How to Refinance Student Loans

Refinancing your student loans could save you money with a lower interest rate or more flexible terms. But before you jump in, it’s important to know how it works and what it means for your federal loans. In this guide, we’ll walk you through the process and help you decide whether it’s the right step for you.

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Student loan refinancing vs. consolidation
How do I refinance my student loans?
Am I eligible to refinance student loans?
More about refinancing
FAQ

Student loan refinancing vs. consolidation

Understanding the difference between student loan refinancing and consolidation is crucial when deciding how to manage your student debt. Both options involve replacing your current loans with a new one, but they serve different purposes and come with their own sets of benefits and drawbacks. Here’s what you need to know.

Refinancing	Consolidation
Available for private or federal student loans	Only available for federal student loans
Can result in a lower rate	Rate is an average of your current loan interest rates
Good credit and steady income often needed to qualify	No credit or income check

What is student loan refinancing?

Refinancing student loans means taking out a new loan from a private lender to pay off your federal and private loans. The goal of refinancing is often to secure a lower interest rate, reduce your monthly payments, or adjust your loan term. It can also help you remove a cosigner if your financial situation has improved.

Image showing an example of consolidating three private student loans into one to show how private student loan consolidation, or student loan refinancing, works.

Pros and cons of refinancing

Pros

Lower interest rates

Potentially save money by securing a lower rate than your original loans.
Flexible loan terms

You can choose to shorten or extend your repayment period based on your financial goals.
Combine multiple loans

If you have both federal and private loans, you can combine them into a single loan for easier management.

Cons

Loss of federal benefits

Refinancing federal loans with a private lender means losing access to federal benefits, such as income-driven repayment plans, deferment, and loan forgiveness programs.
Credit and income requirements

Private lenders typically require a strong credit score and proof of stable income, which may limit options for some borrowers.

When to consider refinancing

Refinancing might be a solid option if you’re confident in your ability to repay the loan without needing federal protections and if you can qualify for a lower interest rate or more favorable terms.

What is student loan consolidation?

Consolidation, specifically through the federal Direct Consolidation Loan program, combines multiple federal student loans into a single loan with a fixed interest rate. This new rate is the weighted average of your current rates, rounded up to the nearest 0.125%.

Pros and cons of federal loan consolidation

Pros

Simplicity

Simplify your payments by combining multiple loans into one.
Access to federal benefits

Consolidation allows you to keep federal benefits, such as income-driven repayment plans, Public Service Loan Forgiveness (PSLF), and deferment options.
No credit check required

Federal consolidation doesn’t rely on your credit score, making it accessible to a broader range of borrowers.

Cons

No rate reduction

Consolidation doesn’t lower your interest rate; it simply averages your current rates.
Limited to federal loans

You can’t include private loans in a Direct Consolidation Loan. If you have private loans, you’ll need to refinance separately.

When to consider consolidation

Consolidation is ideal for borrowers who want to simplify their federal loan payments without giving up access to federal protections. It’s also a terrific option if you need to switch to an income-driven repayment plan or qualify for PSLF.

What option is best for certain scenarios?

If…	Choose…
You want a lower interest rate and are comfortable giving up federal loan benefits.	Refinancing
You have a strong credit score and stable income, which can help you qualify for better terms	Refinancing
You want to combine both federal and private loans for streamlined management.	Refinancing
You want to keep federal protections like income-driven repayment plans or PSLF eligibility.	Consolidation
You’re looking to simplify multiple federal loan payments without changing your interest rate.	Consolidation
You prefer an option that doesn’t require a credit check.	Consolidation

How do I refinance my student loans?

If refinancing makes the most sense for you, keep reading. We’ve broken it into an easy-to-follow six-step process, and we’ll discuss each step below.

An image showing the steps involved in the student loan refinance process

Step 1. Assess your need

Identify your objectives: Are you looking for a lower interest rate, reduced payments, or a shorter loan term?
Evaluate your current loans: Determine whether your loans are federal, private, or both, and decide whether you’re willing to give up federal benefits.

An increase in interest rates would likely warrant remaining with your current loans, but a drop in interest rates would warrant refinancing or consolidating into a lower-interest-rate loan.

