Is Student Loan Refinancing Worth It?

By Mentor Staff | Edited By Mentor Staff

Updated On December 14, 2021

Editorial Note: This content is based solely on the author's opinions and is not provided, approved, endorsed or reviewed by any financial institution or partner.

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Is Student Loan Refinancing Worth it?” may be a question on your mind. Student loan refinancing is a smart financial strategy because you can get a lower student loan interest ratelower monthly payment and pay off student loan debt faster.

As with any financial decision, it’s important to weigh the advantages and disadvantages to make sure if student loan refinancing is the best decision for you.

Top Picks For Student Loan Refinancing

January 2022

Variable APR ?APR, or Annual Percentage Rate, is the price you pay to borrow money. Variable APR means that your interest rate can fluctuate over time, which can increase or decrease your monthly student loan payment. Typically, a variable-rate loan has a lower introductory rate than a fixed-loan rate loan. Variable APR includes a 0.25% discount when you enroll in autopay.
Fixed APR ?APR, or Annual Percentage Rate, is the price you pay to borrow money. Fixed APR means that your interest rate will always stay the same. Even if interest rates change, your interest rate or monthly payment will not. Fixed APR includes a 0.25% discount when you enroll in autopay.
APR
1.74% - 7.24%
2.49% - 7.59%
1.74% - 7.59%

View Details

on SoFi's website

Overview

Variable APR:
1.74% - 7.24%
Fixed APR:
2.49% - 7.59%
Minimum Credit Score:
650
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,000 ($10,000 in CA)

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All states
Hardship Deferment:
Yes
Co-signer Option:
Yes
1.74% - 5.64%
2.44% - 5.79%
1.74% - 5.79%

View Details

on Earnest's website

Overview

Variable APR:
1.74% - 5.64%
Fixed APR:
2.44% - 5.79%
Minimum Credit Score:
650
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5-20 years
Borrower Residency:
All States except KY or NV
Hardship Deferment:
Yes
Co-signer Option:
No
-
2.44% - 6.22%
2.44% - 6.22%

View Details

on ISL's website

Overview

Variable APR:
-
Fixed APR:
2.44% - 6.22%
Minimum Credit Score:
670
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,000 ($10,000 in CA)

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All states, except OR and ME
Hardship Deferment:
Yes
Co-signer Option:
Yes
1.86% - 6.01%
2.47% - 5.99%
1.86% - 6.01%

View Details

on ELFI's website

Overview

Variable APR:
1.86% - 6.01%
Fixed APR:
2.47% - 5.99%
Minimum Credit Score:
680
Minimum Income:
$35,000
Fees:
None
Minimum Loan Amount:
$15,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All States
Hardship Deferment:
Yes
Co-signer Option:
Yes
1.74% - 7.49%
1.99% - 7.84%
1.74% - 7.84%

View Details

on Splash's website

Overview

Variable APR:
1.74% - 7.49%
Fixed APR:
1.99% - 7.84%
Minimum Credit Score:
660
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5 – 20 years
Borrower Residency:
All states
Hardship Deferment:
Varies
Co-signer Option:
Yes
1.89% - 5.90%
2.50% - 6.00%
1.89% - 6.00%

View Details

on Laurel Road's website

Overview

Variable APR:
1.89% - 5.90%
Fixed APR:
2.50% - 6.00%
Minimum Credit Score:
660
Minimum Income:
None
Fees:
None
Minimum Loan Amount:
$5,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All States
Hardship Deferment:
Yes
Co-signer Option:
Yes
1.90% - 5.25%
2.49% - 7.75%
1.90% - 7.75%

View Details

on LendKey's website

Overview

Variable APR:
1.90% - 5.25%
Fixed APR:
2.49% - 7.75%
Minimum Credit Score:
680
Minimum Income:
$24,000
Fees:
None
Minimum Loan Amount:
$5,000

Details

Eligible Loans:
Private & Federal
Eligible Degrees:
Undergraduate & Graduate
Loan Terms:
5, 7, 10, 15, 20 years
Borrower Residency:
All states, except ME, ND, NV, RI, WV
Hardship Deferment:
Yes
Co-signer Option:
Yes

Here is a helpful framework to determine if student loan refinancing is worth it for you.

