How to refinance student loans in 6 steps

If you’re working to pay off your student loans, refinancing can offer a number of benefits, including smaller monthly payments or lower interest rates. But before you submit an application, it's important to understand the impacts refinancing can have.

Read on to determine if refinancing could benefit you, as well as a step-by-step breakdown of how to refinance student loans.

What is student loan refinancing?

Broadly speaking, student loan refinancing is the process of combining one or more of your existing student debts into one new loan.

It's possible to refinance both private and federal loans. However, refinancing federal student loans turns them into a form of private debt, and you’ll lose access to federal protections like forgiveness programs and income-based repayment plans.

Still, refinancing can offer plenty of benefits, such as the potential for a lower interest rate or reduced payments. Qualifying typically requires good credit and a reliable income.

How to refinance student loans

Here's an overview of the general process for how to refinance student loans, though specifics vary by lender:

1. Determine if refinancing makes sense

Before you get into the details of how to refinance your student loans, step back and evaluate if refinancing actually makes sense for your situation.

First, consider the types of student loans you currently have. For example, you might think twice before refinancing federal loans, since you'll lose federal benefits and protections. If you don’t have a stable income or are pursuing loan forgiveness, you may need those perks later.

Also consider what you hope to achieve by refinancing. Are you looking to remove your cosigner? Do you want lower monthly payments? Are you aiming for a lower interest rate? Set your priorities before you start searching for the right lender.

2. Check your credit

You’ll generally need good credit to refinance on your own, and excellent credit if you hope to get the best rates and terms. Lenders typically look for a FICO credit score in the mid- to high-600s or greater. You’ll also typically need sufficient income and a debt-to-income ratio of 50% or lower — though under 36% is ideal.

Before you submit an application, check your credit score and see how it lines up with what's required. Here are a couple of easy ways to do so:

• On your credit card bill or loan accounts: Credit card and loan companies often provide your score on monthly statements or in your online account.
• Through a free credit score service: There are many sites that provide your credit score at no cost. Just make sure to read the fine print to avoid unnecessary charges.

3. Prequalify, if possible

Many lenders allow borrowers to prequalify for a refinance loan. To do so, input a few pieces of personal information on the lender’s site. Then, you can view the estimated interest rates and terms you’re likely to qualify for.

Unlike the formal application process, prequalification typically doesn’t involve a hard credit check. This means that you can suss out your options without impacting your credit, making it easier to identify the best loans available.

Just keep in mind that prequalifying doesn’t guarantee approval, nor are the quoted terms assured — the lender will still need to conduct a hard credit check after you apply.

4. Compare your offers

Before submitting any application, shop around and compare different lenders. As you weigh your choices, pay attention to the following factors:

• Advertised interest rates
• Whether rates are fixed or variable
• Available loan terms
• Application, origination, or late fees, as well as other added costs
• Repayment plans
• Economic hardship policies, if you later have trouble repaying your loan
• Discounts, cashback programs, or other rewards
• Cosigner release policies, if available
• The lender's reputation and customer service reviews

5. Submit an application

Once you've determined which lenders you like, it's time to apply.

You'll need to include basic personal and contact information, such as your name, date of birth, Social Security number, address, phone number, and email address. You may also need to provide government-issued identification like a driver's license or passport.

The application will typically ask about your school and degree (including proof of graduation), as well as the types of loans you're planning to refinance and the loan amount you're requesting. It's also common to provide information about your income, which may require pay stubs or W-2 forms, as well as details about your employer.

If you have a cosigner, they’ll need to provide similar information about themselves.

6. Finalize your refinance loan

If you’re approved for your new loan, there are still a few things to complete. You’ll usually need to finalize your loan terms and other relevant options before signing the final paperwork.

Then, your new lender will work with your old lenders to pay off your existing loans. This can take some time to process, but it's important that you continue to make payments on your old debts so they remain current.

