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Refinance a Student Loan: When and How?

refinance a student loan

Refinancing is the process of getting a new loan and using the money to cover the existing loan. It might sound counter-intuitive, but refinancing brings immense benefits when applied correctly. Borrowers can find refinancing loans with lower interest rates, shorter payback periods- in general, with more favorable loan terms. Private refinancing companies provide this service. Borrowers mostly need a stable income source, good credit performance, and a cosigner to refinance a student loan. If the debtors have high income and great credit history, a cosigner might not be required. Student loan refinancing with a cosigner is desirable when the borrower lacks credibility. 

Refinancing is available both to federal and private loan borrowers. However, federal loan borrowers should be extra careful. If they refinance their debt, they will lose eligibility to federal student aid options, such as repayment plans or forgiveness programs.

Credit Score Requirement

While applying for federal student loans, credit history does not play a high role. However, you need a high credit score to refinance a student loan. The reason behind such conditions is that credit performance shows your credibility. In addition, a high credit score ensures that borrowers will most likely return the debt as wanted by the lender. 

So how much credit score should you have? Generally, a score of 600 or more is desirable. If you need a cosigner, they should also meet such requirements. 

Refinancing with Bad Credit

refinance a student loan

Some borrowers might lack credit performance. Specifically, students do not have enough income or rich credit history to qualify for higher scores. Usually, borrowers who do not meet credibility requirements will need a cosigner. A cosigner is a person who agrees to owe the debt, and in case you do not repay, they should. Otherwise, his/her credit performance will also be negatively impacted.

The need for the cosigner depends on the lender. Some lenders do not distribute refinancing loans to borrowers with bad credit, even if a cosigner exists. 

There also exists a feature called “cosigner release.” Some lenders agree to release the cosigner after the borrower improves the credit score or makes a certain number of payments.

What if I do not meet the Eligibility Requirement?

As mentioned, good credit performance and income sources are essential to refinance a student loan. If you lack a credit score, finding a cosigner can be helpful. Besides, you can try to improve your credit score by making on-time payments or staying below credit limits. On the other hand, if you lack income, you need to find an additional source or ask your boss for a long-awaited promotion offer. Otherwise, it is hard to convince the lender to refinance your student loans. 

Yet, it can also be a sign if you do not qualify. You can check alternative programs for your debt struggles. Federal loan borrowers are luckier when it comes to finding an alternative. They can enroll in an affordable repayment plan, ask for loan forbearance or qualify for a forgiveness option.

Meanwhile, private borrowers can only contact their lenders and ask for more favorable terms. Some lenders also provide forbearance options, but they can be costly. Besides, debt settlement or loan repayment by different organizations such as National Health Corps Services or states can be considered. We have a detailed guide on private student loan forgiveness, which is worth checking.

The Difference between Consolidation and Refinancing

If you want to refinance a student loan, you might have difficulty understanding how it is different from consolidation. Refinancing and student loan consolidation are similar because they both help borrowers to end up with a single loan. However, there still exist significant differences. 


Student Loan Consolidation is a federal program that combines all your loans into one. The new consolidated loan gets an interest rate as the weighted average of prior loans. Hence, you do not get a lower interest rate with this option. In other words, consolidation does not help to save money from debt repayment. Additionally, this option is not available to private borrowers.

However, consolidation has its benefits. First, if you have multiple loans, you might struggle to keep up with each lender and deadlines. Hence, making a single loan can simplify the process. Next, consolidation can be required for some loan types if the borrower aims to apply forgiveness programs or repayment plans

In addition, after consolidation, you might get lower monthly payments. Yet, it happens because consolidation might extend your repayment period. So, you do not save money in the long run and even pay more. But it can be effective if you only want to reduce monthly payments.


You already have enough information to notice the differences. First, both federal and private borrowers can refinance a student loan. Besides, refinancing can help you enjoy a lower interest rate. So, you can save considerable money in the long run. Next, the new interest rate does not depend on existing loans rates. 

