If you’re sick of so much of your student loan payments going toward the interest rather than the principal, student loan refinancing may be for you. When you refinance your student loans, you apply for a new loan from a private lender and use it to pay off your old ones. The new loan has different terms than the loans you had before, so the benefits of refinancing student loans are numerous:
- You could lower your student loan interest rates
- You could save money over the life of the loan
- You could extend your repayment term
- You could get a lower monthly payment
- You could pay off your student loans faster
Some people put off refinancing their debt because they’re intimidated by the application process. However, student loan refinancing is actually very simple; you can refinance your loans in very little time from your couch.
Steps to Refinance Your Student Loans
Refinancing your student loans will likely be easier than you think. You can refinance your debt by following these six simple steps:
- Decide If Refinancing Your Student Loans Is Right for You
- Shop for the Best Rates and Lenders
- Choose the Best Lender and Loan Offer
- Complete the Loan Application
- Sign the Final Documents
- Loan Payoff and Repayment
1. Decide if Refinancing Your Student Is Right for You
Although student loan refinancing has several benefits, it’s not a good idea for everyone. There are some things to keep in mind before refinancing your debt:
- Credit: In general, you need good to excellent credit to qualify for student loan refinancing. If your credit is less-than-perfect, you may struggle to find a lender willing to lend to you.
- Cosigner: Depending on your credit and income, you may not qualify for refinancing by yourself, but you may be eligible for a loan if you add a cosigner to your loan application. However, cosigning a loan is a huge responsibility, so it may not be something you want to ask of your family members or friends.
- Loan types: Student loan refinancing tends to be best for loans with high-interest rates, especially private student loans. If you have federal student loans, keep in mind that refinancing will transfer your loans to a private lender, and you’ll no longer be eligible for federal protections like:
- Income-driven repayment
- Federal forbearance and deferment
- Public Service Loan Forgiveness
- President Biden’s loan forgiveness program
Carefully weigh the pros and cons to decide if student loan refinancing is right for you.
2. Shop for the Best Rates and Lenders
Student loan refinance rates, repayment options, and eligibility requirements vary between lenders, so it’s wise to shop around and request quotes from several companies. Some lenders, such as ELFI, offer prequalification tools that allow you to check your rates with a soft credit inquiry, which doesn’t affect your credit score. Only if you decide to proceed with the loan application and consent to a credit check will the lender perform a hard credit inquiry.
3. Choose the Best Lender and Loan Offer
Once you’ve done your homework and gotten quotes from multiple lenders, you can choose the student loan refinance terms that work for you. To narrow down your list, consider the following factors:
- Interest rate type: Refinance loans can have variable or fixed interest rates. Variable rates can be appealing because they’re usually lower than fixed interest rates, but they can increase over time. By contrast, fixed interest rates never change.
- Annual percentage rate (APR): The APR is a number that reflects the yearly interest charged on the loan; the APR is the single biggest factor affecting your total repayment cost. The higher the rate, the more you’ll pay in interest over time.
- Loan term: When you refinance, you can usually choose a loan term between five and 20 years. While a longer term may seem like a good idea because you’ll get a lower monthly payment, you’ll pay more in interest over time. In general, you’ll get a lower rate — and pay less in interest — by opting for the shortest term you can afford.
- Hardship policies: Some private lenders, such as ELFI, offer financial hardship deferments that allow you to temporarily postpone your payments if you lose your job or become seriously ill. Not all lenders provide this benefit, so check with the prospective lender before taking out a loan.
4. Complete the Loan Application
Once you’ve selected a lender, you need to complete a full loan application. The loan application is more in-depth than the pre-qualification form. Lenders will also perform hard credit inquiries, which can cause your score to drop by a few points. When filling out the application, the lender will ask for the following information and documents:
- Identification, such as a current driver’s license
- Proof of income, such as pay stubs or recent tax returns
- Employment information, including your employer’s contact information
- Loan details, including your current balance and loan account numbers
If you will apply with a cosigner, they will need to fill out a separate application and submit the above information too.
5. Sign the Final Documents
After you complete and submit the application, the lender will check your credit and review your information to decide whether to approve you for a loan. If you’re approved, the lender will also use that information to determine your interest rate. You will receive a notification of your approval and the loan terms. Review the loan conditions carefully; it may be different from the rates quoted on the pre-qualification form since the loan application is more detailed and uses a hard credit inquiry. If you agree to the terms and conditions of the loan, sign the agreement and return it to the lender. Some lenders require you to sign forms and mail them in, but many allow you to sign the loan documents electronically.