  1. What are my goals for refinancing student loans?
  2. What interest rate can I get with student loan refinancing?
  3. Does refinancing student loans cost money?
  4. Does refinancing student loans save money?
  5. What are the advantages of student loan refinancing?
  6. What are the disadvantages of student loan refinancing?
  7. Do I need a federal student loan repayment plan?
  8. What credit score do I need to refinance my student loans?
  9. What income do I need to refinance my student loans?
  10. Do I need a cosigner to refinance my student loans?

1. What are my goals for refinancing student loans?

Start with understanding your goals for refinancing your student loans. There are many reasons to refinance student loans. You can get a lower interest rate, lower your monthly payment, simplify student loan repayment and pay off debt faster. Once you determine your goals, you can then decide which student loan works best for you. When you refinance student loans, you can choose a fixed or variable interest rate and a loan term from five to 20 years.

2. What interest rate can I get with student loan refinancing?

Most people refinance their student loans to get a lower interest rate. A lower interest rate means you will pay less each month, which helps save money and pay off your student loans faster. Your new interest rate is based on several factors, which may include your credit score, income, debt-to-income ratio and monthly cash flow. When you refinance your student loans, you will receive a new student loan with a lower interest rate. Your new student loan is then used to pay off your old student loans.

You can check out the latest rates for student loan refinancing, including both fixed and variable interest rates.

3. Does refinancing student loans cost money?

There are no fees to refinance student loans. That means no origination fees, no application fees, no third-party fees, no funding fees and no prepayment fees. Before your refinance your student loans, you can check your interest rate for free in about two minutes. This way, you’ll know how much you’ll owe each month and how much you can save. Once you’re ready, you can apply online in 10-15 minutes.

As with any loan, you’ll owe interest on your new student loan once you refinance.You also may owe a late fee if you make a late payment.

4. Does refinancing student loans save money?

The main goal of student loan refinancing is to save money. There are several ways to save money with student loan refinancing. First, when you refinance student loans, you receive a lower interest rate on your student loans, which means you’ll pay less interest.The lower your new interest rate compared to your current interest rate, the more money you can save.

Second, you can choose a fixed or variable interest rate. If you think interest rates will rise, a fixed interest rate can save you money because you’ll always the pay the same fixed interest rate. If you think interest rates will decline, a variable interest rate may be your best option so that your monthly payment decreases over time.

Third, with student loan refinancing, you can choose a loan term that best matches your financial situation. For example, you can choose a shorter student repayment period such as five years or a longer student loan repayment such as 20 years. If you choose a shorter repayment period, your monthly payment will be higher, but you will pay less interest over the course of your loan term.

How much money can you save when you refinance your student loans? Let’s assume that you have $100,000 of student loans at a 7% interest rate and a 10-year repayment term. If you can refinance your student loans at a 3.00% interest rate, you could lower your monthly payment by $195 and save $23,457 total.

This student loan refinancing calculator shows you how much money you can save when you refinance student loans.

5. What are the advantages of student loan refinancing?

Student loan refinancing has many advantages. There are several reasons why you should refinance your student loans:

  • Lower interest rate
  • Change your loan terms
  • Change your student loan servicer
  • Pay off student loans faster
  • Simplify student loan repayment

Lower interest rates

The primary reason to refinance student loans is to save money. The best way to save money on your student loans is to get a lower interest rate. When you refinance student loans, a lender can give you a lower interest rate based on your credit score, income, debt-to-income ratio and other criteria that demonstrate a history of financial responsibility. A lower interest rate means you can pay less interest each month and save money.

Change your loan terms

If you want new student loan terms, student loan refinancing is a helpful solution. When you refinance student loans, you can choose new loan terms that may be different than your current loan terms. For example, if you have federal student loans, you have a fixed interest rate with a standard repayment plan of 10 years.

