Private Student Loan Refinancing

Have multiple Private Student Loans? You can simplify them by Refinancing. Learn more about the process to be followed, the requirements and whether refinancing as an option is right for you.

Updated by Akshata Patil on 31st October 2019

Private student loan refinancing is a process in which you combine your multiple private student loans into one single private loan. You may have taken out these multiple loans from multiple private lenders to help you fund your educational costs and expenses. You can refinance your federal student loans along with your private student loans.

Table of contents

What Happens When You Refinance?

When you refinance (combine) your private student loans under a single private lender it means that your lender will pay off all your existing loans. In return, you have to repay your new lender. Your new lender will now issue you a new loan with new loan amount and new interest rate. 

You may wonder how this new loan amount and interest rate determined. The loan amount is determined depending on your previous loan amounts. Whereas, the new interest rate is determined depending on your or your co signer's credit history and score.

Refinancing is nothing but eliminating your old private student loans from multiple private lenders and getting a new private student loan under a single private lender. New private loan refers to a new lender, a new contract, a new loan amount and a new interest rate.

What are the Requirements for Refinancing?

The requirement criteria differs from private bank to bank. The eligibility criteria that are for one bank may not be the same for the other. Every bank has its own requirements and qualifying factors. Every private lender that you consider for refinancing, you must check its eligibility criteria, interest rates, terms and conditions and other such details as every bank has its own separate features. 

In general, the requirements for refinancing can be classified into-

  1. Eligibility

  2. Credit score

  3. Co-signer. 

1. Eligibility 

The first requirement for refinancing is meeting the eligibility criteria.

To qualify, you must-

  • Be a U.S Citizen or a permanent resident of U.S

  • You must have a permanent U.S address

  • You must have a qualifying credit score

  • You must have a verified income certificate to back your debts

  • You must be the primary borrower of the loans

  • The loans are used for educational purpose  

The eligibility criteria mentioned above are in general which differs from lender to lender.

2. Credit Score

The generally accepted minimum credit score is 600. Some banks may accept less than 600 which is very rare. But there are many banks that want you to have a score above 600-650 or so. The generally eligible credit score is 600. 

However, the higher the score more and better the benefit.

What role does credit score play? 

Credit score plays a major role in determining your interest rate for your new loan. The higher the credit score, the lower the interest rate and vice versa. Therefore it’s very important for you to maintain a good credit report as it determines your credit score. 

If your credit score does not lie in the acceptable range you will not be eligible for refinancing. But you don't have to worry even if you don't pass credit score eligibility you still have another option through which you can qualify for refinancing and also for lower interest rate. Let us see how is it possible.

3. Co-signer

A Co-signer is your big time saver when you don't have a favorable credit score. When you don't qualify for refinancing having a cosigner that is eligible will qualify you for one. In case you find a cosigner for your student loan with a higher credit score you will be granted a lower interest rate based on your co signer's credit history.

If you have an eligible credit score, a stable and high income you don’t need a cosigner.


Learn more about getting your student loans refinanced with a cosigner 


Why do you need a cosigner?

You need a cosigner when you don’t have a favorable credit score. Having an unfavorable credit score refers to two circumstances, one that refers to having a low credit score that will grant you a high-interest rate instead of lower rate and the other condition that refers to the credit score that does not qualify you for refinancing. 

Note: the above requirements for refinancing is listed on general basis. These do not hold true for all the private banks. Please check with the bank you choose for all the essential details.


Process for Refinancing

You must be careful while choosing a lender. You must research well before settling for a  lender. You can follow the below research process-

  1. Research lenders

  2. Compare the lenders

  3. Select a lender

  4. Apply for refinancing

  5. Complete the refinancing process

  6. Loan disbursement

1. Research Lenders

First, make a list of lenders available. Next start collecting information regarding their eligibility criteria, services they provide, terms and conditions, the documents required and so on. 

At first glimpse, almost all the student loan refinance lenders seem very similar. But you must look out for certain features that differentiate them from one another such as some banks refinance your loans even without a degree or while you are still studying or when you are earning and other such things. So based on your requirement you can further shortlist them.

2. Compare the Lenders

Once you have shortlisted the lenders based on your requirement, the next step is to compare them. You must compare them on various bases such as the loan amount, interest rates, forbearance, loan repayment term and other such service options that they offer.

Shortlist the lenders that fit your preferences, get rate estimates from all of them. 

Eventually, choose the lender that offers the lowest rate with favorable terms for repayment of the loan. As you visit the lenders for more details, some lenders will ask you to pre-qualify by asking you to supply basic information to give you its best estimate rate you might qualify for. Whereas some lenders will show you the actual rate that will be really offered to you only after you submit a full application.

For pre-qualification check, a soft credit check may be conducted that does not affect your credit scores. But a hard credit check does affect your credit score which will be conducted during final registration for refinancing.

