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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 pay for their education, they don’t come with federal benefits such as income-driven repayment plans or forgiveness.
But there are ways to make private loan repayment easier. If you refinance private student loans at a lower interest rate and/or with more favorable terms than your existing loans, you can generally 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.
Key Points
• Private student loans lack the benefits of federal loans, including income-driven repayment plans and federal forgiveness options.
• Refinancing private student loans may lead to lower interest rates and better terms, potentially easing repayment and saving money over the loan’s life.
• Individuals with a stable job, good credit score, and solid financial profile may qualify for favorable refinancing terms.
• Combining private and federal loans through refinancing may simplify payments but will result in the loss of federal protections and benefits.
• Before refinancing, it’s wise to assess overall finances, since improved credit scores and stable income typically enhance chances of securing better loan terms.
Can I Refinance My Private Student Loans?
Borrowers can refinance private student loans if they qualify. If you have a steady job, a good credit score, and a solid financial profile, you may be eligible for a lower interest rate or better terms with student loan refinancing.
A new interest rate and longer 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. A student loan refinancing calculator lets you crunch the numbers to see how different scenarios play out.
It’s important to note that the terms student loan consolidation vs. refinancing are often used interchangeably, but there are key differences between them. Those wondering how to consolidate private student loans should be aware that private loans can’t be consolidated, but they can be refinanced. Only federal student loans can be consolidated with a federal Direct Consolidation Loan.
If you have both private and federal loans, you might choose to refinance part of your student loans — your private loans, say — but not your federal loans. (Refinancing federal student loans makes them ineligible for federal programs and protections.)
Pros and Cons of Refinancing Private Student Loans
There are advantages and disadvantages to private student loan refinance, and it’s critical to weigh them carefully when exploring whether to refinance.
Pros:
• You may qualify for a lower interest rate, which could save you money.
• Refinancing might help you get more favorable loan terms.
• Your monthly payments might be lower if you opt for a longer loan term.
• Combining your loans through refinancing can streamline your payments and make them easier to manage.
Cons:
• To get the lowest interest rates when refinancing, you’ll need a credit score of 720 or higher.
• You’ll generally need a steady income, stable employment, and a low debt-to-income ratio to qualify for refinancing.
• Choosing to extend your loan term to lower your payments means you’ll typically end up paying more in interest over the life of the loan.
• Opting for a shorter loan term to pay off your loans faster means your monthly payments will likely be higher.
Recommended: Cost to Refinance Student Loans
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 rate quote for you, most lenders will need some personal financial information, such as your existing student loan debt, credit, and income.
Check Rates With Multiple Lenders
When it comes to student loan refinancing rates, private lenders set their own rates and terms. That means it’s important to shop around. In addition to getting a rate estimate (which involves a soft credit check that shouldn’t impact your credit score), you can compare loan terms, eligibility requirements, fees, and other features the lender may offer, such as deferment or forbearance programs.
Consider a Cosigner
Depending on your credit and financial history, applying with a creditworthy cosigner may help you secure a better interest rate.
To refinance with a cosigner, choose someone who is creditworthy and willing to take on the responsibility. Make sure they understand that cosigning means they are responsible for the loan if you are unable to pay your debt.
Choose a Lender and Lock in Your Terms
As you review the options from different lenders, 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 student loan interest rate might not translate to the lowest amount of total interest you’ll pay.
Finalize Your Application and Keep Paying
Gather your personal information and documentation to back up the information you supplied during the initial rate check. That typically includes proof of citizenship, Social Security number, verification of your income such as pay stubs or tax returns and loan statements for the loans you’d like to refinance. Submit the application and wait to hear back from the lender (how long approval takes varies by lender). Be sure to continue to make payments on your existing loans while you wait for your new loan to be approved.
What to Consider Before Refinancing Private Student Loans
If you’re thinking of refinancing, odds are you’re hoping to lower your interest rate, simplify the 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.
Typical Eligibility Requirements
Lenders generally make offers based on a variety of factors including proof of a stable job, a healthy cash flow, a good credit score, and a reliable history of paying back previous debts. If you are refinancing without a cosigner, you will typically need to meet these requirements to qualify.
If you need to, take some time to work on building your credit to increase your chances of getting a better interest rate.
What to Look For in a Refinance Lender
When choosing a private student loan refinance lender, look for a lender with competitive interest rates. Ask about any fees, such as origination fees, and whether or not there’s a penalty for paying off student loans early. Inquire about any flexible repayment options they may have, whether they offer any features like a forbearance program if a borrower experiences financial difficulty, and how they handle customer service. Finally, read reviews of the different lenders to see what borrowers say about them.
Recommended: Guide to Refinancing Student Loans With Bad Credit
Refinance My Private Student Loan
If you’re wondering whether to refinance your private student loans, it can be helpful 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 those of your existing loans and you won’t need access to federal benefits for any federal loans, refinancing might be an 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.
FAQ
Can student loans be forgiven if refinanced?
No. Private lenders generally do not offer programs similar to the federal loan forgiveness programs. If you refinance federal student loans, you’ll have a new private loan with new terms and you’ll no longer have access to federal benefits and protections, including forgiveness.
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 the length of your loan term to pay off your loan faster.
Refinancing may also give you the opportunity to change the terms of your existing loan to remove a cosigner, for instance, and also to simplify your repayment process by replacing multiple loans with a single loan.
Can I refinance both federal and private student loans?
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.
Do I need a cosigner to refinance my private student loans?
Whether you need a cosigner depends on your credit and financial history. If you don’t have strong credit and a solid financial background, you may need a cosigner to qualify for refinancing in order to get better rates and terms.
How does refinancing private student loans affect my credit score?
Refinancing student loans may temporarily affect your credit score when you submit an application for the loan. That’s because lenders do a hard check on your credit, which may cause your credit score to drop a few points temporarily.
Can you refinance student loans multiple times?
Yes, you can refinance student loans multiple times — there is no limit on the frequency. However, one thing to keep in mind is that when you refinance multiple times within a fairly short period, the multiple hard credit checks involved may have a negative (although temporary) impact on your credit score.
Can private loans be consolidated?
The only way private student loans can be consolidated (or combined) is through refinancing. Refinancing replaces all your old loans with one new loan with new terms. Federal student loans can be consolidated through the federal Direct Loan Consolidation program.
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