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 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 forgiveness options.
• Refinancing private student loans can 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 crucial to assess overall finances, since improved credit scores and stable income can 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 when you refinance student loans.
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. 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 confused, 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.
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Pros and Cons of Refinancing Private Student Loans
There are advantages and disadvantages to refinancing private student loans, 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 could 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 excellent credit, which FICO® defines as a score of 800 or more.
• 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 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.
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 total student loan debt, income, and an estimate of your credit score.
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 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 for refinancing, 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.
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.
Lenders 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 need to, take a few months to work on building your credit to increase your chances of getting a better interest rate.
If you’re considering refinancing your federal loans along 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, however, you’re no longer able to defer payment or have access to any other federal loan benefits.
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Refinance My Private Student Loan
If you’re wondering whether to refinance your 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.
FAQ
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 you’ll 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 the length of your loan term 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, 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 can cause your credit score to drop a few points.
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 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.
SoFi Student Loan Refinance SoFi Loan Products
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY 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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