A Guide to Student Loan Refinancing
Millions of student loan borrowers struggle to make their payments each month. And while federal payments have been paused for many since March 2020, the idea of them starting again is enough to instill fear in anybody.
Widespread student loan forgiveness will help many if it clears the Supreme Court, but may not provide the level of comfort some think. Millions of borrowers, therefore, continue to look for alternate strategies in the event that monthly payments begin sooner than expected.
Here is our complete 2023 guide to refinancing your student loan debt.
Popular student loan refinancing lenders
We want to help. When you refinance through our links in green above, 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.
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.
2023's best student loan refinancing lenders
As we continue into 2023, we have our eyes on a number of refinancing lenders that we think are the best in the industry. And while you'll still want to compare rates, we do want to give a shoutout to the following lenders:
Check out our full list of rankings below!
SoFi is our pick for this year's best student loan refinancing lender! With a great customer service reputation and a history of offering really competitive rates, SoFi has a lot going for it.
Where they really separate themselves from their competition is with their breadth of other resources, such as:
Existing relationships with wealth managers
You may just find your long-term financial home if you decide to refi with SoFi.
2. Splash Financial
Splash Financial is our other perfectly rated refinancing lender this year. They're actually not even technically a lender, but a marketplace to help you browse rates in as easy a way as possible.
The other part about Splash that really impresses us is that they allow borrowers to:
Refinance Parent PLUS loans
Consolidate loans with a spouse or partner
Refinance without a maximum limit
These are the type of creative solutions that we love to see.
CommonBond is another great option out there for those trying to decide on the next steps in their student loan repayment journey. We like CommonBond for a number of reasons.
Their process is highly digital, and it is easily navigable by millennials and Gen Z'ers nationwide, CommonBond's own target demographic.
Additionally, they offer a number of flexible options, including:
Co-signer release after just 24 months
Academic deferment, grace period deferment, and up to 24 months of forbearance over the life of the loan
Refinancing Parent PLUS loans into a child's name
LendKey is next on our list. Another marketplace, LendKey offers a variety of flexible loan terms, including 5, 7, 10, 15, or 20 years. Additionally, they do business in 46 states nationwide, with the exception of Maine, Rhode Island, West Virginia, Nevada, and North Dakota.
We recommend that you use the LendKey portal to browse your rates with a whole host of lenders that you may not have considered on your own.
To jump into our top three refinancing lenders, we'd like to see LendKey offer a little more flexibility to borrowers. Though they do offer some forbearance options, they are not as flexible or helpful as those offered by Commonbond and others.
Earnest rounds out our top five. The real draw here (and maybe our favorite feature offered by any lender) is their precision pricing capabilities. Here's how it works.
You'll actually come up with the figure that you'd like to pay each month. Then, with the interest rate you qualify for, Earnest will pair you with a loan term between 5 and 20 years in length. This will allow you to fit your student loan payments into your monthly budget.
In total, there are over 180 terms possible.
Just because you don't see a lender on our list above does not mean that we think they are a bad lender. In reality, there are dozens of lenders out there that may be a good fit for your refinancing needs. We also wanted to shout out some of our favorite lenders, including:
You'll quickly find that there is no shortage of banks willing to refinance student loans.
Get our student loan refinancing calculator
Wondering whether refinancing your student loans could help you? We've built a calculator specifically for you. Just enter the rates and terms for the loans you're considering refinancing, and we'll show you what your projected monthly payments may look like!
Or, download your very own version of the calculator below!
Who is student loan refinancing right for?
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 committing 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 opportunity 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.
PSLF/TLFP/Perkins Loan Cancellation - All of the loan forgiveness programs that we hear about are FEDERAL programs. So make sure before you decide to refinance that you don't qualify for any of the following programs:
Teacher Loan Forgiveness
Perkins Loan Cancellation
Any state or local programs offered in your state
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
Student loan refinancing pros and cons
There are some huge benefits to refinancing your student loans with a private lender, but there are also a number of negatives and unintended consequences that you'll need to be very careful to avoid. Let's start with the positives.
1. A simplified loan experience with one monthly payment
Refinancing will leave you with just one 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.
This 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. May save thousands of dollars
Getting a good interest rate may save you thousands of dollars over the course of the loan. There are two main ways that you can save money:
Lower your interest rate
Shorten your repayment term
In really advantageous situations, you may be able to accomplish both. But you'll need to meet these requirements to take advantage:
You need to have at least good credit (if not great), or a cosigner that does
You may need to have a degree to be eligible to refinance
You have a stable and predictable income
Now, a couple of potential downsides that you'll need to be aware of.
1. You'll forego eligibility for federal forgiveness
The second you refinance your loans with a private lender, you won't be able to get your original federal loans back. This, of course, can be a good thing if you've secured a lower interest rate, but it can also be a negative. Here's why.
You'll lose eligibility for any federal student loan forgiveness programs, such as PSLF, Teacher Loan Forgiveness, and Income-Driven Repayment.
If you're unlikely to qualify anyway, then this may not matter as much to you. But you'll also want to keep in mind that private student loans do not carry as many options for deferment or forbearance either.
2. Your term could increase
Depending on your credit score and the options presented to you, it is possible that the term on your new refinanced loan may actually be longer than what you have now. This may not be a bad thing, as you may be able to lower your monthly payments this way.
A longer term may also be advantageous depending on the rate you're offered, but you'll need to be comfortable making payments for longer.
Student loan refinancing FAQ
We know you have questions, so we have answers. Here are some answers to the most popular questions probably on your mind.
1. What are good student loan refinancing rates?
This is a very difficult question to answer. We encourage our readers that any interest rate lower than what you have now is "good," though you may need to find rates 1% less or more than your current rate to really save money each month.
It all depends on your personal credit history, creditworthiness, and economic conditions at any given time. Here in 2023, interest rates are higher than they have been in some time, but that does not mean that you cannot find attractive rate options out there.
2. What credit score do you need?
There is not one industry-wide minimum credit threshold that you'll need to meet in order to refinance your college debt. But to get rates attractive enough to make the process worth it, you'll probably want to be in at least the 700 range.
Many lenders do offer refinancing services to borrowers with credit scores in the 600s, though you will not be able to access the best rates out there.
3. How else can I lower my interest expenses?
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)
To truly minimize your interest expenses, you may also opt to make partial payments a couple of times per month, rather than your full payment just one time. Most people don't realize that interest on student debt actually accrues daily, so you are always better off coming up with money as soon as possible.
4. Who is student loan refinancing right for?
Private refinancing may be right for people in the following situations:
People with great credit scores and histories
Those with stable incomes
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!
5. Where can I learn more about refinancing?
You're in the right place! Browse our student loan blog for some hands-on help, and browse all of our refinancing lender reviews for more information.