The interest is determined based on the borrower’s qualifications, such as income level and credit performance. LAstly, private lenders provide refinancing services while consolidation is a federal program. 

When to Refinance a Student Loan?

Different conditions exist which determine the best time to refinance a student loan. If you are a federal loan borrower, it is right to apply for refinancing when you lose access/eligibility to all federal student aid programs. Federal programs usually have more benefits. Hence, it is not worth risking eligibility due to refinancing.

Private loan borrowers can be better off if they apply immediately as they become eligible for favorable refinancing. For example, if you notice that a lender provides a lower interest rate for the debt amount you need, you can apply directly. In this case, you will save money from interest payments once you refinance your student loan. 

You can Refinance Student Debt…

 refinance a student loan

Here is a quick checklist for you to check if refinancing is a good option:

  1. You are a private loan borrower- as mentioned, federal borrowers risk losing eligibility to better government-supported aid programs. Hence, private borrowers can be more suitable for this debt strategy; or
  2. You will save money- Your reason for refinancing can be different. However, you should ensure that you will be better off with the new loan. For example, if the loan brings a lower interest rate, you can refinance a student loan; or
  3. You will change the type of rate- Some borrowers have variable-rate student loans, and they struggle with the changing rates. If you are one of them, it can be a good idea to refinance with a fixed-rate student loan, or;
  4. Your income considerably increased since the first disbursement of the existing loan- More credible borrowers with well-paid positions can qualify for lower interest rates. If you took an existing loan long before when you had an average income, you could refinance to enjoy lower interest. 

When not to Refinance a Student Loan?

You should not refinance under the below-mentioned conditions. However, keep in mind that each case is different, and these conditions might not be the best criteria to evaluate your perspectives. Hence, it can be more useful to get help from a debt expert who will analyze the use of refinancing based on your finances:

  1. You have federal loans- we repeatedly explained it but let’s repeat it again. Student loan refinancing can be a barrier if you would like to take advantage of federal student aid possibilities. Until you exhaust all federal options, it is not wise to refinance.
  2. You were bankrupted- Refinancing requires a good credit score and income source. If you are bankrupt, there is little chance that you meet any of these requirements. The negative impact of loan bankruptcy stays on your credit history for up to 10 years. So, you might not be able to enjoy favorable terms if you refinance a student loan.
  3. You defaulted- Student loan default might not be as bad as bankruptcy, but it still impacts your credit score. Hence, you might not qualify for the services of the best refinancing companies. 
  4. Your payback period will increase- Some refinancing loans provide low-interest rates because they prolong your repayment period. If you could pay off the debt in 10 years with existing loans, you might face a longer period with refinancing loans. 

Sure, this condition is favorable for those who want the lowest possible monthly payments. However, remember that prolonged repayment can lead to higher student debt costs.

Refinancing Multiple Times

You can refinance a student loan as many times as you wish if you find better opportunities. Usually, refinancing involves little to no extra fees. Hence, borrowers can easily refinance if they find more favorable terms. 

However, there also exist drawbacks that borrowers should consider. For example, when you refinance multiple times, the lenders will conduct a more detailed credit analysis. So, you need to ensure that you have an excellent credit history.

Besides, if you get rejections multiple times, your credit performance can be hurt. Therefore, it is advisable to use pre-qualification tools on lenders’ websites. This tool allows uploading documentation and providing your details to determine if you qualify for refinancing. Additionally, it can show the interest rate you are eligible for. However, the results are usually not 100% accurate.

Refinancing Bonuses

Some refinancing loan providers add catchy bonuses to attract more borrowers. For example, you can find welcome, sign-up, referral, early loan payment, or loyalty bonus. Sure, bonuses bring some benefits to borrowers in easy steps. It can only require using a unique link or completing the process to get the bonus. 

