Student Loan Refinancing Glossary: Learn The Basics

Student Loan Refinancing Terminology

This easy-to-reference glossary can help you navigate your student loan refinancing agreement with confidence and understand key terms like APR, loan term, and cosigner requirements.

• Refinancing

  Refinancing

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  Definition:

  Refinancing replaces one or more existing student loans with a new loan, typically through a private lender. Borrowers might want to refinance to secure a lower interest rate or get a more flexible repayment term.

  Example:

  If you have multiple student loans with high interest rates, you can refinance them into one new loan with a single monthly payment. For example, refinancing $50,000 in loans from 8% to 5% could lower your monthly payment and reduce the total interest paid over time.

  Questions to ask:

  • What are my current interest rates and monthly payments?

  • How much could I save with a lower rate or different repayment term?

  • Am I refinancing federal loans—and what benefits would I be giving up?

  • Do I qualify for a better rate based on my credit and income?

  How to prepare:

  • Gather your current loan details, including balances, rates, and servicers.

  • Check your credit score and consider ways to improve it before applying.

  • Use a refinancing calculator to compare potential savings.

  • Decide if giving up federal benefits (like income-driven repayment) is worth the tradeoff.

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• Federal vs. Private Loans

  Federal vs. Private Loans

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  Definition:

  Federal student loans are issued by the U.S. government and come with borrower protections, while private loans are offered by banks or lenders and may offer different terms and fewer safeguards.

  Example:

  Refinancing federal loans with a private lender means you lose access to federal benefits like Public Service Loan Forgiveness or income-driven repayment. If you’re pursuing forgiveness, refinancing might not be the best option.

  Questions to ask:

  • Are my current loans federal, private, or a mix of both?

  • Am I eligible or pursuing any federal forgiveness programs?

  • Would refinancing eliminate protections I may need in the future?

  • Are there private lenders that offer protections similar to federal options?

  How to prepare:

  • Review your loan types in your loan servicer account or on studentaid.gov.

  • Assess your career plans and eligibility for forgiveness or IDR.

  • Compare lender policies around deferment, forbearance, and hardship.

  • Make sure refinancing aligns with your long-term repayment strategy.

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• Debt-to-Income Ratio (DTI)

  Debt-to-Income Ratio (DTI)

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  Definition:

  Compares how much you owe each month to how much you earn. Lenders use it to assess your ability to take on new debt — a lower DTI signals better financial health and increases your chances of being approved for refinancing.

  Example:

  If you earn $6,000 a month and pay $2,100 toward existing debts (like loans and credit cards), your DTI is 35%. Most lenders prefer a DTI under 40%, and the lower, the better when seeking competitive refinance rates.

  Questions to ask:

  • What’s my current monthly income before taxes?

  • How much do I pay monthly toward debts (loans, credit cards, etc.)

  • Does my DTI fall below the preferred threshold for refinancing?

  • Can I improve my DTI before applying?

  How to prepare:

  • Use a DTI calculator to understand your current ratio.

  • Pay down existing debts to lower your monthly obligations.

  • Avoid taking on new loans or credit card debt before applying.

  • Consider applying with a cosigner if your DTI is on the higher side.

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• Creditworthiness

  Creditworthiness

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  Definition:

  Creditworthiness reflects your ability to repay a loan and is based on factors like credit score, income, employment history, and debt-to-income ratio—all of which affect your ability to refinance and the rate you receive.

  Example:

  A borrower with excellent credit (e.g., 760+) and a stable income may qualify for significantly lower refinance rates than someone with limited credit or inconsistent employment history.

  Questions to ask:

  • What is my current credit score and DTI (debt-to-income ratio)?

  • Do I meet the lender’s minimum credit requirements?

  • Can I improve my score or reduce debt before applying?

  • Would applying with a cosigner improve my rate?

  How to prepare:

  • Check your credit report and fix any errors.

  • Pay down existing debts to improve your DTI.

  • Gather proof of stable income or employment.

  • Consider delaying your application if your credit needs improvement.

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• Annual Percentage Rate (APR)

  Annual Percentage Rate (APR)

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  Definition:

  The total annual cost of borrowing, including both the interest rate and any lender fees. It gives you a more accurate picture of what you’ll actually pay over the life of the loan — not just the interest rate.

  Example:

  Lender A offers a 4.5% interest rate with $1,000 in fees, while Lender B offers 4.8% with no fees. Even though Lender A’s interest rate is lower, their APR might be higher once fees are factored in.

  Questions to ask:

  • What is the APR, not just the interest rate?

  • Are there origination or processing fees included in this loan?

  • How does the APR change with different loan terms?

  • Am I comparing APRs across all my lender options?

  How to prepare:

  • Always request the APR when shopping for refinance options.

  • Use loan comparison tools or calculators that include fees.

  • Don’t be misled by a low interest rate without understanding the total cost.

  • Choose the offer with the best balance of low APR and favorable terms for your situation.

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