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Student Loan Refinancing FAQ

Consider refinancing student loans if you have good credit, stable income and a history of on-time debt payments.
June 21, 2018
Loans, Student Loans
Student Loan Refinancing FAQ

Student loan refinancing means swapping your current student loans for a new loan with a lower interest rate. That could save you big money over time.

Refinancing isn’t for everyone. Explore below whether you should refinance, and how it works, before going for it.

Once you’re ready to get started, head to our student loan refinance page to learn more about what specific lenders offer.

How does student loan refinancing work?

Refinance lenders include banks, credit unions and online-only lenders. If you qualify to refinance a student loan, your good financial habits will get you a lower interest rate on your debt, which will save you money. The lender will pay off the loans you choose to refinance and issue you a new one from its institution.

Lenders look for customers who have high credit scores, stable incomes and a history of on-time debt payments. Here’s more on how student loan refinancing works:

When you refinance multiple loans into a single new loan owned by a private lender, by definition you are consolidating them into one loan. That’s why you may see these two terms used interchangeably.

But student loan refinancing is a money-saving strategy that requires good credit. Federal student loan consolidation is a logistical move that allows you to access certain repayment programs. It doesn’t have credit requirements.

Those with loans from the Federal Family Education Loan Program, for instance, must consolidate them in order to qualify for programs like Public Service Loan Forgiveness and some income-driven repayment plans. The government will give you a new interest rate that’s a weighted average of your prior loans’ rates, rounded up to the next one-eighth of 1%.

Yes, but only private lenders offer student loan refinancing. That means that when you refinance a federal loan, it’s turned into a private loan. You’ll lose protections that many federal loan borrowers rely on, like the ability to lower monthly payments to a percentage of your income. You also won’t get forgiveness for working in the public service, or access to long payment-postponement periods if you lose your job.

To find out whether your current student loans are federal or private, log into the government’s online Federal Student Aid portal or the National Student Loan Data System. Any student loans that don’t appear in these two places are private. They will most likely be listed on your credit report.

Refinancing a federal student loan may still be a good idea; just know what you give up in return for a lower interest rate.

Unlike refinancing a mortgage, refinancing student loans doesn’t cost money. There are generally no origination, application or prepayment fees. But read your loan agreement carefully to make sure you understand costs you could incur in the future, like late fees.

Federal consolidation, if that’s the direction you choose, is also free. However, some so-called debt relief companies charge fees to consolidate your loans on your behalf. Don’t use them. It’s never necessary to pay for this service.

Yes. Some lenders allow former students to refinance PLUS loans made to their parents, transferring responsibility for the loan from parent to child in the process. Both the parent and child must meet the lender’s eligibility criteria. Parents may co-sign the child’s new refinance loan to help the child qualify or get a lower interest rate. In that case, though, the parent must repay the loan if the child can’t.
Each lender has its own formula for determining which applications to accept, so it can be hard to pinpoint a reason. Usually, it comes down to these key factors:

  • Credit score: Typically, a score at least in the high 600s is required
  • Debt-to-income ratio: Your debt shouldn’t exceed 50% of your income
  • Income: Stability is key, so freelancers or contracted workers are a harder sell

It’s also possible that the lender had additional requirements you weren’t aware of when you applied. Contact the lender to find out why your application was rejected, then take steps to meet that requirement, if possible. That may mean building your credit score or paying off one of your student loans to lower your debt-to-income ratio.

If refinancing isn’t an option and you’re having trouble affording your bills, look into federal income-driven repayment plans. Or ask your private lender about making interest-only payments for a period of time.

Should I refinance my student loans?

Student loan refinancing is a good idea if:

  • You have private student loans. These generally have higher interest rates than federal student loans and fewer repayment benefits, which means you have less to lose.
  • You have federal student loans and don’t plan on taking advantage of a federal forgiveness program or income-driven repayment plan.
  • You have credit at least in the high 600s or higher, steady income and a history of on-time debt payments. It can also help if you work in a field like medicine or law, which traditionally signals job stability and high earnings. You can use a co-signer to qualify, but that person must repay the loan if you can’t.

The biggest benefit of student loan refinancing is receiving a lower interest rate than your previous loans carried. To make sure the process is worth it, use a student loan refinance calculator to see how much you could save. Here’s more on whether to refinance student loans:

In many cases, yes. But unlike the federal government, private lenders are not required to offer such protections, so each lender has slightly different payment postponement policies. You may have to show proof of lost income or unemployment.

Some lenders offer forbearance only on a case-by-case basis. Others offer a total of 12 or 24 months of forbearance, often in two- or three-month increments. Ask your lender, too, about its policies for borrowers who return to school after refinancing.

That depends on your priorities. If you want the lowest interest rate possible, apply to lenders widely.

In general, refinancing is best for borrowers who do not foresee a major change to their income over the course of the repayment period. But some borrowers may look for flexibility in case they unexpectedly lose their job, go back to school or have trouble repaying the loan. If that sounds like you, choose a lender that provides generous payment postponement options or income-based repayment.

If you’re worried about getting the lowest interest rate possible and you were planning on refinancing anyway, apply sooner rather than later. Interest rates will continue to rise for the foreseeable future. Once you do refinance, choose a fixed interest rate, which won’t go up. Variable rates are best for those who will pay off their loans quickly. Learn more about the Fed rate hike and student loans.
Many lenders require that your loans were used to attend a school that participates in the Title IV federal student aid programs. You can search this list to see if your school qualifies.

Some lenders, including Citizens One and Rhode Island Student Loan Authority, or RISLA, allow you to refinance if you didn’t attend a Title IV school.

Yes, if you choose a lender that offers this option. Many lenders require that you have graduated, but Citizens One, Discover, PNC, RISLA and Discover will let you refinance even if you don’t have a diploma.

» MORE: No Degree? 5 Lenders Who Will Refinance Student Loans

Yes, but you may have to wait a few years. Many lenders require that a certain amount of time has passed since your bankruptcy; the length of time varies by lender.


How can I find the right refinance lender?

The expert reviews below detail each refinancing lender’s credit requirements, borrower qualifications and payment options.

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