Refinancing student loans can simplify the loan payment process and possibly reduce your monthly payment or the total cost of your loan. But the process can be confusing, so we put together this simple guide to help explain how refinancing student loans works.
5 Steps to Refinance Student Loans
1. Do Your Research
Interest rates and repayment terms and level of service will have a big impact on your future so one of the biggest decisions to make when refinancing is selecting the right lender.
Ask for recommendations, read the lender’s reviews, and seek out low rates and terms that match your budget.
When refinancing student loans, both fixed and variable interest rates are an option.
Fixed rates are set when you take out the loan and never change until the loan is repaid. Variable rates usually start with lower initial rates but can fluctuate over time according to the market.
If the debt is small and can be repaid quickly, variable rates can offer significant savings. Fixed rates make more sense for long-term plans.
Loan terms or time to repay, can also affect the cost of refinancing a student loan. The shorter the term, the lower the interest rate but monthly payments will be higher. Longer terms have higher rates, but also typically offer lower monthly payments.
Having the option to choose your loan term gives you control over finding a monthly payment that fits your budget and your goals.
Find a few lenders that offer both flexible terms and have good reviews.
Learn more about our refinancing rates and terms.
Important Note: Before deciding if you should refinance, we suggest that you consider the unique benefits only available on federal student loans before refinancing your federal loans. If none of those benefits fit your unique situation, then you should proceed with researching your student loan refinancing options.
2. Get Rates from Multiple Lenders
Rates can vary between lenders so it’s a good idea to compare a few to find the best offer.
At this stage, a student loan refinance calculator can be helpful in understanding what all the rates and terms mean in real numbers.
Many lenders offer the ability to prequalify, providing an estimate of the interest rates you might qualify for based on a soft pull of your credit, which does not impact your credit score. It can be a useful tool in comparing rates.
Although prequalification can help you get a good estimate of your rates, your actual interest rate may vary depending on the loan terms you choose. Actual rates can only be found by filling out an application, which involves a hard pull on your credit. A hard credit pull will temporarily lower your credit score.
In general, credit bureaus will count any applications within a 30-day window as one credit inquiry to allow you to check and compare multiple lenders.
3. Choose a Lender
Most of the time it comes down to finding the best rates and terms. After your applications are approved, carefully review each lender’s offer and choose the one that works best with your goals.
4. Complete the Application
After choosing a lender, proceed with signing the final disclosure documents. You may be required to submit additional documentation such as:
- Proof of citizenship (i.e. – Social Security number or a permanent resident card number)
- Valid Government-Issued ID (i.e. – driver’s license or passport)
- Proof of income (i.e. – pay stubs or a job offer letter)
- Statements for any private and/or federal and loans you’re refinancing
5. Repay the Refinanced Loan
The final step occurs once your new lender sends the funds to pay off yourold loans.
Once the original loan has been satisfied, it’s then time to set up a new payment schedule for your current, refinanced student loan. Many lenders offer an interest rate discount when borrowers enroll in auto-pay to make payments, which also makes remembering to pay less stressful.
Student Loan Refinancing FAQs
When Should You Refinance?
Deciding when to refinance is a personal decision. Refinancing isn’t the only way to take control of loan payments so it’s important to understand if it’s the right decision for you. Here’s an overview the main points to consider.
- Credit Strength. The better a borrower’s credit the lower the rate they may be offered.
- Finances. Having a steady income and low income-to-debt ratio can also lead to lower rates.
- Loan Type. Refinancing is generally most often used for private loans. When federal student loans are refinanced, they become ineligible for unique benefits such as income-based repayment or public service forgiveness. Borrowers looking for help managing multiple federal student loans should consider consolidation before refinancing.
Our complete guide to when to refinance student loans has more details.
How to Refinance Student Loans with a Cosigner
Cosigners with strong credit offer borrowers a way to refinance with lower interest rates.
But not all lenders refinance with cosigners, so be sure to check. If one is used, a few steps will be added to the process.
- Finding a cosigner. Look early and include them in the process. They should have a strong financial history and be someone you have a trusting and reliable relationship with.
- Gathering the cosigner’s paperwork. When it’s time to apply, their financial and employment information will be needed in addition to other personal details. Check which documents are needed with the lender.
Here’s a handy guide to help you find a cosigner.
How to Refinance Student Loans to Remove a Cosigner
Cosigners on the original loans do not automatically carry over to the new refinanced loan. So, refinancing by itself releases a cosigner from their responsibilities.
No additional steps are needed. However, the borrower will need to qualify for the loan on their own, which means meeting the financial requirements of the lender.
Be Prepared for Student Loan Refinancing
By following the five basic steps outlined here, borrowers will be prepared to find the best student loan refinance rates and terms for their situation.
Multiple loans can be streamlined into one, and loans with high interest rates can be refinanced to get a new lower rate. Plus, there are fixed and variable rates to consider as well as a variety of repayment terms from different lenders.
Each borrower has their own goals, so keep your objectives front and center every step of the way.
Learn more about our multiple student loan refinancing options.