A 2022 Guide to Refinancing Student Loan Debt

Refinancing your federal student loan debt can be a powerful option to reduce your interest rate, and potentially your monthly payments.

If you have stable income and good credit, refinancing may be a great option for you.  Plus, if you refinance through The Student Debt Destroyer Roadmap™, you'll be eligible to receive a bonus by choosing any of the lenders featured on this page.

 

Whether or not it makes sense for you largely depends on your credit situation, disposable income, and other factors.  On this page, we'll cover:

  1. What is private refinancing?

  2. Who might refinancing be right for?

  3. The pros and cons to refinancing your student debt

  4. Other things to keep in mind

  5. Comparing student loan lenders

Refinance through The Student Debt Destroyer

We want to help.  When you refinance through our links in green below, you'll receive the bonuses indicated for each lender.  No games.

Other student loan blogs offer you bonuses loaded with fine print that usually say you need to refinance over $100,000 to get.  Not with us.

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Variable:

1.74 - 8.70%

Fixed:

Bonus:

1.99 - 8.63%

$300*

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Variable:

1.86 - 6.01%

Fixed:

Bonus:

2.43 - 5.99%

$300**

commonbond-fintech-logo.png

Variable:

1.74 - 7.99%

Fixed:

Bonus:

3.49 - 7.99%

$450***

commonbond-fintech-logo.png

Variable:

1.74 - 7.99%

Fixed:

Bonus:

2.74 - 7.99%

None currently

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Variable:

4.60 - 8.25%

Fixed:

Bonus:

4.49 - 7.74%

$100****

What is student loan refinancing?

 

Student loan refinancing is the process of working with a private company to pay off your federal student loan debt.  In return, this new private company, which could be a bank, credit union, or other financial institution, will issue you a new loan, which is likely to have a different interest rate, term, and monthly payments.

In essence, you are taking out a new loan to pay off your old loan.

This new loan's interest rate and other criteria are likely to be at least partially based on your credit score, history, and income.  The goal of the refinancing process is quite simple - you are looking to decrease your interest rate, which will in turn save you money on your payments.

Think of it like this - you are replacing your student loan(s) with a new student loan that is more advantageous to your financial lifestyle.  You may even opt to refinance all of your federal and private loans together, which will leave you with just one payment and one lender.  There are a ton of options out there.

Private refinancing is very similar to Federal Consolidation in terms of simplifying your loan experience.  The main difference is that Federal Consolidation (via a Direct Consolidation Loan) does not typically save you any money off your monthly payments.

How does student loan refinancing work?

Imagine that you have $40,000 in student debt at an interest rate of 7.25%.  Assuming a 10-year term, your payment for the next decade will be $470.

Now, let's say you consider refinancing with a private lender because you can get a lower interest rate of 4%.  Refinancing this $40,000 at 4% with the same ten-year term will leave you with a new monthly payment of $405, saving you $65 per month for ten years.

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Who should consider refinancing?

 

Private refinancing may be right for people in the following situations:

  1. People with great credit scores and histories

  2. Those with stable incomes

  3. Those that have a high enough interest rate on their existing loans to make it worth it

Curious as to just how much money you may be able to save?  Get our refinancing calculator, and you'll have an idea in less than 10 minutes! 

Considering private refinancing for your federal loans

Refinancing your federal loans is a big step that you may want to consider under the following circumstances:

  • You're going to save money.  This may sound really basic, but why would you refinance your debt if it wasn't going to save you money and leave you paying less in interest?

  • You're financially stable.  Refinancing is a little bit of a risk in that you will be giving up certain federal rights and protections that your federal loans inherently carry.  So if you're unsure as to whether you'll even be able to afford the new prospective terms on your new loan(s), you're likely better off doing nothing.

The thought process behind deciding to refi your federal and private loans should be a little different.

With your federal loans, given the rights and protections they have (more on this in a minute), you'll generally want to be more careful.  And with the ongoing national forbearance period due to the ongoing Covid-19 pandemic, interest is not, and has not, been accruing since March 2020. 

With this in mind, the only reason to refinance your federal loans before the expiration of this period would be to lock in a great rate that you'd be afraid of losing, given the likelihood of interest rates rising as 2022 continues on.  And with interest rates climbing steadily right now, this could be. 

 

Some lenders are even holding rates for you until the federal moratorium ends.

Make sure that you investigate the following federal protections before pulling the trigger and commit to refinancing.  Once you do, these will no longer be available.