3. Select a Lender

Once you have compared the shortlisted lenders, gone through pre-qualification check and compare the interest rate offered the final step is selecting a lender. Select the lender that will offer you lower rates and favorable loan repayment durations when compared to others.

After you select a lender you still have a few more decisions to make such as should you go for variable or fixed interest rate and what is the time duration that you are looking for repaying the loan.

Variable rates may be low at the beginning but they start increasing with passage of time. If you want a stable payment, choose fixed rates. 

If you want to get rid of your debt in a short duration you can opt for higher monthly payments, in case, you want to cut down your monthly expenses you can opt for low monthly payment that has a long during for loan repayment.

4. Apply for Refinancing

Once you have gathered all the information and selected the lender, interest rate and term of the loan you need to start with the application process. You will be asked to provide more information regarding your loans and your financial situation. You will also be asked to provide additional documents such as-

  1. Loan or payoff verification statements

  2. Proof of employment (W-2 form, recent pay stubs, tax returns)

  3. Proof of residency

  4. Proof of graduation

  5. Government-issued ID

Enrolling for refinancing is like giving the lender permission to do a hard credit check to determine your final interest rate. In case you don’t have a favorable credit score having an eligible cosigner will help you lower the rates.

5. Completing the Refinance Process

After you apply and if you are approved you will have to finish the refinancing process by signing the final paperwork. signing the final paperwork shows your acceptance for the refinancing contract terms and conditions. 

Once you finish signing the final documents, a three-day rescission period will exist. During that period if you change your mind you can cancel the refinance. In case you're denied, ask the lender for the reason.

6. Loan Disbursement

After the approval and three-day rescission period, all your existing loans will be paid by the new lender and you will be issued a new loan. For which you will have to make monthly payments as per the new interest rates to repay the refinanced loan.

A table showing a comparison between the different private lenders providing refinancing.

Banks 

Fixed interest rate

Variable interest rate

Terms 

Eligible degrees

Earnest 

3.45-7.49%

2.14-6.79%

5 to 20

Undergrad

& Graduate

SoFi

3.46-7.94%

2.14-7.94%

5, 7, 10, 15, 20

Undergrad

& Graduate

CommonBond

3.46-8.24%

2.14-8.01%

5, 7, 10, 15, 20

Undergrad

& Graduate

Discover

4.24-7.49%

3.99-6.99%

10 to 20

Undergrad

& Graduate

Wells Fargo 

3.25%- 9.24%

3.99%-9.99% 

5, 7, 10, 15, or 20

Undergrad

& Graduate

Laurel Road

3.50%-7.02%

2.25%—6.65%



5, 7, 10, 15 or 20

Undergrad

& Graduate

PenFed

3.48% - 6.03%

2.67% - 7.41%



5, 8, 12 or 15 years

Undergrad

& Graduate

NOTE: The interest rates and loan terms depend on your creditworthiness. Make sure you check with your lender what interest rate and term you qualify for.


Worried about your tuition? Learn more about student loans


Reviewing refinancing

Every choice that you make comes with benefits and drawbacks. Let us see what are the benefits and drawbacks of refinancing.

The benefits of refinancing are-

  • You will receive a lower interest rate

  • You will receive  a new favorable repayment term

  • You will be pay off your education debt faster

  • Your monthly payments will be reduced

  • In case you have a non-qualifying credit score you can get refinanced through an eligible cosigner.

  • You have the choice of cosigner release option

  • You will select a new lender of your choice

  • You can refinance a parent loan in the child’s name

  • Last but not least you will be able to save more.

The drawbacks of refinancing are-

  • You might end up paying more over the long run

  • Sometimes you might qualify for higher interest rates

  • If you don't make your monthly payments regularly, it will affect your co-signer’s credit score

  • As much as you are liable for the loan so is the cosigner

  • In case, you don't make the payments your cosigner will behold liable

  • It can spoil your personal relationship with the cosigner

  • By refinancing you might lose some loans with lower interest rates

  • If you refinance your federal loans you will lose your eligibility for income-driven repayment plans, loan forgiveness programs, and other such benefits.

Which Loans should you Refinance?

You must be cautious before refinancing all your loans. You don't have to refinance all your private student loans. The loans with low interest can be kept aside and the loans with higher interest must be refinanced. 

If you refinance the loans with lower interest rates you might end up paying more than the actual amount. But if you refinance the loans with higher interest rates you might get benefited by lower interest depending on the credit score. 

You will have to think once more before refinancing your federal student loans. These federal loans have many advantages such as income-driven repayment plans, loan forgiveness programs, deferment, forbearance, and other such opportunities. But after you refinance them, they are no longer federal loans. They are your new private loan.

Is refinancing a good option or not?

Refinancing will simplify your payments by issuing you a single loan. If you are depending on a cosigner make sure you make timely payments as it will affect the credit score of the cosigner. 

If you have a stable and high income you don’t even need a cosigner to get you approved for refinancing. And you can independently handle your loan.

After you have been approved for refinancing make sure you make timely payments as it will help you boost your credit score.