How Do You Refinance Student Loans

Last Updated on May 19, 2022

With student loan debt affecting more than 44 million Americans, it’s no surprise that the topic is getting a lot of airtime in the news these days.

But what if there was a way to refinance your student loans? Imagine being able to lower your monthly payments, get out from under interest rates that are too high, and pay off your debt faster than you ever thought possible.

It’s possible! And we’re going to tell you how right now.

How to Refinance Student Loans

How Do You Refinance Student Loans

How to refinance your student loan in 5 steps

There are five steps to take if you’re ready to refinance your student loan:

  1. Check your credit.
  2. Shop for the best rate.
  3. Choose a loan offer.
  4. Fill out an official loan application.
  5. Sign your loan documents and start paying your new loan.
Student asking a question in college class.

1. Check your credit

When you apply to refinance your student loans, one of the first steps a lender will take is checking at least one of your credit reports and credit scores. This is why you should go over your reports from Equifax, TransUnion and Experian regularly to check for any mistakes or errors. If you discover inaccurate information on a credit report, the Fair Credit Reporting Act (FCRA) gives you the right to dispute those items with the appropriate credit-reporting agency.

It’s also wise to get an understanding of where your credit currently stands prior to filling out loan applications. If you find that your credit isn’t in the best shape, you can work to improve your credit before you try to refinance.

The FCRA lets you claim free reports from all three credit bureaus weekly at Annual Credit Report.com.Key take away Reviewing your credit scores before refinancing will help you understand where your credit stands and confirm that your reports are error-free.

2. Shop for the best rate

Researching student loan refinancing rates and checking with multiple lenders to find the best rate is a key element in successfully refinancing your student loans. In fact, rate shopping should be something you do anytime you’re looking for a new loan or credit card.

Search online to compare lenders’ rates and fees. If a lender offers a prequalification tool, take advantage; these types of applications require only a soft credit inquiry on your credit report. Getting prequalified can help you see the type of rates and loan terms you might qualify for if you refinanced. You can use this information to see if refinancing would leave you any better off in terms of your monthly payment or total interest paid.Key takeawayTake the time to check rates and fees with at least three separate lenders before you commit to a new loan.

3. Choose a loan offer

Once you’ve reviewed (and hopefully prequalified for) several loan offers, you’ll be better equipped to choose the option that suits you best. The lender you choose to work with may let you select your preferred repayment terms as well.

A shorter loan term (e.g., five years) might help you secure a lower interest rate and pay off your debt faster. However, your monthly payment would likely be higher. If you extend the loan term, on the other hand, you could reduce the size of your monthly payments and make managing your budget easier. The trade-off would be more interest paid over the life of the loan and more time passing before you eliminate the debt.Key takeawayLook at your budget and overall financial picture to decide which loan terms make the most sense.

4. Fill out an official loan application

You’ll need to fill out an official loan application once you’ve narrowed down your preferred lender and loan offer. Even if you went through a lender’s prequalification process, you will need to complete this step before your loan can be approved.

At this point, the lender will likely request a hard credit inquiry to access your full credit report.

The lender will also want additional information that you didn’t include on your prequalification form. If you’re applying with a co-signer, you’ll need to provide their information as well. You may need to provide the lender with copies of documents and information such as:

  • Social Security number (SSN).
  • Driver’s license or government ID.
  • Loan payoff statements from existing student loan lenders or servicers.
  • Proof of graduation.
  • Proof of employment (paystubs, W-2, etc.).

Key takeawayHaving your loan documents ready before you fill out your application to refinance will help the process go smoother and faster.

5. Sign your loan documents and start paying your new loan

Once you’re approved for your loan, you’ll sign your loan documents. Technology has made this step considerably easier; where you once had to sign loan documents in person or fax or mail them in, most student loan companies now handle their entire process online for ultimate convenience.

Once your documents are signed and filed, you will begin making payments on your new loan just like you were with your old one. However, keep in mind that your new lender may not pay off your former loans right away; sometimes the process can take a few weeks. Continue making any student loan payments that come due in the meantime so you don’t face late fees or potential negative credit reporting.

how to refinance federal student loans

How to Refinance Student Loans in 7 Steps

Compare lenders, get rate estimates, choose your lender and loan terms, then apply.

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1. Decide if refinancing is right for you

Refinancing can make sense if it can save you money, but not everyone should refinance. You’ll need strong credit and finances to qualify for the lowest rates and meet a refinance lender’s eligibility criteria.

If you refinance federal student loans, they’ll be ineligible for government programs like income-driven repayment and student loan relief due to the coronavirus pandemic. Don’t refinance federal student loans unless you’re sure your job isn’t at risk and you won’t need these options.

On the other hand, refinancing private student loans has minimal downside. Private loans won’t qualify for those federal programs.

2. Research lenders

At first glance, most student loan refinance lenders are very similar. But look for certain features depending on your situation.

For example: Want to refinance parent PLUS loans in your child’s name? Find a lender that allows it. Didn’t graduate? Find a lender that doesn’t require a college degree.

Parent PLUS loan refinancingRefinance student loans for fast payoff
Medical school loan refinancingStudent loan refinancing with no degree
International student loan refinancingBest student loan refinance companies
Credit union student loan refinancingBanks that refinance student loans
Student loan refinance bonus programsMBA student loan refinancing

3. Get multiple rate estimates

Once you identify a few lenders that fit your needs, get rate estimates from all of them. Ultimately, the best refinance lender for you is the one that offers you the lowest rate.

You can compare rates from multiple student loan refinance lenders at once, or visit each lender’s website individually.

As you shop, some lenders will ask you to pre-qualify — supply basic information to give you its best estimate of the rate you might qualify for. Other lenders will show you a rate only after you submit a full application, but that rate is an actual offer.

A soft credit check, or pre-qualification, typically doesn’t affect your credit scores. An actual application requires a hard credit check that may briefly lower your credit scores

4. Choose a lender and loan terms

Once you land on a lender, you have a few more decisions to make: Do you want a fixed or variable interest rate, and how long do you want for your repayment period?

Fixed interest rates are generally the best option for most borrowers. Variable rates may be lower at first, but they’re subject to change monthly or quarterly.

To save the most money, choose the shortest repayment period you can afford. If you would like lower monthly payments so you can prioritize other expenses, pick a longer repayment timeline.

5. Complete the application

Even if you are pre-qualified, you need to submit a full application to move forward with a lender. You’ll be asked for more information about your loans and financial situation and to upload supporting documents. You’ll need some combination of the following:

  • Loan or payoff verification statements.
  • Proof of employment (W-2 form, recent pay stubs, tax returns).
  • Proof of residency.
  • Proof of graduation.
  • Government-issued ID.

Finally, you must agree to let the lender do a hard credit pull to confirm your interest rate. You’ll also have the option to refinance with a co-signer, which could help you qualify for a lower rate.

6. Sign the final documents

If you’re approved, you’ll need to sign some final paperwork to accept the loan. A three-day rescission period begins once you sign the loan’s final disclosure document. During that time, you can cancel the refinance loan if you change your mind.

If you’re denied, the lender will let you know the reason why. If it’s because you have bad credit, you may be able to qualify by adding a co-signer, or you may need a lower debt-to-income ratio to qualify.

7. Wait for the loan payoff

After the rescission period ends, your new lender will pay off your existing lender or servicer. Going forward, you’ll make monthly payments to your new refinance lender.

Keep making payments to your existing lender or servicer until you get confirmation that the process is complete. If you end up overpaying, you’ll get a refund.

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