What Is Student Loan Refinance, and How Does It Work in 2025?

If you’re struggling to balance paying your student loans with the increasing costs of everyday life, refinancing your student loans can help. When you refinance your student loans, you replace your current student loan with a new one that has a lower interest rate or better terms, like a lower monthly payment.

With changing interest rate environments in 2025 and uncertainty about the future of loan forgiveness, refinancing is one way to make your student loan repayment strategy less stressful. However, there are some downsides to consider before refinancing. Below, we’ll explain everything you need to know about student loan refinancing, including the pros and cons.

Table of Contents

1. What is student loan refinancing?
2. To refinance a student loan, you will need:
3. How to refinance
4. Do you need a cosigner?
5. Can you refinance a federal student loan?
6. Reasons to refinance
7. Impact of 2025 economic trends on refinancing

What is student loan refinancing?

Student loan refinancing is when you apply for a private student loan to use it to pay off one or more of your current student loans. You can refinance federal student loans into private student loans, and you can also refinance private student loans. Refinancing is different from consolidating your federal student loans.

A Federal Direct Consolidation Loan is when you roll more than one of your federal student loans together into a new federal loan. In this instance, the new loan’s interest rate is an average of the interest rates of your previous loans. If you’re on a path to student loan forgiveness, seek clarification before consolidating so you don’t accidentally lose benefits.

While student loan refinancing can be a useful step in accelerating your debt payoff, it’s important to understand the pros and cons first. 

The biggest drawback is that if you refinance your federal student loans into private student loans, you lose the repayment flexibility that comes with federal loans, as well as any potential for forgiveness.

In order to refinance a student loan, you will need:

Federal student loans don’t have credit score requirements, but if you want to refinance to a private student loan, lenders have their own set of refinance requirements that you must meet to get approved:

• A credit score (or a cosigner with a credit score) of at least 650
• Income that’s verified with pay stubs, tax returns, or bank account statements
• A low debt-to-income ratio that shows you can handle student loan payments
• Depending on the lender, you might need a degree, although several allow refinancing without a college degree
• Some lenders require U.S. citizenship or permanent residency

If you meet these requirements, two of the best student loan refinance companies to consider are SoFi and Earnest. Both lenders have slightly lower credit score requirements than others. You (or your cosigner) need a FICO score of at least 650 to be approved. These lenders also have competitive interest rates, unique benefits, and repayment plan options that can make paying down your debt easier.

How to refinance student loans

Here are the steps to take to refinance your student loans.

1. Decide whether refinancing student loans is right for you: If you have federal student loans, research the drawbacks of refinancing with a private lender. If you understand you’re giving up federal student loan protections but still want to refinance, move on to the next step.
2. Comparison shop: To get the best rates and terms, it’s important to compare several lenders at once. Use a comparison platform like Credible, which has a longstanding reputation for matching qualified applicants with several different lenders.
3. Get preapproved: Credible can show you whether you’re preapproved, allowing you to review your rates and terms with various lenders. If you don’t get approved, you can reapply with a cosigner. If you are preapproved, choose the best lender for you and apply.
4. Submit your application: You’ll need several documents handy to complete your application, such as your current student loan details, your ID, and proof of income. 
5. Review and sign: The timeline varies among lenders, but generally, you should receive your student loan refinance documentation within a few days to a few weeks after submitting your application. Review the documents carefully, making a note of important details, like the interest rate and terms you agreed to. Read the fine print as well.
6. Set up your new payments: Once your lender processes the paperwork, it will send payment in full to your old lender. You’ll need to set up an account with your new lender and note when your first payment is due. Setting up automatic payments is the best way to ensure you don’t miss one.

Student loan refinance with a cosigner

If you have a limited credit history, a low income, or are self-employed, applying for a student loan with a cosigner can help you qualify for better rates and terms. Before asking a trusted friend or family member to cosign your student loan refinance, here are the pros and cons to consider.

Pros and cons of using a cosigner

Pros

• Higher chance of approval

  A cosigner with excellent credit and reliable income can improve your chance of approval.

• Lower interest rates

  Having a qualified, reliable cosigner can get you lower interest rates.

• Access to better lenders

  Some lenders that offer the most competitive rates and terms have strict lending requirements, and a cosigner can help you qualify for a lender that might not approve you if you apply on your own. 

Cons

• Chance of negative credit impact

  The CFPB warns that missing a payment can damage your credit and that of your cosigner. 

• Hard to release cosigners

  Depending on the lender, it can be challenging to release a cosigner from their obligations

• Strained relationship

  If you are unable to make your loan payments on time or you have difficulty releasing your cosigner, your relationship with them could be strained.

Best lender for releasing cosigners

If you’re concerned about releasing a cosigner from your student loan in the future, choose a lender that offers clear release options. For example, Rhode Island Student Loan Authority (RISLA) allows borrowers to remove cosigners after making 36 on-time payments.

Can you refinance a federal student loan?

Yes, you can refinance federal student loans with a private lender. However, when you do, you lose access to forgiveness programs, flexible repayment benefits, and other federal protections.

What happens when you refinance a federal student loan?