Yet, borrowers should be careful. If there is a trade-off between a lower interest rate and a bonus, you should always choose a lower interest rate. This way, you will save more money in the long run. However, even if this decision involves rejecting a great bonus, you should prefer the lender with a lower interest rate. 

How Do Refinancing Bonuses Work?

When you want to refinance a student loan, you will come across many ads that announce a bonus. Such bonuses can be advertised by a third-party organization so that you choose their partnered refinancing company. Alternatively, lenders can use this strategy to attract borrowers. For example, Wells Fargo provides loyalty rewards.

When applying for a bonus, you might be asked to use a unique link or sign-up till the deadline. In general, the bonus policy of lenders can be different than what they promote. Hence, before accepting any bonus, make sure you read the terms and conditions carefully. 

How to Apply for Refinancing?

There exist several steps to take before and during application to ensure successful refinancing.

1. Determine Your Eligibility

Refinancing can bring immense benefits, but it will not be accessible to every borrower. As mentioned, unless you have a good credit score and stable income, it is not worth refinancing a student loan. 

If you have federal loans, check your eligibility to federal aid programs. Once you exhaust all federal options, you can think about refinancing. 

2. Choose a Lender

Lenders usually have similar requirements and offers. However, they can vary based on additional features, such as bonuses, cosigner release, auto-pay, etc. Therefore, make sure you read all the necessary information and understand it fully before choosing a lender. 

3. Request Estimates

 refinance a student loan

Some lenders provide pre-qualifying tools on their websites. By inputting your finance details and some documents, you can get informed about the interest rate you qualify for. You need to request such information from multiple lenders to make the best decision. 

However, some lenders do not provide this option, and they will ask you to apply first. This scenario can be risky because if you receive multiple rejections, your credit score can be lowered.

4. Decide on Loan Conditions

Once you choose a lender, you might be offered multiple options, such as repayment periods, variable or fixed interest, cosigner availability, etc. You need to analyze all these options individually. For example, if you want a fixed interest rate, you might overpay if interest rates start to decline. Alternatively, variable-rate loans can overcharge you when interest rates rise. Hence, analyze each trade-off before deciding. 

5. Submit Application

Even if you apply for pre-qualification, you need to submit a final application to the lender. This process usually requires the submission of documents like loan verification. Besides, borrowers should give permission to lenders to conduct a credit check. In this way, the lenders define eligibility and what interest rate borrowers qualify. 

6. Agree to Finalize

After the lender analyzes your finances and creates an offer, the company will contact you. You need to read the offer carefully and decide if you want to accept it. In case of acceptance, there is still a three-day period when you can choose to cancel the refinancing request. If you do not cancel it, the lender will pay for your debt. 

However, it usually takes a few days till refinancing is complete and your obligations transfer to the new lender. Therefore, it is advisable to continue paying your existing lender until you know that refinancing is wholly done. Do not worry about overpayments because you will be refunded. Yet, if you do not meet your obligations, you can face challenges.

If the lender rejects your application, you will be notified about the reason. Maybe you can work on that reason and ensure that next time you do not get rejected. For example, if the credit score is low, try to improve it and refinance a student loan again.

Refinancing Help

Student loan refinancing is more straightforward than many other debt management strategies. Its requirements are simple – you need to have a good credit score (600 or more) and a stable income source. Some lenders can also ask for a cosigner or be required if you do not meet the initial conditions.

The application can be made through lenders’ websites, and it generally takes a few days to weeks to get a final decision. Compared to federal aid programs, refinancing is one of the fastest debt management methods. 

On the bright side, when you refinance a student loan, you can save money from lower interest rates, change your annoying lender or move to a fixed-rate plan (or vice versa). On the negative side, student loan refinancing requires borrowers to conduct a heavy analysis on when is the good time for this process. If you are not sure about eligibility or the right timing, you can get expert help. Our debt specialists can analyze your finances and help you identify if refinancing is a good strategy for your debt challenges.