Whether you reached the borrowing maximum on federal student loans or needed cash to cover additional class fees, you may have taken out private student loans to pay for college. While private loans can help you finish your degree, they sometimes come with high-interest rates. If you have high-interest student loans, student loan refinancing can be a smart decision. Although there are drawbacks to refinancing federal student loans, there aren’t many disadvantages to refinancing private student loans. In fact, student loan refinancing could allow you to get a lower interest rate, smaller monthly payment, or a different repayment term. When it comes to refinancing student loans, here’s everything you need to know.
Can You Refinance Private Student Loans?
If you borrow money to pay for college, your loans can be federal or private. Federal student loans are issued by the U.S. Department of Education. Private loans are issued by banks, credit unions, and specialty lenders. Whether you took out private student loans to complete your bachelor’s degree or to help your child pay for college, you can refinance private student loans with most student loan refinancing lenders. Private undergraduate loans, graduate loans, and parent student loans are all eligible for refinancing.
Should You Refinance Your Private Student Loans?
If you aren’t sure if refinancing student loans is a good idea, weigh the pros and cons. There aren’t many drawbacks to private student loan refinancing as long as you get better student loan repayment terms or a better interest rate.
Benefits of Refinancing Private Student Loans
- You may qualify for a lower rate: One of the biggest advantages of refinancing your student loans is that you may be able to get a lower interest rate. With a lower interest rate on your student loans, you could save money on interest and pay off your debt faster.
- You could reduce your monthly payment: Another advantage of refinancing is that it could help you lower your monthly loan payments. If you extend your repayment term, your monthly payment could be smaller.
- It may be easier to manage your debt: If you have multiple student loans with different interest rates and repayment terms. When you refinance, you could combine all of your loans into one new loan with one monthly payment.
- You may be able to release a cosigner: If you refinanced your private student loans as an undergraduate and now have a good income and credit score, you may be able to refinance again and release your cosigner from the loan.
- You may pay off your loans faster: One of the main benefits of refinancing student loans is that it can help you accelerate your debt repayment. If you qualify for a lower rate, more of your payments will go toward the principal rather than the interest. If you make extra payments toward your debt, you can pay off your loans faster.
Drawbacks of Refinancing Private Student Loans
- You may lose out on interest rate discounts: Some lenders offer interest rate discounts, such as autopay discounts or loyalty discounts if you have a bank account through the lender. If you refinance with another lender, you may lose that benefit.
- Your grace period may end: If you refinance your loans during your grace period, your new lender may not honor the remainder of the grace period. As a result, you may have to start making payments right away.
- You may need a co-signer: When you refinance private student loans, lenders will look at your credit and income. If you have less-than-perfect credit or don’t meet the lender’s income requirements, you may need a co-signer to qualify for a loan.
When Refinancing Private Student Loans Might Not Make Sense
While there aren’t many drawbacks to refinancing private student loans, it doesn’t always make sense to refinance your loans. For example, it may not be a good idea to refinance your debt in the following situations:
- You will pay off your debt in one or two years: If you only have a couple of years left to repay your loans, refinancing may not be worth it. Refinancing can cause a slight dip in your credit score, and the savings from refinancing with such little time left in your repayment term may be negligible.
- You have less than $10,000 of debt: If you have less than $10,000 of private student loans, you may struggle to find a lender willing to work with you. Many lenders require you to have at least $10,000 of student loan debt to qualify for refinancing.
- You’re applying for another form of credit: If you have another major purchase coming up — such as a car or house — you may want to delay refinancing your debt. Applying for a new loan can cause your credit score to drop and make it difficult to qualify for other forms of credit.
4 Simple Steps to Refinance Private Student Loans
Refinancing private student loans is a simple process, and lenders don’t typically charge origination or disbursement fees, so there isn’t a cost to refinance student loans. To refinance your loans, follow these four easy steps:
1. Make Sure You Are Eligible for Student Loan Refinancing
Eligibility requirements vary by lender. With ELFI, the following requirements to refinance student loans apply:
- You must be a U.S. citizen or permanent resident
- You must have at least $10,000 of student loan debt
- You must have earned a bachelor’s degree or higher
- You must earn at least $35,000 per year
- You must have a credit score of 680 or better (or have a credit-worthy co-signer)
- You must have a minimum credit history of 36 months.
2. Prepare Your Financial Documents
When you apply, refinancing lenders will ask you for some basic information. Expect to provide the following documents:
- A copy of your government-issued ID
- Proof of income, such as a W-2 or recent paystubs
- Employer contact information
- Student loan account numbers and loan servicers
3. Compare Rates With Multiple Lenders
Before refinancing your loans, it’s important to compare rates from multiple lenders. Interest rates, repayment terms, and eligibility requirements can vary between lenders, so shopping around can pay off. When comparing student loan refinancing lenders, pay attention to the following characteristics:
- Available interest rates
- Loan fees
- Co-signer releases availability
- Financial hardship and deferment policies
4. Apply with Your Lender of Choice
After you have gotten quotes from multiple lenders, you can select the lender that is the best fit for you and complete the application process. When you apply, you’ll be asked to submit documentation and information about yourself, your income, and your loans. You’ll also have to consent to a hard credit inquiry so the lender can check your credit. Once you submit the application, the lender will review the information and make a decision. If the lender approves you, they will send you a loan agreement that outlines the terms of the loan. You can sign the agreement and send it back to the lender if you agree with everything listed. After that, the lender will work with the loan servicers behind your existing loans to pay off those accounts. Continue making all of the minimum payments until you receive confirmation that the old loans have been paid in full — otherwise, you risk incurring late fees. Don’t worry if you end up overpaying; any overpayments will be refunded to you.
Refinance Your Private Student Loans with ELFI
Now that you know the ins and out of refinancing private student loans, you can start the process and refinance your student loans with ELFI.* ELFI is a leading lender for student loan refinancing since it offers competitive variable and fixed interest rates and multiple repayment term options. Plus, ELFI doesn’t charge application fees, origination fees, or prepayment penalties. To find out how much you can save by refinancing your loans with ELFI, use the student loan refinance calculator.