If economic conditions are favorable and you feel secure in your job and future outlook, it may make sense to refinance to remove a cosigner or obtain better terms (e.g., a lower rate).
Erin Kinkade, CFP®

Tip

If you’re unsure whether you have federal loans, private loans, or both, here’s how you can check: For federal loans, visit the Federal Student Aid website. This government site provides a detailed overview of all your federal loans. For private loans, check your credit report, which will list all student loans, federal and private (Federal loans are marked “Dept. of Ed.” or “Department of Education.”) You can request a free annual report from major credit bureaus or consult your lender.

Step 2. Prequalify

Check your credit, and improve it if necessary.

Review your credit score: Ensure your credit score meets the lender’s minimum requirements, generally 650 or higher.
Take steps to boost your score: If necessary, pay down your current debts, avoid new credit inquiries, and make all payments on time.
Compare rates: Shop around with different lenders to see which offers the most competitive rates and terms for your situation.
Prequalify for offers: Use prequalification tools to review rate quotes without affecting your credit score.

Student Loan Refinance Requirements

Step 3. Select a lender

Evaluate your options: Consider interest rates, repayment terms, and lender reputation. Check for additional benefits, such as cosigner release and unemployment protection.
Choose a lender: Once you’ve evaluated the options, select the lender that best fits your needs.

Step 4. Apply with your selected refinance lender

Start by gathering the required documentation.

Prepare your paperwork: Collect proof of income (pay stubs, tax returns), identification (ID, passport), and details of your current loans (statements, balances).
Review the application requirements: Ensure you have all documents ready to streamline the application process.
Apply online: Most lenders offer online applications where you can input your information and upload your documents.

Step 5. Get approval

The lender will review your application, which may take a few days to a week. If approved, review the terms and sign the loan agreement.

Step 6. Begin repayment

Loan disbursement: The new lender will pay off your current loans. Confirm the timing, and check for any final payments or notifications from your old lender.
Set up payments: Begin making payments on your new loan through your lender’s online portal or mobile app.

Following this checklist will ensure you’re prepared at every step of the refinancing process, helping you secure the best possible loan terms.

Am I eligible to refinance student loans?

Refinancing student loans can be an excellent way to save money or adjust your repayment terms, but not everyone qualifies. Lenders have specific criteria to determine whether you’re eligible for a refinance. Below are the factors most lenders consider.

Credit score

Your credit score is one of the most critical factors in determining your eligibility and the interest rate you’ll receive. Most private lenders require a minimum credit score of 650, though higher scores (700+) are often needed for the best rates.

If your credit score has improved since you first took out your loan, you’re more likely to qualify for better terms.

Tip

If your credit score is below the threshold, consider working to improve it before applying, or look into applying with a cosigner who has a strong credit history.

Income and employment

Lenders want to see that you have a reliable source of income and a stable employment history. These indicate your ability to repay the loan. Most lenders will require:

Proof of employment (e.g., pay stubs or tax returns).
Minimum income requirements, which can vary but often start around $30,000 to $40,000 per year.

Tip

If you’re self-employed or have variable income, lenders may ask for additional documentation, such as bank statements or tax returns covering the past two years.

Debt-to-income ratio (DTI)

Your debt-to-income ratio is the percentage of your monthly income that goes toward debt payments. Lenders typically prefer a DTI of 50% or lower. A lower DTI shows that you manage your debt responsibly and have sufficient income to cover additional loan payments.

Tip

If your DTI is too high, consider paying down other debts or increasing your income before applying.

Degree and school type

Some lenders may only refinance loans for borrowers who graduated from specific types of programs or accredited institutions. For example, certain lenders might restrict refinancing to borrowers with a bachelor’s degree or higher from a recognized school.

Tip

Check each lender’s criteria to ensure your degree and school qualify before applying.

Loan type and amount

While most lenders refinance both federal and private loans, they may have minimum or maximum loan amount requirements.

Minimum loan amounts start around $5,000.
Maximum amounts may range from $100,000 to $500,000 or more.

Tip

Ensure the total amount of your student debt falls within the lender’s acceptable range for refinancing.

By meeting these criteria, you improve your chances of approval and may qualify for better rates. If you don’t meet these requirements yet, consider ways to boost your eligibility, such as improving your credit score, paying down debt, or applying with a cosigner.

Fixed vs. variable rates

When refinancing student loans, one of the most important decisions you’ll make is choosing between a fixed or variable interest rate. Each option comes with its own advantages and risks, so understanding them can help you make the best choice for your financial situation.

Fixed interest rates

A fixed interest rate remains constant for the life of the loan. This means your monthly payments will be predictable, and you won’t need to worry about rate increases over time.