Student loan refinancing has more flexible student loan repayment terms. For example, unlike federal student loans, you can choose a fixed or variable interest rate. You can also choose your repayment period from 5 to 20 years. These flexible options can help you meet your financial goals.

Change your student loan servicer

Want a new student loan servicer? Student loan refinancing can help change your student loan servicer and lender. When you refinance your student loans, you choose a new lender and student loan servicer. Your new lender will issue you a new student loan and pay off your old student loan, which cuts ties with your previous lender and servicer. A new student loan servicer could mean better customer service and less stress.

Pay off student loans faster

If you want to pay off your student loans faster, student loan refinancing is an excellent tool. Student loan refinancing helps you lower your interest rate, lower your monthly payment and get out of debt more quickly. With a lower interest rate, you’ll owe less money each month. With flexible repayment options, you can pay off your student loans faster by choosing a shorter repayment period, such as five years. While your monthly payment increases, your will owe less total interest, save money and pay off your student loans faster.

Simplify student loan repayment

Student loan refinancing simplifies student loan repayment because it helps you organize all your student loan repayments into a single student loan. Currently, you may pay different student loan lenders different monthly payments with different interest rates with different due dates. When you refinance, you can consolidate your existing federal student loans, private student loans or both into a new, single student loan. Your new student loan has one interest rate, monthly payment and student loan servicer.

6. What are the disadvantages of student loan refinancing?

Your personal situation may dictate whether student loan refinancing is right for you. Most disadvantages for student loan refinancing relate to federal student loans. In particular, some borrowers ask: “Should I refinance my federal student loans?

Here are some examples when you may not want to refinance your federal student loans:

  • You work in public service
  • You need an income-driven repayment plan
  • You want forbearance or deferment

You work in public service

The Public Service Loan Forgiveness program, for example,forgives your federal student loans if you work full-time in a qualified public service role for the government or non-profit organization and meet certain requirements. When you refinance your student loans, you receive a new, private student loan which is used to replace your old student loans. Therefore, if you refinance your federal student loans, you will no longer have federal student loans and will not be eligible for this program.

You need an income-driven repayment plan

An income-driven repayment plan can lower your monthly student loan payment based on a percentage of your discretionary income. There are four income-driven repayment plans: Income-Based Repayment (IBR)Pay As You Earn (PAYE)Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR). You can receive federal student loan forgiveness on your remaining loan balance after 20 to 25 years of on-time student loan payments. However, you are liable for income tax on the amount forgiven.

If you refinance your federal student loans, you will not be eligible for income-driven repayment. While income-driven repayment can lower your monthly student loan payment, interest will accrue on your student loans. Therefore, with an income-driven repayment plan, you may owe more money in interest payments compared with student loan refinancing or the standard repayment plan.

You want forbearance or deferment

Forbearance and deferment are two benefits that come with federal student loans. Both enable you to pause your student loan payments if you face financial hardship. Forbearance allow you to pause student loan payments, but interest still accrues on your federal student loans during forbearance. Deferment also allows you to pause student loan payments, but interest will not accrue on your student loans. When you refinance your federal student loans, you receive a private student loan and will no longer have federal student loans. The good news is that many private lenders offer options to pause your payments for up to 12 months if you face financial hardship or lose your job. So, it’s important to weigh how important forbearance and deferment are to you and if they are worth paying a higher interest. In either case, you can still refinance your private student loans because private student loans do not offer forbearance and deferment through the federal government (although they may have similar options).

7. Do I need a federal student loan repayment plan?

If you are struggling to repay student loans, you are unemployed or underemployed, or your financial situation is messy, then student loan refinancing may not be right for you.

A federal student loan repayment plan may be a better option for you. When you refinance with a private lender, the lender pays off your federal student loans with a new private student loan. That means you won’t have access to certain benefits that come with federal student loans.

