Is it a good idea to refinance my student loans?

Under the correct conditions, student loan refinancing can result in significant savings. The process is as follows: a new private firm - typically a bank, credit union, or online lender - repays the student loans you wish to refinance, and you receive a new loan with an interest rate depending on your credit history, income, and other factors.

If you have strong or exceptional credit and a consistent income (or a cosigner who does), and your present loans have such high interest rates that you may profit from a reduced interest rate, you should consider refinancing student loans. In certain situations, you can even refinance federal loans PLUS that your parents took out to help you pay for college, freeing them of the monthly responsibilities.

Based on factors such as interest rates, availability to borrowers, and hardship repayment choices, we have determined the top lenders for student loan refinancing for those who qualify. There are no closure or early repayment costs charged by any of the lenders on our list, however some do impose late fees. They may provide a different refinancing solution for students with parent loans in some situations; we rated each lender only on its student loan refinancing option.

Best Student Loan Refinance Lenders

1. Rhode Island Student Loan Authority
2. PenFed Credit Union
3. SoFi
4. MEFA
5. Citizens Bank
6. Laurel Road
7. Earnest
8. Discover
9. PNC Bank

Tips for Comparing Student Loan Refinance Lenders

Because the purpose of refinancing is to save money on interest, you should generally choose with the lender that gives you the lowest interest rate for which you qualify. Variable interest rates are often cheaper than fixed interest rates, but they may rise in the future. If you want to pay off your debt fast, use a variable interest rate.

Refinance loans, like private student loans, are not required to provide the same consumer safeguards as federal loans, such as income-driven repayment schedules or forgiveness. Some refinancing loan lenders, however, provide more than the customary 12 months of delayed payments over the life of the loan, as well as extra loan modification alternatives for borrowers who are having difficulties making their payments.

Refinancing is typically appropriate for people who have a good salary and a steady work. However, life is unpredictable. Choose a lender with a more lenient deferral policy if you believe you may need to take a payment break or decrease your monthly expense.

If you decide to refinance with a cosigner, pick a lender that provides a cosigner release so that you can carry the whole repayment responsibility if possible. This shields your cosigner's credit from the negative consequences of a payment default.

Methodology

We obtained information from 16 lenders who dominate the student loan refinancing industry and rated them on 15 data points including interest rates, fees, loan terms, hardship choices, application procedure, and eligibility. We chose the top ten services with three or more stars.

The weightings for each category are as follows:

• 30% hardship possibilities
• 18% Eligibility
• Terms of the loan: 18%
• Process of application: 16
• Rates of interest: 13
• Fees: 5%

The number of months available for deferment, the possibility of hardship repayment beyond traditional deferment, the possibility of deferment while in school, accessibility to borrowers without a bachelor's degree, time to default, credit score disclosure and income requirements, and other factors were all considered within each category.

Lenders with interest rates below 7% scored well, as did those with more than the typical 12-month deferral, interest rate reductions greater than the standard 0.25% for automated payments, no late penalties, and several loan durations up to a maximum of 15 years. To fully benefit from refinancing, we believe borrowers should pick the shortest term available. A 20-year period may restrict the amount of interest saved.

In other circumstances, lenders received partial points, and the editors might give up to 3% of the overall score based on the level of consumer-friendly features provided.

How Does Refinancing Student Loans Work?

When you refinance student loans, you obtain a new loan from a different lender to pay down your previous student debt. Because your new loan includes a different interest rate and payback period, you might pay less interest or make lower monthly payments. Refinancing can also be used to consolidate numerous student loans into a single obligation, making repayment easier to manage.

Only a private lender may provide refinancing. This implies that if you refinance your federal student loans, you lose access to government advantages including income-driven repayment, loan forgiveness, and more flexible deferral and suspension choices.

Refinancing is not a viable option if you want to maintain the advantages of your federal student loans. Instead, you can use a Direct Consolidation Loan to consolidate your federal loans into a one payment. This averages your student loan interest rates and rounds them up to the next eighth of a percent. Your new payback period is up to 30 years, but you still receive all government advantages.

If you don't mind losing your federal advantages or simply have private student loans, refinancing may be a better option for you. Use a student loan refinance calculator to see how refinancing can help you save money or decrease your interest rate.

Should I Refinance My Student Loans?

When considering whether to refinance, three factors should be considered: financial history, interest rates, and payback conditions.

First, check whether you are eligible. Most student loan refinancing providers need a minimum credit score of 650, as well as consistent income, a low debt-to-income ratio (DTI), and timely payments.

Do you meet the requirements for refinancing? Examine the interest rates on your current loans. If they are much higher than the interest rate you would receive if you refinanced – which you can verify using lenders' pre-qualification tools on their websites – refinancing may be a good option for you.

However, if you refinance federal student loans, you will lose access to government programmer such as flexible deferral, income-driven repayment, and Public Service Loan Forgiveness (PSLF). If you rely on these programmer (or expect to in the future), you should reconsider refinancing.

How to Refinance Student Loans

If refinancing makes sense for your circumstances, you can begin the process right now. Here's how to refinance your loans:

1. Research before applying. Pre-qualification for a loan is available from the majority of refinancing lenders. To do so, input some personal information, and the lender will perform a soft credit check (which will not effect your credit score) before displaying the anticipated fixed and variable interest rates for your selected loan. Try this with a few different lenders to discover who has the greatest deals.
2. Fill out an application. Submit a formal application once you've determined the lender you wish to deal with. This is a more extensive form to which you may be required to attach extra evidence regarding your income and other facts. After that, the lender will do a credit check to validate your details. If you are authorized, you will be sent a summary of the loan's final terms. Examine the papers, and if everything is in order, sign the paperwork to obtain your loan.
3. Confirm that your previous loan has been closed, and then begin making payments. Your previous loan will most likely be paid off straight by your new lender. Continue to make payments on your previous debt, however, until you receive proof that it has been paid off and your account has been closed. Once this is complete, you may begin making monthly payments on your refinanced debt to your new lender.