You can refinance student loans. Opportunities to do it have been growing since SoFi, a San Francisco-based lender, began offering student loan refinancing for both federal and private student loans in 2012. Today, there are plenty of student loan refinance options to choose from, including online lenders, banks and credit unions.
But just because student loan refinancing is possible doesn’t mean everyone can or should do it. Here’s a guide to understanding whether it’s a good option for you.
Can you refinance federal student loans?
Yes. The Department of Education doesn’t offer student loan refinancing, but you can refinance federal student loans through private lenders.
There’s one potentially major downside to refinancing federal student loans: They would no longer qualify for government programs such as income-driven repayment plans and Public Service Loan Forgiveness. If you’re already taking advantage of one of those programs or plan to, don’t refinance.
Can you refinance private student loans?
Yes, and you have nothing to lose if you qualify for a lower interest rate. Unlike with federal student loans, refinancing private student loans won’t strip you of any loan benefits. When you refinance, make sure you choose the same term length — or a shorter one — to ensure you save money both monthly and long-term.
Unlike with federal student loans, refinancing private student loans won’t strip you of any loan benefits.
Private student loan refinance lenders generally look for low-risk borrowers. They identify good candidates by looking not just at credit history, but also at existing debts and future income potential.
Whether you’re refinancing federal student loans, private student loans or a mix of both, lenders are looking for people who have:
- Good credit. To qualify for student loan refinancing, you typically need a credit score that’s in the high 600s — at least. The higher your score, the likelier you are to qualify and the lower the rate you could get. Many lenders cater to borrowers who have scores in the 700s or higher. If you have bad credit, you may still be able to qualify by applying with a co-signer.
- A history of on-time loan payments. In evaluating you for student loan refinancing, lenders will likely dig into your credit report to find evidence that you’ve paid your debts regularly in the past. If you have, they’ll take that to mean you’ll make consistent on-time payments in the future.
- Enough income to pay your debts. Lenders will also look at your capacity to repay the refinanced student loan. Some lenders calculate your debt-to-income ratio, or the amount of debt you owe relative to your income. You typically need a debt-to-income ratio that’s 50% or less, but the lower the better. Not all lenders use debt-to-income ratio as an underwriting tool; some instead require a minimum income, and still others consider borrowers with high amounts of debt if their earning potential is high.
» MORE: When to refinance student loans
Can I refinance if…
Beyond credit, income and debt, lenders have other guidelines and requirements that may or may not preclude you from student loan refinancing.
I’ve consolidated my student loans
Yes. Even if you’ve already consolidated, you can benefit from student loan refinancing by qualifying for a lower interest rate. If you haven’t already consolidated, student loan refinancing can both consolidate your loans and lower your interest rate.
If I’ve already refinanced
If you’ve already refinanced your student loans, you can refinance again to potentially get an even lower rate, especially if your credit scores have risen or your overall finances improved. Refinance loans don’t carry prepayment penalties or origination fees; the cost to refinance is typically zero.
I don’t have a degree
Many lenders refinance student loans only for borrowers who have earned a bachelor’s degree, and some lenders will accept borrowers who have an associate degree. However, there are a handful of lenders that let you refinance without a degree.
I didn’t attend a Title IV school
Most lenders require that you attended a school that’s part of the Title IV federal student aid programs. Chances are you did, but you can double check using this list.
I’ve filed for bankruptcy
Yes, but you may have to wait a few years or apply with a co-signer. Many lenders require that a certain amount of time — anywhere from four to 10 years — must have passed since your bankruptcy.
Not likely, if the default was recent. A default in your past is a red flag for lenders.
If the default is wiped from your credit report, which typically takes seven years, you could qualify for student loan refinancing as long as you meet the credit, income and other underwriting criteria.