Should You Refinance Private Student Loans?

Refinancing your private student loans can lead to a lower rate and better terms.

Most private lenders don’t charge fees to refinance and many allow you to check your rate before completing a full application. The benefits of refinancing include lowering your monthly payments and reducing the cost of borrowing.

Why refinance private student loans?

Private student loans generally feature variable interest rates determined based on a borrower’s credit history.

When borrowers first take out private student loans, many have a limited credit profile and are treated as credit risks by lenders. This means that, for many borrowers, private student loan interest rates can be quite high. And for many other borrowers, a cosigner was needed to get the loan in the first place.

Now that you’ve graduated, got a job, and have good credit, it may be a good time to refinance since you’ll likely qualify for refinancing through a private lender.

Need more reasons to refinance private loans? Consider the following:

It saves you money

The best reason to refinance is to save money by lowering interest rates. A lower interest rate can decrease your monthly payments and the total cost of borrowing.

“Let’s say you have a $35,000 private loan with a 12% interest rate and 10 years left in repayment. Your monthly payments would be about $502, and you’d repay $60,258 with interest.

By refinancing at a 7% interest rate and choosing a 10-year repayment term, your monthly payments would drop to roughly $406 and your total repayment amount would fall to $48,766 — saving you more than $11,000 overall.” -Nerdwallet

Simplify repayment and change terms

When you took out your loans, you agreed to specific terms. The only way to change these terms is through refinancing with a different lender who pays off your existing loans.

If you have multiple student loans, refinancing can combine them into one new loan, simplifying repayment. Instead of multiple monthly payments, you’ll only make one payment.

Additionally, refinancing gives you the opportunity to choose a different repayment term.

For example, you can choose to extend the repayment period from 5 years to 20 years or vice versa. Extended repayment periods can mean lower monthly payments, improving your cash flow. A shorter term can mean higher monthly payments but a drastically lower total cost of borrowing.

Change your lender or servicer

Refinancing allows you to change your lender and potentially your loan servicer.

Basically, if you’re unhappy with your lender, the only way to leave is through refinancing with an alternative one. Private lenders are competing for your business, and refinancing with a different lender can mean added benefits. Some private lenders offer their borrowers more generous forbearance plans and employment resources.

Remove your co-borrower

If you initially needed a cosigner to get your private loan, refinancing is an opportunity to remove them. If a cosigner is needed for the refinancing, you can choose a lender that has a cosigner release option. This option allows you to remove a cosigner without applying for a new loan or going through a refinance again.

Answer these Questions Before Refinancing Student Loans

If the question, “Should I refinance my student loans?” continues to pop up in your mind, then continue to read below.

What type of loans do you have?

As mentioned earlier, know the difference between federal and private loans. You don’t have to refinance them all together. In fact, you can consolidate federal loans and refinance private loans. Or, after doing the math, it makes sense to refinance them together. A crucial question is understanding your loans in the first place and the benefits that come along with them.

What are your current monthly payments and total debt?

You need to know how much your monthly payments are and the total amount owed. This will help you determine whether a new monthly payment is better. Refinancing can lower your interest rate, but it can also shorten the repayment term. This can result in a much higher monthly payment than you can afford.

What are the terms of your existing loans?

What are the terms associated with your loans? List the interest rates, monthly payments, and loan repayment period. If you don’t know your rates or terms, you can access your federal loan information on NSDLS and find the servicers for private lenders through your credit report.

What is your employment situation?

Refinancing involves a review of your credit history, meeting credit score requirements, and income. The approvals vary with each lender but mostly stick to the underwriting basics. You’ll want to have a stable job, good income, and low debt-to-income.

If you’re unemployed, refinancing may be difficult. In these situations, you should ask your existing loan servicers about financial hardship benefits.

What is your credit score?

Your credit score is used for approval, so very good to excellent credit may be necessary. In some instances, you can add a cosigner to increase your chances. The alternative is to wait until you’ve improved your credit before proceeding with a refinance. Review your credit report to ensure accuracy, and use a free credit score app to check your score and learn how to improve it.

Are you planning to apply for loan forgiveness?

Federal loans are eligible for loan forgiveness or cancellation under the Public Service Loan Forgiveness or Teacher Loan Forgiveness programs. If you are in public service, you have additional benefits that you may lose after refinancing.

If refinancing is a definite path for you, consider the additional questions to ask yourself before refinancing student loans. They are:

What are your private lender options?

Shop around for the best rates and terms with a reputable student loan refinancing company. You have options from banks, credit unions, and financing companies. There are distinct differences, so you want to understand the terms and benefits before signing.

What additional benefits are offered?

Research and ask your reps about the benefits of your refinanced loans. Ask about financial hardship assistance (because things happen), in-school deferment if you decide to go back, forbearance, unemployment protection, and interest rate caps.

What is the support like?

Finally, understand the type of support you’ll receive and if your loan will get sold to a different servicer. Many private lenders do not service their own loans. This means you’ll refinance with bank A but you’ll send payments to Servicer 1. This is quite standard and you see this with federal loans. The federal government issues student loans and you pay one of the contracted federal loan servicers for all the customer inquiries and hand payments.

Private Student Loan Refinancing FAQs

Where can I find a private lender to refinance my student loans?

Check our financial marketplace for refinancing options.

Is refinancing private student loans the same as consolidation?

Many interchangeably use the words consolidating and refinancing. It’s important to know the difference. Refinancing involves a new loan from a private lender that may include one or more student loans. Consolidation is the term used for federal student loans. Consolidating your federal student loans helps maintain federal benefits such as loan forgiveness.

With refinancing, you refinance a single loan or multiple loans (consolidate) into a new loan. The new loan will have different rates and terms.

Can I really save money with student loan refinancing?

That all depends. Refinancing can save thousands during the life of the student loan. However, it’s important to look closely at the APR. The monthly payment on your new loan might be lower because the loan term might be spread out over more years. However, a higher interest rate means a higher total cost of borrowing.

Should I refinance my federal student loans into a private loan?

Federal student loans have special benefits such as income-driven repayment plans and loan forgiveness programs. Refinancing federal and private loans might make financial sense in some instances. However, consider the pros and cons. Additionally, you can keep your federal loans separate and only refinance the private loans.

Is it possible to consolidate my private student loans with federal loans?

No. You cannot consolidate private loans into the federal loan consolidation program. Only federal and other non-private loans are eligible. Federal loan consolidation combines all eligible loans together, making repayment simpler while keeping all federal benefits intact.