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Student Loans Student Loan Repayment

How to Refinance Part of Your Student Loans

You may have heard that refinancing your federal student loans can come with drawbacks, which is true. If you refinance your federal loans, you’ll give up some special protections and benefits from the U.S. government.

Given this, you might hesitate to refinance if you have federal and private student loans. But you don’t need to refinance all your debt—it’s possible to refinance only your private student loans or just those with the highest interest rates. 

Why only refinance part of your student loans?

When you refinance one or multiple student loans, you replace them with another similar loan. Refinancing is a common strategy for borrowers seeking a lower interest rate or monthly payment or those interested in combining several loan payments to simplify their monthly bills.

You can also refinance to release a cosigner or to change your loan repayment term. Prepayment penalties generally don’t apply with student loans, so those seeking a shorter term could pay extra toward their current loan to repay it sooner. This might make more sense than going through the refinancing process.

It’s possible to refinance both private and federal loans with a private lender. But often, refinancing federal loans doesn’t make sense because federal loans come with certain benefits and protections. These benefits include income-driven repayment plan options, the potential for loan forgiveness after meeting specific requirements, and the option to enter forbearance or deferment if you qualify. Private lenders don’t typically offer benefits like this, so you may only want to refinance your private student loans.

Many borrowers opt to refinance all their private student loan debt, but you could also refinance a portion if you have loans from multiple private lenders. Here are two hypothetical scenarios highlighting the potential benefits of refinancing a portion or all of your private student loans. 

Example: 3 private loans

Alice has three private loans with the following balances and rates, each with 12 years’ worth of payments remaining. She wants to refinance because it’s challenging to stay on top of multiple monthly payments:

LoanBalance & APRMonthly paymentTotal interest
Loan 1$5,000 at 8%$54$2,794
Loan 2$4,000 at 8.2%$44$2,298
Loan 3$12,000 at 7.8%$129$6,516
Total$21,000$227$11,608

Alice qualifies for a $21,000 refinance loan with a 6.8% rate and a 10-year repayment term

Her new single monthly payment is $242, just $15 more than before. She’ll pay $8,000 in interest over her new loan’s 10-year term, reducing total interest costs by over $3,600

Example: 4 private loans

Brandon has four private student loans with the following balances, rates, and terms. He wants to refinance the first three, which have seven years left in their terms. But he chooses to keep the fourth separate because it has a lower rate and just five years of payments remaining. 

He aims to reduce his average rate to save over the long term. 

LoanBalance & APRMonthly paymentTotal interest
Loan 1$3,000 at 9.1%$48$1,067
Loan 2$4,000 at 9%$64$1,405
Loan 3$5,000 at 8.8%$80$1,715
Total$12,000$192$4,187

Here are the details of the fourth loan:

LoanBalance & APRMonthly paymentTotal interest
Loan 4$9,000 at 6.4%$176$1,540

Brandon qualifies for a $12,000 refinance loan with a 6.6% rate and a seven-year term. His new monthly payment is $179, so he saves $13 per month and pays $3,017 in interest over the new loan’s term, for a total interest savings of over $1,100

Our expert advises: When refinancing just part of your private loans can make sense

Erin Kinkade

CFP®

Refinancing just a portion of your private student loans could make sense if you have multiple loans, and some have a lower interest rate than others. If you can refinance the higher-rate loans into lower rates, but the interest rate is not as low as your other loans, it would make sense to keep the lower-rate loans and refinance the higher-rate loans into a lower-rate loan. Also, if you have a mix of variable-rate and fixed-rate loans, you may wish to refinance the variable-rate loans into a fixed rate or vice versa, depending on the current and projected interest rate environment as well as your stability and income.

Should you refinance part of your student loans?

When determining whether you should refinance part or all of your private student loans, you’ll want to look at several factors. Consider your goals, loan rates, repayment terms, and whether you have a cosigner on any of your loans. The right choice will depend on what you’d like to accomplish with your finances, as well as your current loan rates and terms. 

For instance, you might refinance all your loans if your primary goal is to consolidate all your payments to streamline your finances. Or you might decide only to refinance a portion if you’re in a position to qualify for a favorable rate on your own and want to remove your cosigner on one loan

Here’s when it might make sense to refinance part of your private student loans and when refinancing all loans might be the wisest move.

