How to Refinance Your Student Loan in 5 Steps

Refinancing your student loans can help you lower your monthly payments, get a better interest rate, and combine multiple loan payments into one. You’ll need a good credit score and income to qualify for the best rates, and it’s a good idea to compare multiple lenders before signing up.

Student loans can be refinanced entirely online these days, with a simple application process and fast approval for most lenders. If you’re considering a student loan refinance, here’s what you need to know.

5 Steps to refinance your student loan

The student loan refinancing process is fairly simple. For most programs and lenders, the steps are the same.

1. Choose which loans to refinance

Your first step should be to review your student loans and choose which ones to refinance. Often, it may not make sense to refinance federal student loans, as those loans come with many borrower protections and perks. They include student loan forgiveness, income-driven repayment plans and paused payments during national crises.

If you have multiple federal loans, a Direct Consolidation Loan may make more sense than a private student loan refinance. You’d combine your loans into a single payment and keep your federal loan protections.

Before you commit to any refinance, run the numbers to make sure it will achieve your purpose—save money, simplify repayment, and/or protect your future.

2. Make sure your credit score is solid

Once you decide which loans you want to refinance, check your credit. Most private lenders offering student loan consolidation or refinance loans require good-to-excellent credit.

Here are a few ways to improve your credit score before refinancing your loans:

Review your credit report

It’s always a good idea to pull your credit report and check your credit scores at least once a year. You can get free reports from AnnualCreditReport.com from all three major credit bureaus without affecting your score. And you can check your credit scores for free at Experian or Equifax. Your credit card issuer or bank may also offer free credit scores. Look for mistakes or negative items on your report that you can address to improve your score.

Pay down revolving debt

Carrying high credit card balances hurts your loan application in two ways. First, having a high balance-to-limit (aka credit utilization) ratio lowers your credit score. And high balances also increase your debt-to-income ratio, which is how lenders determine what you can afford to repay. If you can afford to reduce your balances or pay off debt, you may improve your chances of loan approval.

Pay your bills on time

Payment history makes up 35% of your credit score. For credit reporting purposes, payments processed within 30 days of your due date count as “on time.” Set up automatic payments for recurring bills to stay on top of your bills and increase your score.

Consider a co-signer

If you have difficulty qualifying for a refinance, consider adding a co-signer to your application. You may be able to increase your approval chances or get better terms. However, late or missed payments can do major harm to your co-signer. Don’t risk your relationship if your finances aren’t rock-solid.

3. Compare lenders (and calculate the cost)

After you make your borrowing profile as strong as you can, request quotes from student loan providers. Most student loan refinance companies allow you to prequalify with a “soft” credit check before applying for a loan. This process only takes a few minutes and and doesn’t affect your credit score. Prequalifying can show you what loan rates and terms may be available to you.

By prequalifying with several lenders, you can compare interest rates and repayment terms. Choose the loan that makes the most sense for your financial situation.

4. Apply for the loan

Once you’ve selected a lender, you’ll need to complete a full application and authorize a “hard” credit inquiry. Here’s the information you may need to provide when applying:

• Full legal name.
• Current address.
• Email address.
• Current annual income.
• Current bank account balances.
• Current debt balances.
• Social Security Number (or other identification number).
• Any other required information.

In addition to completing an application, you’ll submit supporting documentation, including:

• Bank statements.
• Pay stubs.
• Current student loan information.
• Proof of graduation.
• Photo ID (such as a driver’s license).

Finally, sign your application. Online applications are often signed electronically. If you’re approved, you’ll review and sign your loan documents. This commits you to the terms of the loan.

5. Make on-time payments

Continue making payments on your existing loans until the new lender pays them off and zeroes your balances. Missing payments on your old loans before they are paid off it can hurt your credit score and may cause additional charges.

Once your old loans are paid off and you receive your first bill for the new loan, it’s a good idea to set up automatic payments. This ensures you don’t miss any payments and always pay on time.

How long does it take to refinance student loans?

Refinancing your student loans can happen fairly quickly. Online applications take less than an hour and loan payoff generally happens in less than a week. If your income and credit score are in good shape, you may even get same-day approval on your refinance.

It’s important to keep an eye on your old loan balances. It can take up to a week (or more) for your new loan to pay off the old balances, depending on your lender.

Tips for refinancing your student loan

Refinancing your student loans is pretty straightforward, but that doesn’t mean it’s an easy decision. Here are a few tips to help you navigate the refinancing process.

Consider a federal loan consolidation

If most of your student loans are federal loans, you may want to skip the refinance and consider a Direct Consolidation Loan. This allows you to keep the perks of federal loans and simplify your payments. (Federal student loan consolidation doesn’t reduce your interest rates). Refinancing federal loans into private loans may reduce your interest charges, but you lose access to programs like student loan forgiveness, income-driven repayment, and loan deferment.

Watch out for fees

Some private lenders charge high loan origination fees that offset or even wipe out your savings from lower rates. Compare offers from several lenders and look for lower-cost loans. Some providers (like Earnest) even waive fees altogether.

In addition to origination fees, watch out for prepayment penalties or extra payment fees. This can impact you if you plan to pay off your loans early.

Calculate total loan cost

While refinancing your student loans may lower your monthly payments, you might end up paying more money in interest. If you choose to extend your loan term length, it may lower your monthly cost, but you’ll make more payments and you can end up paying hundreds (or thousands) more dollars over the life of the loan.

Make sure you understand the total loan cost.That’s the amount you’ll pay in total if you make all of your scheduled loan payments.

TIME Stamped: Refinancing your student loan can help you save money, but you might lose some perks

Refinancing your student loans can simplify your payments even lower your monthly financing costs. You may be able to get a lower interest rate, especially if your credit score and income are in good condition. But refinancing federal student loans will make them private loans, and you’ll lose some protections and perks.

Before you refinance federal loans, consider a Direct Consolidation Loan. It wraps your federal loans into a single monthly payment and retains your federal loan perks. If you have private loans, run the numbers to calculate your potential savings.

Frequently asked questions (FAQs)

Will refinancing affect my credit score?

Refinancing your student loans can impact your credit score. When you apply for a refinance loan, your lender performs a “hard” credit check that temporarily drops your credit score a few points. (Prequalifying with a “soft” credit check doesn’t do this). Closing your old accounts when you refinance may also have a temporary impact on your credit score. Generally, refinancing your student loans won’t affect your credit score much as long as you make your payments on time.

What are refinance rates today for student loans?

Student loan interest rates vary among lenders and programs. The factors influencing your rate include your income and credit score, your degree, the loan term, loan size, lender policy and general economic conditions. In 2024, mainstream student loan refinance rates range from about 5% to about 10%.

Can student loans be refinanced?

Yes, student loans can be refinanced. When you refinance your student loans, you can combine multiple loans into a single loan with one monthly payment. Refinancing your federal student loans through a private lender eliminates borrower protections afforded by federal loans. Refinancing can be a good idea in some cases, but it’s important to run the numbers and review your current loan terms before refinancing.