Refinancing private student loans is now the best way to lower costs — here's why

Refinancing your private student loans can come with serious benefits — especially in today’s low-rate market. (iStock)

Private student loans typically come with higher interest rates than those on federally-backed options. If your rates are on the higher side, refinancing private student loans is now the best way to lower costs and save money. After all, interest rates have dropped dramatically since the spring — and refinancing is a good trick to slashing your loan interest rate even further.

A student loan refi can reduce your interest rate, lower your monthly payment, and spread your payments out further. With Credible's free online tools, you can find the best rates available by comparing multiple private lenders at once without affecting your credit score.

Do you have any private student loans to your name? Are you drowning in student loan debt and need better repayment options? Then here are four reasons you should refinance.

  1. Lower interest rates
  2. Consolidating loans
  3. Saving money
  4. Federal benefits aren't affected

1. Lower interest rates

The biggest reason you’d want a student loan refi is to lower your interest rate. Over the last few years (recently due to the pandemic), interest rates have dropped considerably.

  • Fixed-rate loan rates have fallen 31% since 2017
  • Variable-rate loans have slipped 63% since February last year 
  • Private and variable-rate student loan rates are now as low as 1.95%

“With interest rates at all-time lows, it makes perfect sense for people to take a look at the current interest rate on their student loans and see if they can refinance to a lower rate,” said Randy Lupi, Regional Vice President with Equitable Advisors. “It’s almost always worth refinancing, even for a half a percentage point savings. With today’s prevailing interest rates so low, it’s possible to refinance to a much lower interest rate in many cases.”

If you have private loans, check to see if the current student loan refinancing rate is lower than yours. If it is, then use Credible to get actual personalized rates based on your credit history.


2. Consolidating loans

If you have several private student loans to your name, refinancing can help you consolidate them — essentially rolling all your loans into one. This can make them easier to pay off (just one bill to pay per month), and it could give you a lower student loan interest rate, too.

Here’s how Jonathan Howard, a financial advisor at SeaCure Advisors, explained it: “When a student is in college, he or she takes out loans on a year-by-year basis. This can result in a confusing jumble of loans to repay after graduation. Refinancing allows a borrower to consolidate multiple loans down to a single loan. This can help someone make a complex situation much simpler and easier to manage.”

Student loan refinancing rates range. To snag a good student loan refinancing offer, you'll want to have a good credit history, credit score, and income — as your new student loan interest rate is based on your financial credentials.

If you have these things, you'll likely be able to reduce total student loan repayment costs and get a lower monthly payment. Provide your current private student loan details to Credible — some simple personal information, including your current loan amount — and you can compare rates and terms from multiple private lenders. Credible also offers a "best rate guarantee."


3. Saving money

You don’t need perfect credit to refinance student loans. Though a higher credit score can mean better interest rates, it’s not required to refinance. In most cases, you only need a FICO score of 600 or slightly higher.

“Having a good credit score of at least 670 opens you up to the most options when refinancing student loans, but it’s not always necessary, “ said Anna Serio, a certified loan broker for “You can still refinance student loans even if you have bad credit, as long as you have a cosigner with good credit.”

You also don’t need a ton of savings to pay for a student loan refinance. With the majority of private lenders, there aren’t any fees or charges, and refinancing student loans is free.

“Unlike refinancing a house, there are no fees for refinancing a student loan,” Howard said. “That’s great news for borrowers.”

Credible’s partner lenders don't charge prepayment penalties, loan application fees, or origination fees. So, you can shop for loan lenders and a better repayment term without the added headache. 


4. Federal benefits aren't affected

If you have both private and federal student loans, you don’t have to refinance both. In fact, keeping your federal loans as is (mainly because of student loan forgiveness options available to you), and then refinancing your private loans is almost always the best option.

“Private loans should never be consolidated with federal loans,” Howard said. “Federal loans have forgiveness options that you don’t find in private loans. If you consolidate a federal student loan into a private loan, you’ll lose any chance at loan forgiveness in the future.”


Should I refinance my private student loans now?

With rates as low as they are, refinancing can be a smart move if you have private student loans. Just make sure you shop around for personalized rates, lower your monthly payments, choose a more optimal repayment period, and find the best possible lender for your needs (Credible’s tools can help here).

“Compare factors like rates, terms, loan amounts, and additional services,” Serio said. “Once you’ve narrowed down your options, consider prequalifying with a few to get an estimate of the rates and terms you might qualify for. Once you’ve found a lender you like, follow their instructions to complete your full application. At this point, you’ll need to provide details about your current loan so the lender can pay it off."

Before finalizing your application, you should use loan calculators like this one to gauge your monthly payment. This will ensure you’re getting a payment you can comfortably afford and manage moving forward.

Do you still have questions about student loan refinancing? Consider reaching out to a financial advisor for more information.