Once the lender confirms that everything is complete, you'll begin making monthly payments on your newly refinanced loan.

Pros and cons of student loan refinancing

Refinancing your student loans has plenty of benefits, but it's not without risk. Review the pros and cons before moving forward.

Pros

• Streamline multiple monthly payments: If you're juggling several payments for different loans each month, refinancing can roll them into just one monthly payment to worry about.
• Potentially secure a lower interest rate: Depending on your credit and other factors, you could lower your interest rate, leading to significant savings over time.
• Lower monthly payments: Refinancing could also reduce your monthly bill. You can do this by lowering your interest rate and/or extending your loan term. While this can make your payments more affordable, note that extending your loan term can increase your interest costs over the life of the loan.

Cons

• Lose access to federal benefits: If you refinance federal student loans, you’ll lose access to valuable federal protections. This includes various repayment plans, such as income-driven repayment, as well as loan forgiveness and temporary payment relief.
• Potentially pay more: Refinancing isn’t guaranteed to save you money. Depending on your new loan’s terms, you may end up paying more over the life of the loan.
• Strict qualification standards: Typically, you'll need good credit, steady income, and a reasonably low debt-to-income ratio to qualify. For some, it can be hard to meet these qualification requirements without enlisting a cosigner.

Is refinancing student loans worth it?

Whether or not refinancing makes sense depends on the specifics of your situation. Before making a decision, you can run the numbers with a student loan refinancing calculator.

Input the details of your existing debts and the estimated terms of a refinanced loan. You can then review your new monthly payment and see how your total interest costs could change.

Alternatives to student loan refinancing

Refinancing isn't your only option for managing student loan debt. Here are some alternatives to consider, depending on your goals:

• Income-driven repayment: If you want to lower your payments and have federal loans, income-driven repayment could be a useful solution. These plans set your monthly payments at a percentage of your income, and any remaining balance after 20 or 25 years of payments can be forgiven.
• Deferment or forbearance: Borrowers struggling to keep up because of financial hardship might look into deferment or forbearance, which let you pause payments for a certain amount of time. Both federal and private student loans may be eligible, but interest typically continues to accrue.
• Forgiveness programs: Another option available to some borrowers is loan forgiveness, which wipes out your remaining balance after you make a certain number of payments or meet other requirements. Those who work in not-for-profit, education, legal, dental, or medical careers may qualify, especially if they serve in a high-need area.
• Federal consolidation: For those with federal loans looking to streamline monthly payments, federal consolidation might make sense. This allows you to retain federal benefits and potentially offers access to other repayment options, though it won't result in a lower interest rate.

Student loan refinance FAQ

Is student loan refinancing free?

There are typically no upfront costs to refinance student loans. That said, some lenders may charge origination or application fees, so make sure to read the fine print.

Can you refinance student loans at any time?

You can technically refinance student loans at any time, as long as you meet a lender's eligibility criteria. However, most lenders require that you have either graduated or left school before you apply. Others may allow you to refinance if you’re in your senior year.

Does refinancing loans hurt your credit?

Refinancing has the potential to hurt your credit — though it could also help it. You might see an initial drop in your credit score after applying because lenders conduct hard credit checks. And if, down the road, you're late on making payments, that can negatively affect your credit score.

However, if you manage your loans wisely and build a history of on-time, in-full payments, that can help your credit score.

How long does it take to refinance a student loan?

The amount of time refinancing takes depends on the lender and the specifics of your application. A lender may approve you instantly, or it could take 10 business days or longer.

Once you’re approved and have signed the final paperwork, the lender must pay off your old loans before the process is complete. That can take anywhere from a few days to several weeks.

Is it better to refinance student loans with a bank?

Not necessarily. The best lender is the one that offers you the best interest rate and loan terms, and can match your needs as a borrower.

In addition, many of the largest banks, including Bank of America, Chase, and Wells Fargo, no longer offer student loan refinancing.