It’s possible to refinance student loans before graduation, but many lenders require that students complete their degree first. Even if a lender allows you to refinance student loans in school, you’ll need to meet their credit and income requirements — or apply with a creditworthy cosigner — to get approved.
For many students, it often makes sense to work on building credit and securing a steady income before refinancing. Here’s what to know about refinancing student loans before graduation, plus steps you can take now as a student borrower to start preparing for repayment.
Table of Contents
Key Points
• Refinancing student loans before graduation is possible with some lenders, though many lenders require graduation and degree completion.
• Refinancing combines multiple loans into one loan with a single monthly payment for simplified management; however, borrowers must begin repayment once loans are disbursed, which could be challenging while in school.
• Reducing interest rates through refinancing may potentially save hundreds or thousands of dollars over loan lifetimes for borrowers who qualify for lower interest rates.
• Refinancing federal student loans into private loans permanently eliminates access to federal repayment plans, forgiveness programs, deferment, forbearance, and other borrower protections.
• Lenders typically require minimum credit scores of 670 on FICO models, steady income verification, and employment status confirmation — or a creditworthy loan cosigner — before approving borrowers for student loan refinancing.
What Is Student Loan Refinancing?
The way student loan refinancing works is that borrowers exchange one or more of their existing student loans for one new private loan from a private lender, such as a bank, credit union, or online lender. Ideally, the new loan will have a lower interest rate or more favorable repayment terms.
Reducing the interest rate through refinancing — for those who qualify — could potentially save hundreds or even thousands of dollars over the life of the loan. For example, going from a 7.00% rate to a 4.50% rate on a $25,000 loan through refinancing saves approximately $3,740 in interest charges over 10 years.
Borrowers can also choose new repayment terms through refinancing, which typically range from 5 to 20 years. Longer repayment terms can lower your monthly payments, but you’ll pay more interest over the life of the loan. Shorter terms mean your monthly payments will be higher, but you’ll save money on interest and the cost of the loan overall.
For students considering refinancing, there are some caveats to be aware of. For one thing, if you refinance federal student loans into a private student loan, you forfeit access to federal repayment plans, forgiveness programs, and other borrower protections.
In addition, once you refinance student loans, you’ll need to start making loan payments. That can be challenging when you’re still in school.
When Student Loan Refinancing Typically Becomes Available
The requirements for student loan refinance eligibility timing vary by lender. These are some of the conditions borrowers generally need to meet.
Graduation Requirements
Many lenders only allow student loan refinancing after graduation. However, some lenders don’t have a graduation requirement, and others allow refinancing when students are within six months of graduation. Borrowers considering refinancing while in school will have a smaller list of lenders to choose from, but refinancing may still be possible.
Employment and Income Considerations
Lenders look at income and employment status when deciding whether to approve borrowers for a student loan refinance. They want to make sure individuals have steady and sufficient income to cover the monthly loan payments.
Credit Profile Expectations
A borrower’s credit profile plays a major role in whether they get approved for refinancing, as well as the interest rate they qualify for. Credit requirements vary by lender, but typically, the credit score needed to refinance student loans is at least 670 on the FICO® scoring model. In general, the higher a borrower’s score, the lower the interest rate they may be eligible for. Qualifying for a low interest rate can help maximize savings and lower the costs of borrowing.
Those without strong credit may be able to qualify for refinancing by applying with a creditworthy cosigner. A refinancing cosigner will be responsible for paying back the loan if the borrower can’t. Their credit will be impacted by how well the borrower manages and repays the loan.
Why Students Think About Refinancing Early
Students may consider refinancing before graduation for a variety of reasons, including:
Interest Rate Concerns
It can be challenging to pay back student loans, especially if the loans have high interest rates. Students may be interested in trying to get a lower rate through options like refinancing.
Borrowers might think about refinancing while in school if current interest rates are low but expected to rise in the future. However, be aware that it is possible to refinance multiple times if rates drop in the future.
Managing Multiple Loans
With several different student loans, it can be tricky and time consuming to track multiple payments, due dates, and loan servicer accounts.
Refinancing lets borrowers combine their loans into one loan with a single monthly payment. This approach can streamline and simplify payment and help prevent missed due dates.
Planning for Repayment
Federal student loans don’t require borrowers to make payments while they’re in school. There’s also a six-month grace period after graduation before payments are due. If the loans are subsidized, the government will cover the interest charges while the borrower is in school and during the grace period.
But with unsubsidized federal loans, the interest accrues during a student’s school years and the grace period afterward, which can add significantly to the amount they owe. For borrowers with private loans, payments typically start once the loans are disbursed. It’s no wonder then that students may start planning for repayment before graduation.
Making payments on student loans while in school can help chip away at the balance and the interest. Refinancing could potentially do the same if a borrower qualifies for a lower rate. Just remember that once student loans are refinanced, loan payments become due.
What Students Can Do Before Graduation to Prepare
If a student is considering refinancing after they graduate, there are several steps they can take now to help get ready.
Building Credit History
Focusing on building credit could help make a borrower a stronger candidate for refinancing when they apply. Credit history plays an important role in getting approved and qualifying for a low interest rate.
A borrower’s credit score is based on several factors, including payment history, credit utilization, and credit mix. Taking proactive steps while still in school, such as paying bills on-time and reducing credit card balances, may positively impact a borrower’s credit.