  • Income-driven repayment - Is it possible to use IDR instead to lower your monthly payments?  If so, consider that any of these plans (Income-Based, Income-Contingent, Pay as You Earn, and Revised Pay as You Earn) can help you to pay less AND keep federal protections on your debt in case the unexpected happens.

  • Deferment/Forbearance - We've mentioned federal rights and protections a couple of times now, but your federal debt carries the opportunities to take periods of deferment and forbearance if needed.  And while it is not recommended, it is better than not having those options if you refinance your loans with a private lender.

Don't worry - our calculator will take all of this into account for you!

Taking all of this into account, private refinancing is likely safest for Americans meeting the following descriptions.

  • Working in the private sector (excluding them from most forgiveness programs)

  • A loan situation where there is a clear interest rate savings

  • The ability to meet any emergencies that may arise in the next 3-6 months - have a 3-6 month, fully-funded emergency fund

Pros and cons of refinancing student loans

 

While it can really make a difference in your life moving forward, private refinancing doesn't come risk-free.  In fact, there are some notable pros to using the strategy.  

1. One student loan and one monthly payment

Private refinancing will leave you with just one new loan, granted by just one lender.  This means you'll make just one student loan payment per month moving forward.  This simplification is huge!  As you accumulated different loans for college, you likely were granted numerous different loans that may be serviced by different federal loan servicers. 

In fact, many Americans we've worked with have upwards of 15 different federal student loans between undergraduate and graduate study.

And that doesn't even count any existing private loans you may have as well.  The perk of refinancing is that many lenders will allow you to combine all of your loans, federal and private, together into one.

As referenced above, the process is similar to the federal direct consolidation process, except that process is reserved for federal loans only and does not result in a lower interest rate.  

2. Lowering your interest rate could save you thousands of dollars

Securing a lower interest rate may save you thousands of dollars over the course of the loan.  There are two main ways that you can save money 

But it's all dependent on getting a good interest rate.

 

You may be able to score a favorable interest rate if you meet any of the following descriptions:

  1. You need to have at least good credit (if not great), or a cosigner that does

  2. You may need to have a degree to be eligible to refinance (lender specific but CommonBond is one such example)

  3. You have stable and predictable income (lender specific)

Let's take these one at a time.

Good credit is a necessity in the student loan refinancing process.  If you don't have good or great credit (high 600s at a minimum), you're likely to need a cosigner.  But having this option and flexibility is a certain pro.

Plus, if any relative or friend is nervous to cosign, many lenders have processes in place to remove cosigners from your loan after you hit certain benchmarks, usually a number of timely in payments in a row.  It's known as cosigner release and something that you should always check for.

Having the option for a cosigner is intended to help you still secure a lower interest rate in the event that your credit and income isn't quite where you want it to be.

You also may need a degree, but this may be lender-specific as well.  

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Other things to consider before you refinance

When choosing a new lender, you're going to want to keep the following in mind.

  • Verify if your lender charges origination or prepayment fees

  • Make sure you are aware of any late fees, and AVOID them

  • Understand the terms of your new loan.  Is the interest rate fixed or variable?  What will the term on your new loan be?

  • Is there a minimum credit score requirement to qualify?

Comparing student loan refinancing lenders

 

When selecting a new student loan refinancing lender, your main objective is clear.  Your primary goal is to find the lowest interest rate you can, which in theory should leave you with the lowest payments and total balance paid.

Keep in mind that refinancing your loans to a private lender will cause you to forfeit some of the rights and protections that your federal loans hold.

Some of the most popular private refinancing lenders are:

  1. SoFi

  2. CommonBond

  3. LendKey

  4. Earnest

  5. PenFed

Student loan refinancing frequently asked questions

Below you will find answers to some of the most popular questions that are likely on your mind.

1. How often can you refinance student loans?

You may be relieved to know that there are no limits on the amount of times that you can refinance your debt.  And you can even use the same lender more than one time.  The only "limit" you may be subject to would be completing one application per month. 

 

Since applications require hard credit inquiries, you'll likely notice that your credit score will drop each time you complete an application.

2. How else can you lower the interest rate on student loans?

There are oftentimes a number of strategies that you can use to help keep your interest rate as low as possible.  Some strategies you may want to consider are:

  • Keeping your monthly payments on autopay (usually a 0.25% discount)

  • Negotiating with your lender (no guarantee this will work)

3. Are there options to refinance if I have bad credit?

Yes, there are.  There are specific lenders willing to work with poor credit scores, but the more popular option is to apply for refinancing with a cosigner.  By applying with a willing cosigner, many lenders are willing to take you on, even with the added risk. 

 

The quality of your cosigner's credit history will likely have an outsized role on the interest rate you ultimately receive.