How to refinance student loans in 6 steps

Student loan refinancing is the process of combining one or more of your existing student debts into one new loan. Refinancing can offer plenty of benefits, such as the potential for a lower interest rate or lower monthly payments.  

To refinance your student loans, you’ll need good credit and a reliable income. The process can be completed online and takes only up to a few weeks to complete. Here are six steps to refinance your student loans. 

1. Determine if refinancing makes sense

Refinancing doesn’t make sense for everyone. First, consider what you hope to achieve by refinancing. Are you aiming for a lower interest rate? Do you want lower monthly payments? Are you looking to remove your cosigner? 

It’s also important to consider which loans you want to refinance. Think twice before refinancing federal student loans, since you'll lose federal benefits and protections. If you don’t have a stable income or you’re pursuing loan forgiveness, you may need those perks later.

Generally speaking, refinancing might benefit you in the following situations:

• You have high-interest private student loans: Refinancing can potentially reduce the cost of your debt over time by securing you a lower interest rate on your private loans. 
• Your finances are stable: Financial stability makes you a more appealing candidate to lenders who can either deny or approve your application based on your credit profile. Your credit score will affect your ability to qualify for a more favorable interest rate. 
• You want to lower your monthly payments: If you need to free up room in your monthly budget, refinancing gives you the option to extend your repayment term, which can reduce your monthly payments. Just remember that you’ll end up paying more interest over time. 

Related: Should I refinance my student loans?

2. Check your credit

You’ll generally need good credit to refinance on your own, and excellent credit if you hope to get the best rates and terms. Lenders typically look for a FICO credit score in the mid-to-high 600s or greater. You’ll also typically need sufficient income and a debt-to-income ratio of 50% or lower — though under 36% is ideal.

Before you submit an application, check your credit score and see how it lines up with what's required. Here are a couple of easy ways to do so:

• On your credit card bill or loan accounts: Credit card and loan companies often provide your score on monthly statements or in your online account.
• Through a free credit score service: There are websites that provide your credit score at no cost. Just make sure to read the fine print to avoid unnecessary charges.

Related: Can you refinance student loans with bad credit?

3. Compare refinance lenders

Many lenders allow borrowers to prequalify for a refinance loan. To do so, input a few pieces of personal information on the lender’s site. Then, you can view the estimated interest rates and terms you’re likely to qualify for.

Unlike the formal application process, prequalification typically doesn’t involve a hard credit check. This means that you can suss out your options without impacting your credit, making it easier to identify the best loans available. Just keep in mind that prequalifying doesn’t guarantee approval, nor are the quoted terms assured — the lender will still need to conduct a hard credit check after you apply. 

Before submitting any application, shop around and compare different lenders. As you weigh your choices, pay attention to the following factors:

• Advertised interest rates and annual percentage rates (APRs)
• Whether rates are fixed or variable
• Available repayment options 
• Application, origination, or late fees, as well as other added costs
• Economic hardship policies, if you have trouble repaying your loan later
• Discounts, cash-back programs, or other rewards
• Cosigner release policies, if available
• The lender's reputation and customer service reviews

4. Submit a refinance loan application

Once you've determined a lender you like, it's time to apply. You'll need to include basic personal and contact information, such as your name, date of birth, Social Security number, address, phone number, and email address. You may also need to provide government-issued identification like a driver's license or passport.

The application will typically ask about your school and degree (including proof of graduation), as well as the types of loans you're planning to refinance and the loan amount you're requesting. It's also common to provide information about your income, which may require pay stubs or W-2 forms, as well as details about your employer.

If you have a cosigner, they’ll need to provide similar information about themselves.

5. Finalize your loan terms

If you’re approved for your new loan, there are still a few things to complete. You’ll usually need to finalize your loan terms and other relevant options before signing the final paperwork.

Then, your new lender will work with your old lenders to pay off your existing loans. This can take some time to process, so it's important that you continue to make payments on your old debts so they remain current.

6. Wait for a confirmation

The refinancing process can sometimes take a few weeks to complete. Keep making payments on your original student loans until you receive a confirmation from the lender that your loans have been transferred to the new lender. 

Once you receive this confirmation, you can start making monthly payments on your newly refinanced loan. You’ll typically need to create an online account with your new loan servicer to do so. Keep an eye on your account statements from both your old and new lender during the transition period to ensure everything is processed correctly. 

Pros and cons of student loan refinancing

Refinancing your student loans has plenty of benefits, but it's not without risk. 

Benefits 

• Potentially save money: Depending on your credit and other factors, you could lower your interest rate, leading to significant savings over time.
• Streamline multiple payments: If you're juggling several payments for different loans each month, refinancing can roll them into just one monthly payment to worry about.
• Reduce your monthly payments: Refinancing could also reduce your monthly bill. You can do this by lowering your interest rate and/or extending your loan term. While this can make your payments more affordable, note that extending your loan term can increase your interest costs over the life of the loan.

Drawbacks 

• Lose access to federal benefits: If you refinance federal student loans, you’ll lose access to valuable federal protections. This includes various repayment plans, such as income-driven repayment, as well as loan forgiveness and temporary payment relief.
• Potentially pay more: Refinancing isn’t guaranteed to save you money. Depending on your new loan’s terms, you may end up paying more over the life of the loan.
• Strict qualification standards: Typically, you'll need good credit, steady income, and a reasonably low debt-to-income ratio to qualify. For some, it can be hard to meet these qualification requirements without enlisting a cosigner.

How to refinance student loans FAQ

How often can I refinance student loans? 

You can technically refinance student loans at any time, as long as you meet a lender's eligibility criteria. Refinancing more than once may help you reduce your interest rate even further, saving you more money over the life of your loan.

Is it better to refinance student loans with a bank?

Not necessarily. The best lender is the one that offers you the best interest rate and loan terms, and can match your needs as a borrower. In addition, many of the largest banks, including Bank of America, Chase, and Wells Fargo, no longer offer student loan refinancing.

How long does it take to refinance a student loan?

The amount of time refinancing takes depends on the lender and the specifics of your application. A lender may approve you instantly, or it could take 10 business days or longer.

Once you’re approved and have signed the final paperwork, the lender must pay off your old loans before the process is complete. That can take anywhere from a few days to several weeks.

Will refinancing hurt my credit score? 

Refinancing has the potential to hurt your credit — though it could also help it. You might see an initial drop in your credit score after applying because lenders conduct hard credit checks. And if, down the road, you're late on making payments, that can negatively affect your credit score.

However, if you manage your loans wisely and build a history of on-time, in-full payments, that can help your credit score.