There are many options for federal student loan repayment, and this student loan repayment guide can help. For example, you will need a federal student loan repayment plan if you decide to participate in the Public Service Loan Forgiveness program. You also may choose an income-driven repayment plan – another type of federal student loan repayment plan – if you have trouble paying off your student loans. With an income-driven repayment plan, you could receive federal student loan forgiveness after 20 to 25 years of on-time monthly payments.

There are disadvantages of having a federal student loan repayment plan. First, you may qualify for a lower interest rate through student loan refinancing. If you don’t refinance, you may pay more for your student loans. Second,all federal student loans have a fixed interest rate that does not change. If interest rates drop, you will not receive a lower interest rate unless you refinance. When you refinance, you can also choose a fixed or variable interest rate, which provides more flexibility. Third, a federal student loan repayment plan may ultimately be more expensive. While your monthly payment may be less, be careful to note that interest will accrue on your student loans. This can make your student loans more expensive over time because you may ultimately owe more interest.

Weigh these advantages and disadvantages of federal student loan repayment plans to make sure that student loan refinancing is right for you now and in the future.

8. What credit score do I need to refinance my student loans?

Your credit score is a central component that private lenders will evaluate when you refinance your student loans. Lenders want borrowers with a demonstrated history of financial responsibility, meaning you pay on time, don’t skip payments and manage your debtresponsibly.

If you have good credit, you will have a higher likelihood of being approved to refinance your student loans. Most lenders require a good or excellent credit score when refinancing student loans. The minimum credit score is at least 650, although typically the higher the credit score you have, the lower the rate you canreceive.

You can check your new interest rate for free in about two minutes with most lenders. This is a soft credit check, so it will not impact your credit score. You can check your new rate with multiple lenders and then compare which rate is best for you.

If you don’t have good credit, you can apply with a qualified cosigner with good to excellent credit who can meet the other requirements as well. A qualified cosigner can help you get approved for student loan refinancing and may help you qualify for a lower interest rate.

9. What income do I need to refinance my student loans?

Most lenders do not require a minimum income. However, lenders want to ensure that you have stable and recurring income to make your monthly payments and pay off your student loans. Lenders require that you are employed, or you have a written job offer to start employment typically within six months. Lenders like stable and recurring income because it gives them confidence that you have sufficientmonthly cash flow to pay your student loans each month.

In addition to credit score and income, lenders will also evaluate your other debt obligations. For example, if you have a mortgage, credit card debt, car loan or personal loan, lenders will evaluate your other debt in addition to your student loan debt. Lenders want to determine how much you owe relative to your monthly income. This is called a debt-to-income ratio, which is the relationship between your monthly debt payments and income. Most lenders prefer a debt-to-income ratio of 30% or lower, with a lower percentage being better than a higher percentage. The goal is to ensure you have sufficient monthly cash flow for living expenses, student loan payments and other debts you owe.

10. Do I need a cosigner to refinance my student loans?

cosigner is not required to refinance your student loans. Many borrowers meet the requirements for student loan refinancing and get approved on their own. So long as you have good to excellent credit, stable and recurring income, a low debt-to-income ratio and strong monthly cash flow, you’re a good candidate to get approved for student loan refinancing.

If you don’t meet these requirements, have bad credit, you are unemployed, underemployed or generally struggling with your finances, a cosigner may help you get approved. A cosigner will have equal financial responsibility for your student loans, so a parent, spouse or other close family member is a good choice. As discussed, acosigner can help you get approved for student loan refinancing and may help you get a lower interest rate.

A cosigner is also a good option if you have been rejected for student loan refinancing. Don’t worry – you can apply again. There is no limit to how often you can apply to refinance your student loans. With some lenders, you can also apply for a cosigner release, which means your cosigner no longer will have financial responsibility for your student loans. For example, let’s assume you were approved for student loan refinancing with a cosigner. Now, you have good credit and stable income and want to remove that cosigner from your student loan. You can refinance your student loanto remove a cosigner and receive a new student loan that doesn’t include your cosigner. This is another way that student loan refinancing can help.

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