How to Refinance Your Student Loans in 5 Steps [Federal and Private]

Refinancing your student loans can lower your interest rate and accelerate your debt payoff journey. However, refinancing might not be right for everyone, especially those with federal student loans. Keep reading; we’ll explain how to know whether refinancing is the right move for you and, if so, how to refinance student loans.

Below are the five steps you need to take to refinance student loans, from researching lenders to reviewing your terms and preparing your application. We also explain what the payoff and transfer process looks like and how long it takes.

1. Decide whether refinancing is the right move

While getting a lower interest rate is one of the primary benefits of refinancing your student loans, you should consider several other aspects of student loan refinancing before you make the switch.

Can I refinance my student loan?

When you refinance a student loan, you apply for a new student loan with better rates and terms. If approved, your new lender will pay off your old loan, and you’ll start repaying your student loans with your new terms.

Before you start researching lenders, it’s wise to find out whether you’re eligible to refinance a student loan. You can refinance federal and private student loans, but you generally must meet certain criteria to do so.

For example, some lenders require you to have a strong credit score, income history, and a low debt-to-income ratio. Lenders might also require your student loan account to be in good standing, meaning you haven’t been late on a payment. If you’ve declared bankruptcy within the last few years, it can be quite challenging to qualify for refinancing.

Can current students refinance student loans?

Some lenders only offer loans to borrowers who graduated from college, but others allow you to refinance even if you’re still in school. The drawback is that you’ll have to start paying your private student loans within a month or two of refinancing. 

So if you’re a student considering a refinance, it’s important to make sure you have enough income to make your payments on time.

Should I refinance my student loans?

The 2023 – 2024 Student Loan Borrower Survey from the Consumer Financial Protection Bureau (CFPB) reported that 37% of borrowers have missed a student loan payment, and 63% of borrowers have had trouble affording their student loans at some point. For that reason, many borrowers consider refinancing to lower their payments and save money on interest costs.

Benefits of refinancing student loans

Refinancing student loans can help you consolidate several student loan payments into one loan, which enables you to better plan your budget and manage cash flow. You can also refinance to a longer term, which can help lower your monthly payment, although it will also lengthen the time it will take for you to pay off your loan.

To see whether refinancing will save you money on interest costs, use a refinance calculator. Compare different rates and loan terms to find out whether refinancing is worthwhile from a financial perspective.

Drawbacks of refinancing student loans

If you have federal student loans, the main drawback to refinancing them into a private loan is that you lose all federal student loan protections. For example, you’ll lose the opportunity to enroll in income-driven repayment plans.

Borrowers who want to take advantage of specific forgiveness programs, such as Public Service Loan Forgiveness or the Teacher Loan Forgiveness program, will no longer be eligible for forgiveness if they refinance their loans to private lenders.

Tip

The CFPB just released its Winter 2024 Supervisory Highlights, which includes a special edition on student lending. In it, the CFPB highlights several predatory practices some private lenders engage in, including omitting that borrowers will lose federal student loan benefits if they refinance. 

Final considerations for refinancing

Ultimately, whether refinancing is right for you will depend on the type of student loans you have and whether you want to pursue forgiveness. It’s important to consider the pros and cons of refinancing your student loans before you start researching lenders.

Here’s my advice in December 2024: Given that interest rates recently dropped 25 basis points (0.25%), and Federal Reserve Chairman Jerome Powell indicated further rate cuts will be less likely in 2025, I recommend my clients who can refinance to a lower rate or more favorable terms (after due diligence of vetting at least three providers) go ahead with submitting their application.

Erin Kinkade, CFP®

2. Research the best way to refinance your student loans

You have several options when it comes to private student loan lenders. Here are important steps to take when you’re researching the best one for you:

• Shop around. Lenders have different interest rates, terms, and benefits. Some allow cosigners, while others don’t. Research to find lenders with benefits that match your priorities.
• Read reviews. Taking the time to read customer reviews can tell you about each lender’s customer service reputation and help you avoid potential problems.
• Prequalify for your loan. Before you officially apply for a loan, submit three to five prequalification applications. This shows you potential offers from several lenders and can help you decide which is best for you. 
• Understand terms and conditions. Lenders offer different repayment terms and conditions. Some have application and origination fees, while others don’t charge fees at all. Understanding these terms can help you to avoid unpleasant surprises after signing your loan agreement.

Here are the top lenders to consider if you want to refinance your student loans. Some, including SoFi, have no hidden fees. Others, such as Credible, enable you to compare multiple lenders at once so you can find the best rates. Some offer specific services: For example, ELFI allows Parent PLUS borrowers to transfer loans to their child.

Company

Best for…

Rating (0-5)

Best Overall

5.0

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Best for Comparison Shopping

4.8

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Best Personalized Support

4.7

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Best Skip-a-Payment Benefit

4.6

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By comparing lenders and researching what each one offers, you can find a lender that best suits your needs.

3. Complete a student loan refinance application

After you’ve prequalified for loans and selected a lender, it’s time to complete your refinance application. The process to refinance a loan is straightforward. Most lenders have online applications that make it easy to upload your necessary documents.

Having the required documents on hand before you start your application can help you to complete it much faster. Here’s what you’ll need:

• Proof of income: Your lender will ask you to submit your most recent pay stubs. You might also need to provide your tax returns or W-2s.
• Current student loan details: Your new lender will need your most recent student loan statement from your current lender.
• Proof of identity: Your lender will ask you to upload a personal ID, such as your driver’s license or passport.
• Social Security number: Your lender needs your Social Security number to run your credit.

Refinance timeline

Some lenders complete the refinance process faster than others, but overall, it should take two to four weeks. Submitting your required documents right away and responding to your lender’s questions quickly can help make the process more efficient.

After approval

Even if you got preapproved for a loan, your lender needs to verify your information. You’re officially approved for the loan once your lender sends you an offer. Although you likely want to sign your offer right away, lenders typically give you 30 days to review your offer.

4. Review the offer and sign

Before signing on the dotted line, it’s wise to check the details of your loan. Your loan paperwork will likely be a few pages long, and here’s what to look for:

• Your repayment schedule
• The interest rate
• Fees, including origination fees
• Your term

If any part of your loan offer looks confusing or is a different number from what you thought, contact your loan company right away. Taking on a new loan is a big decision, and it’s important to understand how much you’ll pay in interest over the term and whether you’ll need to pay fees.

If you have questions about your new loan and are waiting to hear back from your lender, keep making payments on your old loan until your account is paid in full. Lenders typically report late payments to the credit bureaus, which can harm your credit for years.

Tip

Many lenders offer discounts, such as a 0.25% reduction in interest rate if you sign up for autopay. If your new lender offers a discount like this, it’s smart to ensure the discount is in writing before signing.

5. Payoff and transfer

Once you sign your refinance loan documents, your new lender will pay off the loan you had with your old lender. When this happens, your old lender will send you an email or letter in the mail showing your account as paid in full. You’ll need to set up an account with your new lender to ensure you make your new payments on time.

The payoff and transfer process could take a few days to a few weeks, depending on your lenders. Again, continue making your payments on your original loan until it’s paid in full. If there is an overage, your old lender will send you a check for the difference. If you have questions about when to make payments, contact your lenders to ensure a seamless transition.

While the process to refinance a student loan can take time, it’s often worth it to secure a lower interest rate or more favorable terms than your original loan.