What to Know About Refinancing Student Loans

Refinancing student loans means your existing lender or a new lender pays off your loans and gives you a new loan with better terms. The new loan usually has a lower interest rate or different payback period. This can save you thousands of dollars in monthly payments.

There’s not much downside to refinancing, given these better terms and the fact that student loan refinance lenders don’t typically charge upfront costs. And as long as you meet a lender’s eligibility criteria, you can refinance private student loans as many times as you want.

Student loan refinance lenders often look for borrowers who have:

Good credit. You typically need a credit score that’s at least in the high 600s. If your score is lower, you can still apply for refinancing. Some lenders consider other financial factors to determine if you qualify, such as debt-to-income ratio and past payment history. However, a lower credit score likely means your interest rate is higher than it would’ve been with a higher score. Another option: refinance with a co-signer with good credit and who meets the lender's criteria.

A history of on-time loan payments. Lenders typically dig into your credit report to find evidence that you’ve paid your debts regularly in the past.

Enough income to pay your debts. You can refinance with low income, but lenders want to make sure you can repay the new loan, so they look at other financial factors. In addition to a good credit score, the required debt-to-income ratio for student loan refinancing is generally 50% or lower.

Lenders have other eligibility criteria as well. For example, some won’t approve non-U.S. citizens without a co-signer or visa holders with less than two years left on their visas.

Refinancing can save you money

The best reason to refinance private student loans is to save money. Lowering your interest rate can decrease your monthly payments, the amount you repay overall or both.

For example, let’s say you have a $35,000 private loan with a 12% interest rate and 10 years left in repayment. Your payments would be about $502 each month, and you’d repay $60,240 overall, with interest.

By refinancing at a 7% interest rate and choosing a 10-year repayment term, your monthly payments would drop to roughly $406. Your total repayment amount would fall to $48,766 — saving you almost $11,500.

» NEXT STEP: Try our student loan refinance calculator

You can get better repayment terms

Refinancing private student loans may be right for you if you want to change the way you repay your loans:

Simplify repayment. If you have more than one private student loan, you can combine them into a single refinanced loan with one payment. Lenders may call this private student loan consolidation, which you can often do when refinancing private loans.

Stretch out repayment to decrease monthly payments. Refinancing can lower your monthly payments by stretching your repayment term to as long as 20 years. This could lower your monthly payments and free up money for other needs, such as paying for housing and food. However, that longer span will likely mean you pay more in the end, because more interest will accrue.

Shorten repayment to save on interest. If you want to pay off student loans faster, you can refinance with a shorter repayment schedule than you have now. This will likely increase your monthly payments. You can also pay off your loan more quickly by paying more on your existing private loan. Student loan lenders don’t usually charge prepayment penalties.

You can choose a different lender

If you’re unhappy with your current loan holder’s customer service or repayment options, you can switch to a different lender by refinancing. This isn’t a strong reason on its own to refinance — especially if switching means paying more money.

But you may enjoy more benefits with another lender. For example, you may be able to release a co-signer sooner or take advantage of different payment plans or postponements.

» MORE: NerdWallet’s best student loan refinance lenders

For most people, refinancing after finishing school makes sense: It gives you some time to land a job and build the credit and payment record needed to qualify for the best possible rate.

If you have great credit and quickly find a job after graduation that more than covers your bills, it can make sense to refinance as soon as possible. The earlier you get a lower rate, the more you stand to save.

Most lenders won’t let you refinance private student loans while you’re still in school. If a lender does allow this, you may need to be close to graduation to qualify and be able to show you’re responsible with your finances.

Some lenders also require you to have graduated with at least a bachelor’s degree. Most refinance lenders won’t accept applicants who didn’t attend a school authorized to receive federal aid dollars.

» MORE: Refinance lenders for borrowers still in school or with no degree

Note: This calculator assumes that after you refinance, you’ll make minimum monthly payments.

There are few downsides to refinancing private student loans if you can secure a better interest rate or loan terms. But there are a few reasons it might not be a good fit:

Interest rates are generally high. If rates are high, wait to refinance until they fall below your current rate. 

You have a poor credit score or unsteady income. You need a credit score at least in the high 600s to qualify for the lowest interest rates. 

You need a co-signer. If you don’t have a reliable co-signer, but you need one, consider waiting until you can refinance on your own.

Since you already have private loans, you won't miss out on government student loan relief programs like income-driven repayment or loan forgiveness by refinancing. Those perks typically only apply to federal student loans, and you can't convert private loans into federal loans.

If you have both private and federal student loans, you can refinance just the private ones to preserve your federal loan benefits, if you think you’ll need them.

» MORE: Should you refinance federal student loans?

Refinancing your private student loans can be a quick process. Here are the general steps to take:

Compare top student loan refinance lenders. Take note of their advertised interest rates and loan features. 

Get pre-qualified with different lenders. Many lenders can give you an estimate of the interest rate you may qualify for through a soft credit check, which does not impact your credit score. 

Apply directly with the lender you choose. Submit refinancing paperwork directly to this lender. If you meet the refinance eligibility requirements and your application is approved, the lender will pay off your old student loan and issue you a new one. 

Start making payments with your new lender. Once you receive confirmation that your new lender has paid off your debt with your previous lender, you can begin making payments to your refinance lender moving forward.

» MORE: How to refinance student loans in 7 steps