How to Refinance Your Student Loans in 6 Easy Steps

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Updated on Friday, December 7, 2018

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When it comes to paying back student loans, keeping up with interest can be half the battle. Luckily, refinancing offers a chance to bring down your interest rate.

If you qualify, you could restructure your debt with a reduced rate and new repayment terms. Plus, you could simplify repayment by combining multiple loans into one.

Even if you’re not sure if refinancing is right for you, it’s easy to check your offers with a few providers and still make no commitment whatsoever. Read on to learn how to refinance a student loan in six steps.

How to refinance student loans in 6 easy steps

Although refinancing can come with a number of financial benefits, not everyone qualifies. That’s why your first step in the process is learning about the criteria and seeing how your finances measure up.

1. Learn how to qualify for student loan refinancing

Student loan refinancing is offered by private lenders, including banks, credit unions and online lenders. Unlike the federal government — which may have lent your original student loans — private lenders require that you pass a credit check in order to qualify for a loan. Basically, they want to ensure you have a history of repaying your debts, as well as a stable income moving forward.

Before approving you for student loan refinancing, lenders look at a few key metrics:

  • Credit score: Most lenders prefer a score around 650 or higher.
  • Income: Although there’s no specific cut-off, banks want to see you have a steady source of income or at least an offer of employment.
  • Debt-to-income ratio: Some lenders take other debts into account to ensure you have enough cash flow each month to cover your bills.
  • College degree: Most online lenders only work with borrowers who have graduated college. If you left school before graduating, however, there are still a few refinancing providers who will work with you.

Before starting the refinancing process, take a look at your credit score, income and other financial credentials. If your credit score is low, you might take steps to build it up before applying for refinancing.

Alternatively, you could apply with a creditworthy cosigner to boost your chances. Just make sure you and your cosigner have set clear expectations around who is responsible for paying back the debt.

2. Check your rates with more than one lender

Once you have an idea of whether you’re eligible for refinancing student loans, your next step is to check your rates with multiple lenders. Many lenders make it easy to check your rates online with an instant rate quote.

All you have to do is enter a few basic pieces of information, and the lender will tell you if you prequalify for student loan refinancing. Although these offers aren’t final, they give you a good sense of whether you qualify and what your rate could be.

Lenders such as SoFi, CommonBond, Earnest, Laurel Road, and LendKey offer this instant rate quote. Simply head to the lender’s website and provide a few basic details about yourself. Most lenders ask for the following:

  • Name
  • Address
  • Degree and university
  • Total student loan debt
  • Income
  • Monthly housing payment

After filling out the form, you’ll consent to a “soft” credit check. Unlike a “hard” credit inquiry, this soft check won’t impact your credit score at all.

After a couple of seconds, the lender will show you various prequalification offers. By checking your rates with multiple lenders, you can find an offer that best matches your debt payoff goals.

3. Compare offers and loan terms with a refinancing calculator

Once you have a few offers on the table, you might simply choose the one with the lowest rate. But finding your best offer isn’t always so simple.

For one, you’ll often have the choice between a fixed and variable rate. A fixed rate will stay the same over the life of your loan, while a variable rate could fluctuate over the years.

While the St. Louis Federal Reserve predicts rates will rise over the next two years, you might find variable rate offers that are currently lower than those with fixed rates. You’ll want to consider how long you think you’ll need to repay your debt as you decide between a fixed and variable loan.

Your rate could also vary depending on your repayment term. Most lenders offer terms of five, seven, 10, 15, or 20 years.

A shorter term will typically come with a higher monthly payment, but it will get you of debt faster. A longer term means lower monthly bills, but could also mean you’ll pay more interest over the long run.

Comparing all these variables can get confusing fast, so use our student loan refinancing calculator to do the heavy lifting for you. Play around with a few different rates and terms to estimate your monthly payments and total interest cost.

And consider your financial goals, whether you’re driven to repay your debt as quickly as possible or are looking for some relief from heavy monthly payments. If you’re struggling to pay your bills, for instance, a longer term with lower monthly payments could be what you need to get back on your feet.

Besides crunching the numbers, don’t forget about other benefits a lender might offer. CommonBond, for instance, lets you postpone payments if you run into financial hardship. Meanwhile, SoFi offers career coaching and networking events for its customers.

Although a low interest rate is probably your priority, consider these extra benefits, especially if some or all of your debt is comprised of federal student loans. Once you refinance federal loans, they become private, and you’ll lose access to certain federal programs, such as income-driven repayment plans and student loan forgiveness.

If you’re interested in any of these federal student loan programs, then you might not want to refinance your loans with any lender, and should look into consolidation instead.

4. Enlist a cosigner if needed

If you don’t meet a lender’s underwriting requirements for credit and income on your own, you might need to add a cosigner to your application. Even if you’re eligible on your own, adding a creditworthy cosigner could help you qualify for the most competitive rates.

But cosigning on debt is a big responsibility, and your cosigner’s credit will be on the line in the event you can’t pay. Before asking someone to share your student loan debt, make sure you both discuss what it means and how you’ll deal with potential financial setbacks in the future.

You might also check to see if your lender offers cosigner release after a certain period of on-time repayment. With this benefit, your cosigner could help you qualify for refinancing but then would eventually be removed from your debt completely.

5. Gather your documents and submit a full application

If you find an offer you like, your next step is to submit a full application. Similar to the instant rate quote, this application will collect your personal information.

But it will go more in-depth and will ask you to upload documents with your loan and income information. Here are some the materials you’ll likely need to provide:

  • Official statements for all the federal and private loans you wish to refinance. This statement needs to show your loan balance and account number.
  • Proof of income with pay stubs or a job offer letter
  • Proof of residency with a utility bill or bank statement
  • Proof of citizenship or legal residency, such as your Social Security number or government ID number
  • Valid ID number, whether from a driver’s license or passport

If you’re applying with a cosigner, you’ll also need to provide their information. Once you submit a full application, the lender will run a hard credit inquiry to check your credentials.

If you have any questions along the way, make sure to contact the lender’s customer service team for guidance.

6. Set up autopay on your new refinanced student loan

It typically takes between one and three weeks before your refinanced student loan is up and running, according to Citizens Bank. In the meantime, keep paying off your old student loans so you don’t accidentally miss a payment.

Once your new lender gives you the green light, set up your online account and enable autopay on your student loan. Autopay lets the lender withdraw your monthly repayment from your bank account so you never miss a bill. Plus, many lenders give you a 0.25% discount off your interest rate for setting up autopay.

Note that you can always make extra payments to get out of debt faster if your income increases or you get a windfall of cash, such as a bonus from work. Just make sure that if you do this, you contact the lender to ensure that any extra payments are applied directly to the principal and not used to pay off interest for future payments.

Hunt for your best student loan refinancing rates

Now that you know how to refinance student loans, don’t forget to shop around with a few lenders. Each one is different, so comparing offers is one of the best ways to find your lowest rates.

Also remember that as your circumstances change, you can always refinance again if it makes sense for you financially. By being proactive about your debt, you can save yourself money and stress as you pay back your student loans.

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