Guide to refinancing your student loans

During the 2021-2022 academic year, college students left school with an average student loan debt of $29,100 — though some students can end up with much higher amounts of debt. Paying off this much education debt can be daunting, especially if you have high interest rates. One potential strategy to save money on your student loans and speed up your repayment is through student loan refinancing, which is the process of paying off your loans with a new loan.

If you’re wondering how to refinance your student loans and if refinancing is the right choice for you, here’s what you should know.

USA TODAY Blueprint may earn a commission from this advertiser.

Ad

Our partner

Laurel Road

Fixed APR

4.99% to 10.74%

Variable APR

4.74% to 10.64%

Compare Rates

Via Credible's Website

Fixed APR

4.99% to 10.74%

Variable APR

4.74% to 10.64%

What is student loan refinancing?

Student loan refinancing is the process of paying off one or more of your current student loans with a single new loan from a private lender — such as a bank, credit union or online lender. If you have good credit (or a creditworthy co-signer), you might qualify for a lower interest rate on your refinanced loan.

You can also opt to extend your repayment term to reduce your monthly payments — though this means you’ll pay more in interest over time. Conversely, choosing a shorter term could save you money on interest and help you get out of debt faster. Many lenders also offer better rates on loans with shorter terms.

Keep in mind: While you can refinance both federal and private student loans, refinancing federal loans means income-driven repayment, student loan forgiveness programs or federal deferment and forbearance options.

How to qualify for student loan refinancing

Eligibility criteria for student loan refinancing vary by lender. However, you’ll typically need to meet the following requirements:

• Residency: You’ll generally need to be a U.S. citizen or qualifying noncitizen as well as the age of majority in your state. You must also live in a state where the lender operates.
• Good credit: While some lenders accept somewhat lower credit scores, most require you to have good to excellent credit to get approved for refinancing. A good credit score is usually considered to be at least 670 on the FICO scoring model. If you have less-than-stellar credit, you might still be able to qualify if you apply with a creditworthy cosigner.
• Sufficient income: Lenders want to see that you have the means to pay back your loan and typically require a certain amount of verifiable income from you or your cosigner. 
• Low DTI ratio: Your debt-to-income (DTI) ratio compares your monthly debt payments with your income. Lenders want to make sure you’re not already overextended with debt payments before approving a refinancing application. A good DTI ratio is generally 35% or less, though some lenders might accept ratios of up to 50%. 

Individual lenders might also have additional requirements. For example, most lenders want to see that your student loans are not in default, and some require you to have graduated with a degree to qualify. 

How to refinance your student loans in 4 steps

If you’re ready to refinance your student loans, follow these steps:

1. Check your credit

Lenders often rely heavily on your credit when evaluating an application, so it’s worth checking your credit beforehand to see what you’re working with. You can use a site like AnnualCreditReport.com to review your credit reports for free. If you find any errors, dispute them with the appropriate credit bureau — this could help increase your score once the errors are removed.

Note that your credit report provides a bird’s-eye view of your various accounts, but it won’t include your credit score. To check your score, you can use a free credit-monitoring service online. You might also have access to your score through your bank or credit card company.

Tip: If you have bad credit (usually meaning a credit score lower than 670), you might consider improving it before you apply for refinancing. There are several strategies that can help you build your credit, such as paying all of your bills on time and paying down credit card balances. 

Taking the time to improve your credit could make it easier to get approved refinancing as well as qualify you for better rates in the future.

2. Compare lenders and pick your loan option

It’s important to compare your options with as many lenders as possible. This can help you find a good deal on a loan more easily. As you shop around, consider interest rates as well as loan amounts, repayment terms and eligibility requirements. Many lenders let you pre-qualify and see your personalized rates with only a soft credit check that won’t hurt your credit score.

Additionally, keep an eye out for any useful benefits a lender offers, such as forbearance if you lose your job or the option of co-signer release after a certain number of on-time payments. It’s also worth looking into reviews from other customers — such as through the Better Business Bureau or Trustpilot — to see what the borrower experience is like with each lender. 

After you’ve done your research, choose the loan option that best suits your needs.

3. Fill out the application

Once you’ve found a loan offer that works for you, you’ll need to complete a full application. In many cases, this can be done online within 15 to 20 minutes, though some traditional banks or credit unions might require a visit to a local branch location. 

Be prepared to provide your personal information, such as your name, employer and contact information. You’ll also need to submit any required documentation, such as pay stubs, bank statements and information about the loans you’re refinancing.

Keep in mind: Once you officially apply, the lender will generally conduct a hard credit inquiry, which could drop your credit score by a few points. However, this impact is typically only temporary, and your score should bounce back within a year.  

4. Manage your payments

If you’re approved, the lender will have you sign for the new loan. Be sure to continue making payments on your old loans until the refinancing process is complete and your old accounts have been paid in full. This can take 10 days to three weeks, depending on the lender.

Once your new loan is up and running, you’ll begin making monthly payments according to your agreed-upon schedule. You might consider setting up automatic payments so you don’t miss any bills. Many lenders also offer a rate reduction discount to borrowers who sign up for autopay — typically 0.25%.

Should you refinance your student loans?

While refinancing student loans can be a wise move for some borrowers, it’s not the right option for everyone. Ultimately, whether you should refinance your student loans will depend on your situation and financial goals.

For example, if you have strong credit (or a creditworthy co-signer) and can qualify for a better rate than you have now, then refinancing might make sense. It could also be beneficial if you want to extend your repayment term to make your payments more affordable.

On the flip side, refinancing might not be a good idea if it wouldn’t save you money or if you can’t qualify for a decent rate. Refinancing also likely isn’t a good fit if you’re already approaching the end of your repayment term. If your loans are almost paid off, you don’t want to add time to your loan term by refinancing and end up staying in debt longer, which could also cost you more in interest over time. 

Also remember that refinancing federal student loans means converting them into a private loan without federal protections. If you want to maintain access to federal benefits or are working toward loan forgiveness or cancellation through a program like Public Service Loan Forgiveness or Teacher Loan Forgiveness, then refinancing wouldn’t be wise. 

Is it possible? Can you declare bankruptcy on student loans?