Pros

Stability

Your monthly payments won’t change, making it easier to budget and plan long-term.
Protection from rising rates

Even if market rates increase, your rate stays the same, which can be especially beneficial during periods of economic uncertainty.

Cons

Potentially higher initial rate

Fixed rates are often higher than variable rates when you first take out the loan, meaning you might pay more initially if rates don’t rise.
Less flexibility

If interest rates drop, you’ll miss out on the opportunity to benefit from those lower rates without refinancing again.

Best for: Borrowers who prefer consistent payments and want to avoid the risk of rising rates, especially if they plan to repay their loans over a longer period.

Variable interest rates

Variable interest rates fluctuate based on market conditions, which means your monthly payments can increase or decrease over time. These rates are usually tied to a benchmark, such as the prime rate.

Pros

Lower starting rates

Variable rates tend to start lower than fixed rates, potentially saving you money upfront.
Opportunity for lower payments

If market rates decline, your payments could decrease, making the loan more affordable.

Cons

Unpredictable payments

Because the rate can change, your monthly payments might increase, making it harder to budget.
Higher risk in a rising rate environment

If rates increase significantly, your loan costs could rise, leading to higher overall payments.

Best for: Borrowers who are comfortable with some risk and plan to repay their loans before rates have a chance to rise substantially.

Should you choose fixed or variable rates?

Fixed	Variable
If you want the certainty of knowing your payments won’t change	You can pay off your loan quickly
You plan to keep the loan for an extended period	You’re confident rates will remain low for the foreseeable future

By weighing the pros and cons of each option, you can choose the rate type that best aligns with your financial goals and risk tolerance.

Impact of refinancing federal loans

Refinancing federal student loans with a private lender can offer benefits including lower interest rates or reduced monthly payments. However, it’s crucial to understand what you’re giving up before making the decision. Here’s what you need to know:

Loss of federal benefits

When you refinance federal loans with a private lender, you lose access to federal protections and programs, such as:

Income-driven repayment plans (IDR): Federal loans offer plans including PAYE, SAVE, and IBR, which adjust your monthly payments based on your income. Most private loans don’t offer similar flexibility.
Loan forgiveness programs: Programs such as Public Service Loan Forgiveness (PSLF) and Teacher Loan Forgiveness are only available for federal loans. Refinancing makes you ineligible for these options.
Deferment and forbearance options: Federal loans allow borrowers to pause payments during periods of financial hardship or unemployment. Private lenders may offer forbearance, but their terms may be less generous.

When to consider refinancing federal loans

If…	Consider refinancing?
You’re a public service or nonprofit employee	❌ (You may qualify for PSLF, but refinancing would make you ineligible)
You’re seeking payment flexibility	❌ (If you anticipate needing IDR or the ability to defer payments due to financial uncertainty, keeping your federal loans may be best)
You have a low or uncertain income	❌ (Refinancing may remove safety nets that federal loans provide)
You have a stable income	✅ (Refinancing may help you secure a lower rate)
You have high-interest federal loans	✅ (Refinancing can lower your payments and save you money over time)
You aren’t using federal benefits	✅ (Refinancing could offer a way to optimize your loans)

The decision to refinance depends on your income, expenses, life events, goals, and current and future cash flow projections.

A borrower who could benefit the most from refinancing their student loans may have a credit score that has improved since they initially applied for the loan; one whose loan has a higher interest rate than other lower-rate options; one who has a cosigner and wants to release them, or vice versa, to obtain more favorable terms. If refinancing results in more favorable terms that fits your budget and financial goals, it might make sense.
Erin Kinkade, CFP®

How to choose the best lender for student loan refinancing

Finding the right lender to refinance your student loans is a crucial step. With so many options, it’s important to know what to look for to ensure you get the best deal and most suitable terms. Here’s what you should consider:

Rates: Look at the rates lenders offer. A small difference in your rate can mean higher or lower monthly payments. Also, consider whether rates are fixed or variable. (See more about how to refinance student loans to a fixed rate.)
Terms and repayment options: Research potential loan terms and what repayment options lenders offer.
Fees and penalties: Be aware of origination fees, prepayment penalties, and other hidden costs.
Lender reputation: Ask family members and friends for possible lender recommendations, read customer reviews and ratings, and ensure prospective lenders comply with all legal requirements.