6. Loan Payoff and Repayment
If you’re wondering how student loan refinancing works after the loan agreement is signed, you should know that your work is done; the lender handles the rest. The lender will reach out to your existing loan servicers to pay off your current loans. If there are any overpayments, the extra amount will be refunded to you. Continue making all of the necessary payments on your existing loans until your new lender confirms they’re paid in full; otherwise, you may incur late fees and penalties. Once the old loans are closed, you will make payments on the loan toward your new lender under the terms of the refinancing loan agreement. Refer to that agreement to find out when your payments are due.
Should You Refinance Your Student Loans?
Besides the issues mentioned above, like the loss of federal loan benefits and credit score requirements, there are some factors to consider before refinancing your student loans:
- Financial stability: Before refinancing your loans, make sure your finances are in good shape and that you’re relatively secure in your job. Otherwise, you risk refinancing your loans and being unable to afford your payments later on.
- Remaining loan repayment: To realize cost savings from refinancing, there usually needs to be a few years left in the loan. If you only have one or two years left in your repayment term, refinancing may not make sense.
- Interest rate difference: For student loan refinancing to help you save money, you must be able to qualify for a lower interest rate than you have on your existing loans. If refinancing wouldn’t give you a difference of a full percentage point or more, the savings may be minimal.
Everyone’s situation is different, so think carefully about whether it’s the best time for student loan refinancing right now.
Refinance Your Student Loans with ELFI
As you shop for a student loan refinancing lender, keep ELFI on your list.* With ELFI, you can refinance undergraduate, graduate, and even parent student loans, and it offers competitive fixed and variable interest rates. Plus, there are no application fees, origination fees, or prepayment penalties. If you need help navigating the student loan refinancing process, you’ll be connected to an ELFI student loan advisor. They provide personalized, one-on-one assistance throughout the refinancing process, and they’re available by text, email, or phone.
FAQs About Refinancing Student Loans
How Long is the Student Loan Refinance Process?
The actual application process takes 30 minutes or less to complete. You’ll usually receive a response within one to three business days and if approved, it can take a few weeks for the lender to pay off your existing loans.
How does Refinancing Student Loans Affect Credit?
Refinancing can affect your credit score in the following ways:
- Credit inquiry: When you apply for student loan refinancing, the lender will perform a hard credit inquiry. Hard credit checks can cause your score to drop by a few points.
- New credit: New credit — meaning opening new loan accounts or lines of credit — accounts for 10% of your credit score. A refinancing loan is new credit, so there can be a modest impact on your credit.
Can I Refinance Federal Student Loans?
You can refinance both private and federal student loans. However, refinancing federal student loans has some significant drawbacks. You’ll lose access to federal protections, including access to income-driven repayment plans, loan forgiveness programs, and federal forbearance and deferment options.
Can You Refinance Student Loans with the Same Company?
You can refinance your loans multiple times. And if your credit or income changes, you can even refinance with the same refinancing lender you worked with before to potentially get a lower rate or different repayment term.
Can You Refinance Student Loans While Still in School?
Although there are some lenders that allow you to refinance your student loans while you’re still in school, most student loan refinancing companies require you to graduate with a degree before you’re eligible. However, you can refinance as soon as you graduate, even if your loans are still in their grace period, as long as you meet the lender’s eligibility requirements or have a creditworthy cosigner.
How Many Times Can I Refinance My Student Loans?
Many borrowers wonder, “how often can you refinance student loans?” The good news is that there isn’t a limit; you can refinance several times over the course of your repayment. Refinancing more than once can make sense if your credit score improves, if you pay down existing debt, or if your income substantially increases since those factors will affect your interest rates.
Can You Consolidate Student Loans by Refinancing?
When you refinance, you can consolidate your student loans into one. Refinancing means you’ll have just one loan to manage.
Do I Have to Refinance All of My Student Loans?
There’s no rule that says you have to refinance all of your existing loans. You can do a partial student loan refinance and only include some of your loans. For example, you may decide to refinance your higher-interest loans but leave your federal student loans alone.
Can You Refinance Student Loans With Bad Credit?
In general, lenders require good to excellent credit, meaning a score of 670 or above. If your credit is lower than that, you might wonder how you can refinance your student loans with bad credit and what steps to take to better your credit score. You can improve your credit score by making all of your monthly payments on time, paying down existing debt, and limiting new credit applications.