Understanding Loan Types
It’s important for students to know the types of loans they have — whether they’re federal, private, or a mix of both. Refinancing federal loans with a private lender means giving up access to federal repayment plans, such as income-driven repayment, and protections like forgiveness programs and federal deferment and forbearance.
If a borrower believes they may use these federal benefits at some point, refinancing their federal student loans won’t make sense. However, they might choose to consider refinancing private student loans if they could qualify for a lower interest rate or more favorable terms.
Tracking Repayment Timelines
Student borrowers can use the months before graduation to review and organize their loans to prepare for refinancing. Things to look at include loan balances, interest rates, and interest charges that have accrued so far. They can also take note of repayment terms, grace periods, and payment start dates.
Getting a clear picture of their loans, how much they owe, and when they need to start making payments can help a borrower determine whether to refinance, which loans to possibly refinance, and when. For example, they might want to wait until a loan’s grace period is about to end.
Plus, a borrower can consider a new repayment term that makes sense for their situation.
A longer timeline, for instance, could lower monthly payments but means spending more time in debt and paying more interest over the life of the loan. A shorter timeline will have higher monthly payments but could save on interest charges overall.
Common Misconceptions About Refinancing While in School
There are a number of common misbeliefs about refinancing student loans before graduation. Some of the most common misconceptions include the following.
• It’s not possible to refinance as a student. While many lenders require proof of graduation and a stable income or offer of employment, some lenders do allow borrowers to refinance while they’re in school, often with a cosigner on the loan.
• Refinancing lowers interest rates. Getting a lower interest rate through refinancing depends largely on a borrower’s credit and financial profile. Lenders typically offer their best rates to applicants with a strong credit history, a stable income, and a low debt-to-income ratio.
• Refinancing is a one-time process. False. It’s possible to refinance student loans multiple times.
• All student loans must be refinanced together. Borrowers can opt to refinance just one student loan, several loans, or however many loans they choose. It is not necessary to refinance all of the loans together unless a borrower wants to do so.
• Student loan refinancing and consolidation are the same. Although the terms are often used interchangeably, student loan refinancing and student loan consolidation are two separate processes. While they both involve replacing current student loans with one new loan, they work differently.
Federal Direct Loan Consolidation typically doesn’t lower a borrower’s interest rate (the interest rate on the consolidated loan is the weighted average of the rates of the current loans rounded up to the nearest one-eighth of a percent). However, consolidation does simplify loan repayment. And it preserves a borrower’s access to federal programs and protections. Conversely, refinancing may lower a borrower’s interest rate if they qualify, but refinancing federal student loans makes them ineligible for federal benefits.
Alternatives to Consider Before Graduation
If refinancing while in school isn’t the right option for your situation, there are other repayment methods to explore before you graduate.
In-School Payment Strategies
Borrowers can make payments on their loans while they’re in school to help cut down on interest charges and start reducing the balance. Options include making interest-only payments, small flat payments of whatever amount you can afford, or even full payments, if possible. Paying even a little now can help lower the long-term costs of borrowing.
Budget Planning
Creating a budget can be helpful as you prepare to pay back your student loans. To get started, make a list of your monthly expenses and any monthly income you have to get a sense of your cash flow. You might even estimate your expected future salary and consider how your student loan payments will fit into it.
If money is tight, strategies like income-driven repayment plans for federal loans and refinancing for private loans could be worth exploring. You can also look for ways to increase your income, cut back on discretionary spending, or do a mix of both to create more room in your budget.
The Takeaway
While it’s possible to refinance student loans while you’re in school, many lenders require borrowers to have a bachelor’s degree to be eligible. In addition, refinancing may not make sense for your situation, especially if you have federal student loans and believe you may need the federal benefits they offer.
That said, there are some lenders that permit refinancing before graduation. If you have private student loans, or you don’t need the benefits of your federal loans and think you may qualify for a lower interest rate, refinancing may be worth considering. Explore the different student loan repayment options available to help determine the best method 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 you refinance student loans while still enrolled?
Some lenders may allow you to refinance student loans while still in school as long as you can meet their requirements. Eligibility requirements typically include having a credit score of at least 670, a steady income, and a low debt-to-income ratio — or having a creditworthy cosigner for the loan.
Do student loan refinance lenders require graduation?
Many lenders require borrowers to be graduates in order to be eligible for refinancing. However, some lenders allow refinancing before graduation. Either way, borrowers will need to meet specific financial requirements, such as a strong credit profile, a stable job, and a steady income — or having a creditworthy cosigner.
Does refinancing remove federal protections?
Refinancing federal student loans makes them ineligible for federal protections. Refinancing is not reversible, so it wouldn’t be the right move if a borrower thinks they might need access to benefits like income-driven repayment plans, federal forgiveness programs, or deferment or forbearance.
How early should you prepare for refinancing?
If you’re considering refinancing, you could prepare for it while you’re still in school by reviewing your loans, including the type of loans you have, the loan balances, interest rates and repayment terms. You might also work on building your credit by paying bills on time and reducing debt like credit card balances. Also, familiarize yourself with how refinancing works. This is especially important if you have federal loans, since refinancing makes them ineligible for federal benefits.
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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 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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