Here are our highest-rated private student loan refinance companies:

Best Online Lender

5.0

View Rates

Best for Comparison Shopping

4.8

View Rates

Best Personalized Support

4.7

View Rates

Best Skip-a-Payment Benefit

4.6

View Rates

Check out our resource on the best student loan refinance options for more information about these lenders.

If you are concerned about job loss, you may want to consider a loan provider with unemployment protection or maintaining your federal loans and discussing forbearance options with your loan servicer.
Erin Kinkade, CFP®

When refinancing makes sense: Examples

These are example scenarios that demonstrate whether certain borrowers can benefit from refinancing.

Interest rate drop

Sarah graduated five years ago with $50,000 in student loans at a 6.8% interest rate. Her credit score has improved to 750, and she now earns a stable income of $65,000 annually.

She decided to refinance her loans, securing a new rate of 3.5%. By doing so, she reduced her monthly payments and will save over $15,000 in interest over the life of her loan.

Takeaway: Refinancing can significantly lower monthly payments and total interest costs, especially if your credit score and income have improved.

Remove a cosigner

James initially took out a student loan with his father as a cosigner. Since then, he’s built up his credit score and secured a high-paying job. By refinancing, James was able to remove his father as a cosigner and take full responsibility for the loan under better terms.

Takeaway: Refinancing is a smart option if you want to release a cosigner and take full ownership of your debt.

Keep federal benefits

Emily has federal student loans and works for a nonprofit, making her eligible for Public Service Loan Forgiveness (PSLF). While she considered refinancing, she ultimately chose to keep her federal loans to maintain PSLF eligibility and her income-driven repayment plan.

Takeaway: Borrowers using federal loan benefits may find it more advantageous to keep their current loans rather than refinance.

Use variable rate

Alex plans to pay off his student loan within three years. He chose a variable rate of 2.8%, much lower than the fixed-rate option. By making larger monthly payments, he aims to pay off the loan before rates rise.

Takeaway: A variable rate can be beneficial if you plan to pay off your loan in a short period.

These real-life examples show how different financial situations and goals can influence the refinancing decision.

Student loan refinance calculator

Common mistakes to avoid when refinancing student loans

Before moving forward with a student loan refinance, it’s essential to understand common mistakes so you can avoid them. Here are common borrower pitfalls:

Applying with a low credit score: If you have poor credit, you’re unlikely to qualify for the lowest rates. The lender might also deny your application, further lowering your credit rating. Consider instead what you can do to raise your credit score before refinancing. (See what credit score you need to refinance student loans.)
Overlooking details: Review potential loan terms and conditions so you understand your obligations before formally applying.
Ignoring cosigner implications: Consider whether you should refinance student loans with a cosigner.

Refinancing student loans can be complex, and it’s important to analyze your situation and compare potential loans to find an affordable option with decent terms.

Also, understand the implications of refinancing federal student loans with a private lender. If you’re looking at how to refinance a student loan, tools and calculators can help you make the best decision.

Additional resources

If your credit score is poor, it’s wise to repair and build your credit score before refinancing. If refinancing doesn’t provide an economic benefit, such as lower payments or a reduced repayment term (saving interest dollars), or if refinancing doesn’t present other benefits your current loans don’t provide, it may not make sense to make a change.
Erin Kinkade, CFP®

FAQ

What student loans can I refinance?

You can refinance private or federal student loans—but before refinancing federal loans with a private lender, be sure you’re comfortable with losing federal benefits. Once you refinance, you can’t get those benefits back.

What credit score do I need to refinance my student loans?

Many lenders prefer a credit score of at least 650 to refinance student loans. However, exact requirements may vary among providers.

If you don’t meet these requirements or you have federal student loans, consider a Direct Consolidation Loan to make payments more manageable while retaining federal benefits.

Do I need to refinance all my student loans, or can I just refinance a portion?

You don’t need to refinance all of your student loans if you don’t want to. You can choose to refinance part of your student loans if that makes more sense.

Is there a cost to refinance student loans?

Most lenders don’t impose a fee for refinancing student loans. But always check the terms with the lender you’ve selected.

How long does the refinancing process take?

Refinancing can take several days to a few weeks, depending on the lender and your circumstances.

Will refinancing student loans affect my credit score?

Refinancing can cause a temporary dip in your credit score. However, by demonstrating responsible repayment behavior, you can rebuild and even elevate your credit score over time, allowing lenders to view your financial profile more positively.