When you refinance federal student loans into private student loans, here’s what happens:

• You lose benefits like deferment and forbearance, though some private lenders have options if you experience financial difficulties.
• You become ineligible for federal student loan forgiveness, including PSLF.
• You lose the interest subsidies you get with Direct Subsidized Loans.
• You could qualify for lower interest rates, better terms, and other benefits, like the ability to skip a payment.

Read More

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

Alternative options

If you decide you don’t want to refinance your federal student loans but still want to reduce or streamline your payments, here are two alternatives:

1. Enroll in an Income-Driven Repayment Plan (IDR). These plans cap your student loan payment by a percentage of your income, which you recertify each year.
2. Apply for a Federal Direct Consolidation Loan, which could streamline and lower your payments.

There are pros and cons to refinancing and pursuing the alternative options listed above. It’s important to consider which is best for you, your finances, and your future goals for forgiveness.

Read More

Pros and Cons of Consolidating Student Loans 

Reasons to refinance

You might consider refinancing student loans for many reasons, ranging from getting lower interest rates to wanting to switch lenders. Below is a table of common reasons people refinance and whether it’s a good idea. Keep in mind that refinancing is a personal decision, and you should weigh the options carefully before deciding. 

If a client already has private student loans and they can qualify for a better rate or terms, it makes sense to refinance. I urge clients with federal student loans to consider their financial situation and whether they’re confident they can pay off their student loans before refinancing out of the federal system. If they’re not sure about their future employment or earnings potential, or if they have the potential to qualify for public service loan forgiveness in the future, I advise against refinancing.

Which of the following is not a good reason to refinance a student loan?

Reason to refinance	Should you do it?
Switch from a fixed to a variable interest rate	No, variable rates can increase in the future.
Switch from a variable interest rate to a fixed one	Yes, fixed rates are more predictable and can help you plan your cash flow.
Secure a lower rate	Yes, getting a lower interest rate can save you thousands of dollars over the life of your loan.
Reduce monthly payments	Maybe. If you need to improve your cash flow, reducing monthly payments can help, but it can also extend the length of your repayment.
Shorten the loan term	Yes, if you can secure a lower interest rate with the shorter term. If you cannot get a lower interest rate, you can make larger payments to your current loan to pay it off faster.
Consolidate multiple loans for simplified repayment	Yes, if you can secure a similar or lower interest rate to the ones you currently have.
Remove a cosigner	Yes, if you qualify for a loan refinance on your own, you can release your cosigner from liability.
Get better customer service	Yes, but only if you can also get better terms. Although poor customer service is frustrating, the goal is ultimately to limit the overall amount of interest you pay.
Want to qualify for loan forgiveness	No, you must keep your federal student loans if you want to qualify for loan forgiveness in the future; many private lenders don’t offer loan forgiveness (except in cases of death or disability).

Impact of 2025 economic trends on student loan refinancing

Student loan borrowers face uncertainty in 2025. Millions of borrowers who enrolled in the SAVE plan (which is now blocked) might face higher student loan payments than expected. This could push borrowers to refinance their student loans to private lenders. Additionally, the Trump administration is revising aspects of the Public Service Loan Forgiveness (PSLF) program.

Then, on March 11, 2025, the Department of Education announced that it initiated a 50% reduction in its workforce. The effects of this and how it will affect colleges, universities, and student loan repayments are still unknown. Since the Department of Education manages the PSLF program, a reduced workforce could affect processing times and customer service.

Ultimately, for many borrowers, 2025 is a period of waiting to hear about the next steps so they can make educated decisions about their student loans. Future interest rate cuts could also encourage borrowers to refinance their student loans. However, the Federal Reserve recently announced it wouldn’t cut interest rates in March 2025 due to economic uncertainty.

FAQ

Can I refinance my student loans multiple times?

Yes, you can refinance your student loans multiple times as long as you meet the lender’s eligibility requirements. Borrowers often refinance more than once to secure better interest rates, lower monthly payments, or adjust their loan terms. Note that if you refinance and extend the number of years, you could end up paying more interest in the long term.

Does refinancing affect my credit score?

Refinancing a student loan involves a hard credit inquiry, which may cause a small, temporary drop in your credit score. However, the long-term impact is usually positive if you make on-time payments and reduce your overall debt. If you apply with multiple lenders, try to do so within a short window (typically 14 to 45 days) to minimize the effect; credit bureaus often count multiple inquiries within this period as one.

Will I pay fees to refinance?

Most student loan refinancing lenders do not charge application or origination fees, but it’s important to review the fine print before applying. Some lenders may impose late fees or prepayment penalties, though these are rare. If a lender charges fees, consider whether the long-term savings from a lower interest rate outweigh the upfront costs.

How long does the refinancing process take?

The refinancing process typically takes two to four weeks, depending on the lender and how fast you submit the required documents, such as proof of income and loan statements. Some lenders—including SoFi, our highest-rated refinance lender—offer instant prequalification, allowing you to see estimated rates without affecting your credit score. To speed up the process, make sure all documents are accurate and complete before applying.

Can I refinance Parent PLUS Loans?

Yes, you can refinance Parent PLUS Loans with a private lender, potentially reducing the interest rate or monthly payment. Some lenders even allow you to transfer the loan into the student’s name, relieving the parent of responsibility. 

However, refinancing a Parent PLUS Loan means losing access to federal benefits, so it’s important to weigh the pros and cons before proceeding.