Private lenders that refinance student loans base rates they offer on the loan term, the borrower’s risk profile, and a rate index. Typically, the most financially stable applicants get the lowest rates.
When the goal is a lower rate, lower monthly payments, or both, the fixed or variable rate you qualify for makes all the difference. (You can also get a lower rate by refinancing with an extended term, but if you do so you may pay more interest over the life of the loan.)
Here’s a look at what you need to know about how interest rates for student loan refinances work.
Student Loan Refinancing, Explained
When you refinance, you take out a new private loan and use it to pay off your existing federal or private student loans. The new loan will have a new repayment term and interest rate, which hopefully will be better.
Most refinancing lenders offer fixed or variable interest rates and terms of five to 20 years. Shortening or lengthening your existing student loan term or terms can affect your monthly payment and the total cost of your new loan. The two key ways to save money by refinancing are:
• A shorter repayment term
• A lower rate
Then again, someone wanting lower monthly payments might choose a longer term, but that may result in more interest paid over the life of the loan.
There are no fees to refinance student loans. Nor is there any limit to the number of times you can refinance. Lenders will want to see a decent credit score, a stable income, and manageable debt. Adding a cosigner may strengthen your profile.
Refinancing federal student loans into a private student loan renders federal benefits moot.
Is Consolidation the Same as Refinancing?
Student loan consolidation and refinancing are terms that are often used interchangeably, but they are not technically the same thing. In general, consolidation means combining multiple loans to create one simplified payment. However, student loan consolidation most often refers to a federal program that allows you to combine multiple types of federal student loans into a single loan. The new loan will have a new term of up to 30 years, but the new rate will not be lower.
However, student loan consolidation most often refers to a federal program that allows you to combine multiple types of federal student loans into a single loan. The new loan, called a Direct Consolidation Loan, will have a new term of up to 30 years, but the new interest rate will not be lower.
Refinancing of student loans is offered by private lenders, such as banks and credit unions. Federal and/or private student loans are refinanced into a new loan that ideally has a better rate; you can refinance a single loan, or consolidate multiple loans into a single new loan through this refinancing process.
If you refinance federal student loans privately, you lose access to federal repayment plans, forgiveness programs, and other benefits.
What Are Interest Rates?
Interest rates are the amount lenders charge individuals to borrow money. When you take out a loan, you must pay back the amount you borrowed, plus interest, usually represented by a certain percentage of the loan principal (the amount you have remaining to pay off).
When interest rates are high, borrowing money is more expensive. And when interest rates are low, borrowing can be cheaper.
Interest rates can be fixed, variable, or a hybrid. For fixed interest rates, lenders set the rate at the beginning of the loan, and that rate will not change over the life of the loan.
A variable interest rate is indexed to a benchmark interest rate. As that benchmark rises or falls, so too will the variable rate on your loan. Variable-rate loans may be best for short-term loans that you can pay off before interest rates have a chance to rise.
Hybrid rates may start out with a fixed interest rate for a period of time, which then switches to a variable rate.
How Is Interest Rate Different From APR?
While interest rate refers to the monthly amount you’ll need to pay to borrow money, annual percentage rate (APR) represents your interest rate for an entire year and any other costs and fees associated with the loan.
As a result, APR gives you a better sense of exactly how expensive a loan might be and helps when comparing loan options.
What Factors Influence Student Loan Interest Rates?
Interest rates for federal student loans are set by Congress and change each year. Federal loans use the 10-year Treasury note as an index for interest rates. These rates apply to all borrowers.
Private lenders, on the other hand, will look at other factors when determining interest rates, such as credit score and credit history. Their interest rates are not governed by legislation so rates can be higher or lower than the federal one, depending on the type of loan and terms. Prevailing interest rates, however, still play a big factor since they change annually.
Typically, lenders see those with higher scores as more likely to pay off their loans on time, and may reward this with lower interest rates. Lenders see borrowers with lower scores as being at greater risk of defaulting on their loans. To offset the risk, they tend to offer higher interest rates.
Some lenders offer a rate discount if you sign up for their autopay program.
What Drives Student Loan Refinancing Rates?
Student loan refinancing rates are driven by many of the same factors that drive rates on your initial loan, such as credit score and credit history. You may want to consider refinancing during an era of low rates or if your financial situation has improved. For example, if you’ve increased your income or you’ve paid off other debts and your credit score received a boost, you may look into refinancing your loans at a lower interest rate.
Many graduates haven’t had much time to build a credit history. A cosigner with good credit may help an individual qualify for a refinance at a lower rate. Cosigners share responsibility for loan payments, of course. So if you miss a payment, they’ll be on the hook.
Refinance Student Loans With SoFi
You might choose to refinance student loans when interest rates are relatively low or your financial situation has improved, potentially providing access to a new private student loan at a lower rate.
Refinancing may be a good move for borrowers with higher-interest private student loans and those with federal student loans who don’t plan to use federal programs like income-driven repayment, Public Service Loan Forgiveness, or forbearance.
A student loan refinancing calculator can help you determine how much you might save by refinancing your student loans. You can compare your options on different loan terms while keeping in mind that a longer term could increase your total interest costs.
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.
FAQ
How are student loan refinancing rates calculated?
Lenders base interest rates largely on factors like an applicant’s credit history, income, debt, and prevailing interest rates which change annually.
Does refinancing save you money?
When you refinance your student loans with a new loan at a lower interest rate, you will pay less interest over the life of the loan, given the same or similar loan terms.
What is an average interest rate for student loans?
The average interest rate among all student loans, federal and private, is 5.80%, according to Education Data Initiative researchers. Private student loan rates have a wide range for fixed- and variable-rate loans and generally run from 3.19% to 17.95%.
For the 2025-2026 school year, the interest rate on Direct Subsidized or Unsubsidized loans for undergraduates is 6.39%, the rate on Direct Unsubsidized loans for graduate and professional students is 7.94%, and the rate on Direct PLUS loans for graduate students, professional students, and parents is 8.94%. The interest rates on federal student loans are fixed and are set annually by Congress.
Photo credit: iStock/Kateryna Onyshchuk SoFi Loan Products
SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).
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