Refinance part if… Refinance all if
One has a lower rate than you can get nowYou can get a lower rate on all your loans now
One lender offers a more favorable termAll have the same term, and you want to change it
You want to remove the cosigner on one loanYou want to remove the cosigner on all your loans

Keep reading for more about why refinancing part of your loans might make sense in each scenario in the table:

  • One has a lower rate than you can get now: If your rate on all but one of your current loans is higher than you’d get now, you could opt to keep the one low-rate loan and refinance the rest to ensure you don’t pay more by lumping the lower-rate loan in with your refinance. 
  • One lender offers a more favorable term: If one of your loans has a term that better aligns with your needs than the rest—for example, you’re closer to paying off one loan, or the lender offers a benefit you don’t want to lose—you could opt to keep that one and refinance the others. 
  • You want to remove the cosigner on one of your loans: If you want to remove your loan from a cosigner’s credit report—perhaps your loan raised their debt-to-income ratio (DTI), and they need a lower DTI to qualify for a loan they applied for—you could refinance your loan to do so. 

Our expert’s advice on comparing offers

Erin Kinkade

CFP®

I recommend a simple spreadsheet—such as Excel or Google Sheets—to compare and contrast the current rates of your loans as well as the pros and cons of each loan. This will help you identify which loans, if any, you should refinance. If you don’t feel comfortable doing this—if it isn’t in your wheelhouse—I recommend discussing it with a trusted friend, relative, or financial counselor specializing in student loans.

How to refinance part of your student loans

Imagine you’ve decided refinancing your private student loans makes sense but would like to leave your federal student debt alone. Here’s how the process might work. 

  1. Compare lenders: Start by comparing lenders; rates, terms, and loan amounts vary. Check out our best student loan refinancing page to narrow your options.
  2. Choose one: Once you’ve researched lenders, choose one to refinance with and find out how to apply. 
  3. Gather documentation: Before applying, it can be helpful to gather certain documentation. Your new lender will likely ask for proof of identity, proof of income, recent bank statements, information about your current debts, and loan statements and documentation for the loans you wish to refinance. 
  4. Apply and await approval: After gathering your documents, it’s time to apply for your refinance. Be prepared to share personal information, such as your name, address, and Social Security number. Approval timelines vary by lender.
  5. Disburse funds and begin repayment: When you refinance, most lenders will disburse the funds to your old lenders to pay off your loans. Your former lenders will then send payoff statements via email or mail as proof your old student loans are repaid. Once they’re paid off, you’ll begin repaying your new loan.

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Federal student loan consolidation 

The U.S. Department of Education (DOE) doesn’t offer a refinancing option, per se. And as we mentioned, refinancing your federal loans with a private lender means sacrificing several important benefits. But you can consolidate your federal student loans with a Direct Consolidation Loan through the DOE to combine multiple monthly payments. 

This allows you to retain your federal student loan benefits, including the option to enroll in an income-driven repayment plan, possible future loan forgiveness, and more. But you aren’t likely to get a lower interest rate or monthly payment. Instead, your new rate will be the average rate of all your loans rounded up to the nearest one-eighth of 1%. 

Here’s an example of how your rate might change:

  • Loan 1: $5,000 balance, 6% rate
  • Loan 2: $10,000 balance, 6.4% rate

(.06 x 0.064) / 2 = 0.062

0.062 rounded up to the nearest one-eighth of 1% = 0.0625, or 6.25%

So your $15,000 Direct Consolidation Loan would have a 6.25% fixed rate.

Your overall rate may not be lower, but student loan consolidation could make repayment easier to manage with a single federal loan payment each month. 

You can’t use a federal Direct Consolidation Loan to consolidate private student loans. But if you have multiple private loans in addition to your federal loans, you could opt to refinance those with a private lender. This would result in one monthly federal Direct Consolidation Loan payment and one monthly payment to a private lender. Again, two payments could be easier to manage than several. 

Before moving forward with this strategy, review your loan rates and terms, and compare options from different lenders to see whether a private loan refinance makes sense. Consider consulting with a financial professional. If your current loans have a lower rate or more favorable terms, refinancing your student loans with a new private lender might be unwise.