Last Updated on May 19, 2022
If you’re a student, you might know that your monthly loan payments are pretty high. But did you know there are ways to refinance your loans and lower your monthly payments?
The best banks to refinance student loans can help you get a lower rate and more manageable terms so that you can pay off those loans faster and start enjoying life sooner!
Best Student Loan Refinance Lenders Of May 2022
Student loan refinancing can mean big savings in the right circumstances. Here’s how it works: A new private company—typically a bank, credit union or online lender—pays off the student loans you choose to refinance, and you’ll get a new loan with an interest rate tied to your credit history, income and other characteristics.
You should consider student loan refinancing if you have a good or excellent credit score and stable income (or a co-signer who does) and your current loans have high enough interest rates that you’ll benefit from a lower rate. In some cases, you can even refinance federal PLUS loans your parents took out to help you pay for college, relieving them of payment responsibility.
Below we’ve identified the best student loan refinance lenders for those who qualify, based on features including interest rates, availability to borrowers and hardship repayment options. None of the lenders on our list charge origination or prepayment fees, though some charge late fees. In some cases, they offer a separate refinancing product for parent loan borrowers; we scored each based on their student loan refinancing option only.
- Best Private Student Loans 2022
- Best Student Loans for Bad Credit
- Best Student Loans Without Co-Signer
- Best Parent Student Loans
- Best Graduate Student Loans
- Best International Student Loans
Tips for Comparing Student Loan Refinance Lenders
Since the goal of refinancing is to save money on interest, you’ll likely want to choose the lender that offers you the lowest rate you qualify for. Variable rates tend to be lower than fixed rates, but they could go up in the future; only opt for a variable rate if you plan to pay off your loan quickly.
Similar to private student loans for those attending school, refinance loans aren’t required to offer the same consumer protections that federal loans do, such as income-driven repayment plans or forgiveness. But some refinance lenders provide more than the standard 12 months of forbearance throughout the loan term, and/or additional loan modification options for borrowers having difficulty making payments.
Refinancing is typically best for those with strong incomes and job stability. But life is unpredictable. If you think you might need to take a pause from payments or to lower your monthly bill, consider choosing a lender with a more generous forbearance policy.
Also, if you choose to refinance with the help of a co-signer, go with a lender that offers a co-signer release policy so you can take on the full repayment obligation when possible. That will protect your co-signer’s credit from the negative marks that could occur if you fall behind on payments.
We requested data from 16 lenders that dominate the student loan refinance market and scored them across 15 data points in the categories of interest rates, fees, loan terms, hardship options, application process and eligibility. We chose the 10 best to display based on those earning three stars or higher.
The following is the weighting assigned to each category:
- Hardship options: 30%
- Eligibility: 18%
- Loan terms: 18%
- Application process: 16%
- Interest rates: 13%
- Fees: 5%
Specific characteristics taken into consideration within each category included number of months of forbearance available, hardship repayment options beyond traditional forbearance, availability of in-school deferment, accessibility to borrowers without a bachelor’s degree, time to default, disclosure of credit score and income requirements and other factors.
Lenders who offered interest rates below 7% scored the highest, as did those who offered more than the standard 12 months of forbearance, who offered interest rate discounts beyond the standard 0.25% for automatic payments, who charged no late fees and who offered multiple loan terms maxing out at 15 years. We believe that to take full advantage of refinancing, borrowers should choose the shortest loan term available, and a 20-year term has the potential to limit interest savings.
In some cases, lenders were awarded partial points, and a maximum of 3% of the final score was left to editorial discretion based on the quality of consumer-friendly features offered.
Should I Refinance My Student Loans?
The three items to consider when deciding whether to refinance are financial history, interest rates and repayment needs.
First, identify whether you qualify. Most student refinance lenders require a minimum credit score of 650. You’ll also generally need to show stable income, a low debt-to-income (DTI) ratio and a history of on-time debt payments.
Eligible to refinance? Now look at your current loans’ interest rates. If they’re significantly higher than the rate you’ll likely get when you refinance—which you can check using lenders’ prequalification tools on their websites—refinancing might make sense for you.
But remember, if you refinance federal student loans, you’ll lose access to federal programs such as flexible forbearance, income-based repayment and Public Service Loan Forgiveness (PSLF). If you rely on these programs (or think you might in the future), think twice before refinancing.
How to Refinance Student Loans
If refinancing makes sense for your situation, you can start the process immediately. Here’s how to refinance your loans:
1. Shop around before you apply. Most refinancing lenders allow you to prequalify for a loan. To do so, you’ll enter a few personal details and the lender will complete a soft credit check—which has no impact on your credit score—before showing your estimated fixed and variable interest rates for your desired loan. Do this with several lenders to see who might offer the best deals.
2. Submit an application. Once you’ve decided which lender you want to work with, submit a formal application. This is a more in-depth form, and you may need to include extra documentation about your income and other details. The lender will then do a hard credit check to confirm your information. If you’re approved, you’ll receive an overview of the final loan terms. Review the documents, and if all looks good, you can sign the paperwork to receive your loan.
3. Confirm your old loan is closed, then start making payments. Your new lender will likely pay off your old loan directly. However, keep making payments on your old debt until you receive confirmation that it’s been paid off and your account has been closed. Once that happens, you’ll start making regular payments to your new lender on your refinanced loan.