans. Borrowers who have the good fortune to snag $17,000 from Mom, Dad, Granddad, and Grandma could get a total of $68,000 without any family member having to file a gift tax return.

Note, though, that even a gift of more than $17,000 towards your student loans doesn’t mean that your generous benefactor is on the hook for paying a tax on their gift. The excess amount just gets added to the lifetime exclusion — currently set at $12.92 million. As long as the benefactor’s total lifetime gifts are below that amount, they don’t have to worry about paying a gift tax. Still, if bumping against that lifetime exclusion is a concern, they can spread out their support over the years to avoid gifting you more than $17,000 in a calendar year.

The upshot is that the main concern when it comes to helping children out with their student loans is probably not the gift tax, but whether the parent can afford it. It’s a good idea for parents to consider their retirement plans and test what-ifs before offering to pay their children’s student loans. Working with a financial planner may help parents find a path that works for them and their children.

It’s also not an all-or-nothing decision. Some parents choose to pay a portion of student loans or offer cash toward repayment in lieu of other gifts.

Recommended: Should Parents Cosign on Student Loans?

What Happens When Someone Pays Off Student Loans For You?

A person can pay off student loans for you in a couple of ways:

•   Pay the lender directly

•   Pay you, with the expectation you will pay the lender

But if someone pays off your debt, is that income? Once another person has paid off your student loans, it’s as if you had paid them off yourself. You would not have any tax liability.

Other Options to Pay Off Student Loans

Not everyone has a benefactor, of course. While someone taking your student loan balance down to zero can seem like a dream, there are realistic ways to ease the burden of student loans, no third party required.

These strategies include student loan consolidation, student loan refinancing, and in some cases, student loan forgiveness.

The one thing that won’t help: if you stop paying your student loans. Ignoring your student loan payments will result in an increased balance, additional fees, and a lower credit score.

If you hold federal student loans and stop paying them, part of your wages could be garnished, and your tax refund could be withheld. If you default on a private student loan, the lender might file a suit to collect from you.

In other words, coming up with a repayment plan is crucial.


💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

What Is Student Loan Consolidation?

If you have federal student loans, you may consider consolidation, or combining multiple loans into one federal loan. The interest rate is the weighted average of all the loans’ rates, rounded up to the nearest one-eighth of one percentage point.

Federal student loan consolidation via a Direct Consolidation Loan can lower your monthly payment by giving you up to 30 years to repay your loans. It can also streamline payment processing.

Consolidating federal loans other than Direct Loans may give borrowers access to programs they might not otherwise be eligible for, including additional income-driven repayment plan options and Public Service Loan Forgiveness.

What Is Student Loan Forgiveness?

Although President Biden’s federal forgiveness program was blocked by the Supreme Court, there are still several paths toward student loan forgiveness for federal student loan holders. They include:

•   Income-based repayment. Federal income-driven repayment plans promise loan forgiveness after a certain amount of time, depending on the plan.

For instance, under President Biden’s new SAVE Plan, which is based on income and family size, qualifying federal student loan borrowers with undergraduate federal loans can get their monthly payments reduced by half — from 10% to 5% of their discretionary income. And after 10 to 20 years of making payments (the number of years depends on how big their original student loan balance was), the remainder of what they owe will be forgiven.

•   Public Student Loan Forgiveness: This federal program was designed to help graduates working in public service have any remaining loan balance forgiven if they meet criteria that include working for a qualifying organization and making 10 years’ worth of payments.

•   Disability discharge: Some people may have their loans forgiven because of total and permanent disability.

What about bankruptcy? It’s extremely difficult to have student loans discharged through bankruptcy.

What Is Student Loan Refinancing?

With student loan refinancing, a borrower takes on one new, private student loan to pay off previous federal and/or private student loans. Ideally, the goal is a lower interest rate. The repayment term might also change.

However, there is a very important caveat for those with federal student loans: Refinancing those federal loans means that borrowers will no longer be eligible for federal repayment plans, forgiveness programs, and other benefits. If a borrower needs access to those programs, student loan refinancing won’t make sense.

But for borrowers who have no plans to use the federal programs, a lower rate could make refinancing worthwhile. Using a student loan refinancing calculator can help a borrower see how much money they might save by refinancing one or all of their loans.

Refinancing Student Loans With SoFi

Even if your parents, grandparents, or others in your life are not in a position to pay off your student loans for you, understanding your options for potentially lowering your monthly payments or saving money over the life of a loan can give you multiple avenues to explore as you work toward taking control of your finances.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.


With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Can I pay off my child’s student loans?

Yes, you can pay off your child’s student loans. But, depending on the amount, there may be tax implications.

Is paying off a child’s student loans considered a gift?

Yes. Paying student loans for someone else is considered a gift and would incur a gift tax for any gift above $17,000, which is the gift exclusion cutoff for 2023.

That means both parents can contribute $34,000 per calendar year toward their child’s student loans without owing gift tax.

Can I pay off my sibling’s student loans?

Yes. You can absolutely win sibling of the year and pay off your sibling’s student loans. Just know that any gift above $17,000 in 2023 will trigger a gift tax that you will be responsible for paying.


Photo credit: iStock/Halfpoint

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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