How to Refinance Student Loans

If you’re having trouble repaying your student loans or just want to save money while you do so, you’re not alone. Refinancing with a private lender may not be right for every situation, but in many cases, it can qualify you for better loan terms and save you hundreds or thousands of dollars.

Learn more about how to refinance student loans and how to tell if refinancing is right for you.

What does it mean to refinance student loans?

When you refinance student loans, you take out a new private loan and use it to repay one or more older loans. You can refinance federal or private student loans.

Refinancing can help you secure lower interest rates, lower monthly payments, or both. If you have multiple loans, replacing them with a single loan can help simplify your finances.

How to refinance student loans: step-by-step

If you’re wondering how to refinance student loans, the good news is that the process is simpler than you may imagine.

Step 1: Check your credit score

Student loan refinancing requirements can vary depending on the loan company you’re dealing with. However, you should aim for a FICO score in the “very good” range (740-799) or better if you want to qualify for the lowest interest rates possible.

Step 2: Compare lenders and rates

If you’re curious about the rates you may qualify for with your current credit score, you can likely get an idea without hurting your score. Most lenders have “prequalification” options that involve doing a soft pull on your credit.

A “soft pull” lets a lender access your credit information without impacting your credit score.

When you’re reviewing your refinancing options during the prequalification phase, pay close attention to the following:

• Interest rate
• Monthly payment
• Total loan term
• Origination fee and any other fees

Generally, you shouldn’t refinance a student loan (or any loan) with a higher interest rate. If you do, you’ll likely end up paying more over time.

Step 3: Gather your documents

Having the necessary documentation close by can save you time and stress while you refinance. These are some of the most common forms of documentation lenders require:

• Your government ID
• Tax returns or pay stubs
• Degree verification
• Current student loan billing statements

Each lender sets its own documentation requirements, so you may need additional documentation as well.

Step 4: Apply with your chosen lender

Once you’ve chosen the best prequalification offer, you can submit an official application with the lender of your choice. Keep in mind that, unlike prequalification, submitting an application will result in a hard inquiry being placed on your credit report.

Step 5: Review and accept your new loan terms

If you’re approved, don’t sign just yet! Read through your loan offer to make sure you’re okay with the interest rate and other loan terms you’re being offered.

When refinancing student loans makes sense

Student loan refinancing isn’t right for every situation. Refinancing might be the right option if any of the following apply:

• You want to secure a lower interest rate
• You want to pay off debt faster (or otherwise change your repayment timeline)
• You want to lower monthly payments to improve your cash flow

If you don’t already have a high credit score, it’s worth taking the time to improve it before you start looking for refinancing options.

When you should not refinance student loans

There are a few situations where refinancing student loans may not be the best way forward.

You have federal loans and need income-driven repayment or Public Service Loan Forgiveness

In some cases, refinancing federal loans with a private lender may result in a lower interest rate. However, federal loans come with several benefits that private loans do not.

Income-driven repayment plans and Public Service Loan Forgiveness (PSLF) can reduce the total amount you pay, but if you refinance with a private lender, you permanently lose access to them.

You don’t want to lose access to forbearance options

Federal student loans are legally required to come with forbearance options, meaning that repayment may be paused if you encounter an unexpected hardship. Many private lenders offer forbearance options as well, but because it’s not legally required, forbearance options can vary by lender.

If you’re interested in refinancing but concerned about forbearance options, look very closely at each private lender you consider.

Your credit score is too low to get a better rate

Refinancing with a too-low credit score rarely makes financial sense. New loans come with origination fees and other costs, and if your credit isn’t ideal, you might be stuck with a higher interest rate than the one you started out with.

Ready to build credit before you refinance?

Taking the time to improve your credit score before you refinance can really pay off. Even if you meet baseline student loan refinancing requirements, you aren’t likely to qualify for the best rates unless you have a very good to excellent credit score.

Kikoff can help you start working toward better credit. Our interest-free credit lines and other tools have helped countless people see real progress. Over the course of a year, new users with starting credit scores of less than 600 increased their scores by an average of 86 points.

Signing up is free, and there’s no credit check. Get started with us today!