5 Steps to Refinance Student Loans

Q: Who is eligible for student loan refinancing?

Eligibility criteria can vary by lender, but anyone with at least $5,000 in qualified education loan debt may be eligible for student loan refinancing. Lenders generally require the borrower to have proof of identity, proof of income, and good credit. You may also need to be a U.S. citizen or lawful permanent resident to qualify. Some lenders have graduation requirements, but you can refinance student loans without a college degree. You can apply for student loan refinancing If you’re 18 or older.

Q: What is a con of refinancing your student loans?

One of the cons of refinancing federal student loans is that you’ll lose access to federal income-driven repayment (IDR) plans and forgiveness programs. Another con is that your credit score may drop a few points if the lender conducts a hard inquiry into your credit report. It can be difficult to refinance federal or private student loans with bad credit.

Q: Does refinancing hurt your credit?

Yes, refinancing may hurt your credit if the lender conducts a hard pull inquiry into your credit report. A hard inquiry can remain on your credit report for two years, and the initial impact can cause your credit score to drop several points.

Lantern Comp Guide: 5 Steps to Refinance Student Loans

Sulaiman Abdur-RahmanUpdated September 6, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

You may be wondering how to refinance student loans either to save on interest or extend your repayment window. Regardless of the reason, generally, you can refinance student loans in just five simple steps.Note: Only private lenders offer student loan refinancing. If you refinance your federal student loans, you will no longer have access to the certain benefits and repayment options provided by the federal government.

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Is It a Good Idea to Refinance Your Student Loans?

It can be a good idea to refinance student loans if you qualify for a lower interest rate and terms that reduce your overall borrowing costs. Borrowers with excellent credit and low debt-to-income ratios may qualify for a lender’s best rate.If you need to lower your monthly payments, you might consider refinancing your student loans for a longer repayment term. However, this means you'll likely owe more in total interest over the life of the loan.Evaluating the pros and cons of student loan refinancing can help you determine whether refinancing is right for you. Refinancing for a lower rate and shorter repayment term can reduce your total finance charges. But refinancing federal student loans may not be right for you if you’re eligible for Public Service Loan Forgiveness (PSLF) or $0 monthly payments under an income driven repayment (IDR) plan.Private education loans are not eligible for federal perks, including PSLF, Teacher Loan Forgiveness, or the new Saving on a Valuable Education (SAVE) Plan. How student loan refinancing works is you borrow a private education loan that pays off your existing student debt.

What’s the SAVE Plan?

The SAVE Plan, which replaces the Revised Pay As You Earn (REPAYE) Plan, is one of the federal IDR plans that calculates your monthly payment amount based on your income and family size. Borrowers with incomes below 225% of the poverty line ($32,800 for a single borrower in 2023) will be eligible for $0 monthly payments under this plan.All IDR plans can end with a borrower’s outstanding balance being forgiven at the end of the repayment period. Forgiveness may come after 20 or 25 years under any of the IDR plans, but forgiveness may come after 10 years for any SAVE Plan enrollees with original principal balances of $12,000 or less.Recommended: Should I Refinance My Student Loans?

Step 1: Determine if You’re Eligible

The first step to refinance student loans is determining whether you’re eligible. Eligibility criteria can vary by lender, but here are some of the typical requirements:

Be a U.S. citizen or lawful permanent resident

Have at least $5,000 in outstanding federal or private student debt

Be at least 18 or the age of legal majority in your state

Proof of identity
Proof of income
Good credit

It can be difficult to refinance student loans with bad credit. You may need a minimum prime credit score of 680 to qualify. You can check your credit score before applying. Keep in mind that student loan refinancing can hurt your credit score if the lender conducts a hard inquiry into your credit report. A hard inquiry can remain on your credit report for two years, and the initial impact can cause your credit score to drop several points. Some lenders have graduation requirements, but you can refinance student loans without a college degree.

Step 2: Shop Around for Different Lenders

The next step is to shop around for student loan refinance offers. Lenders can offer fixed or variable interest rates. A fixed interest rate will remain the same over the life of your loan, but a variable rate can fluctuate up or down.Lenders can also offer repayment terms ranging from five to 20 years. A longer repayment term can lower your monthly payment, but your total interest costs may increase if you refinance for a longer term. A shorter repayment term can be ideal if your goal is to minimize your finance charges.Comparing rates and terms from different student loan refinance companies can help you find the right refinancing for you.

Step 3: Get Prequalified

You can check your eligibility for prequalified loan offers by submitting a student loan refinance online inquiry. Such an inquiry typically involves a soft credit check.A soft inquiry allows lenders to obtain your credit information without affecting your credit score. You can receive prequalified refinance offers if you meet a lender’s conditions for eligibility. This allows you to find and compare student loan refinance options before choosing one that’s right for you.Recommended: Does Refinancing Student Loans Hurt Your Credit?

Step 4: Apply

At this step you can submit a student loan refinance application with the lender of your choice. Getting prequalified loan offers doesn’t guarantee you’ll get approved, but it can help you understand what a lender may be willing to offer.Lenders will want to verify your information to confirm you meet their eligibility requirements. Be prepared to provide the following documents when applying:

Driver’s license or other government-issued photo ID
Social Security number
Pay stubs
Recent student loan billing statements
Academic transcripts (if required)

You can strengthen your application by applying for student loan refinancing with a creditworthy cosigner. A cosigner is an individual who shares the financial responsibility of repaying the loan alongside the primary borrower, which reduces risk to the lender.A creditworthy cosigner can help you get approved for student loan refinancing on more favorable terms. If you have good credit, a cosigner with excellent credit can help you qualify for better interest rates than what you might get on your own.

Step 5: Start Making Payments on Your Refinanced Student Loan

After getting approved, the next step is to make required payments on your refinanced student loan with your new lender. You’ll typically be responsible for making monthly payments over a set term. Read the refinance agreement carefully to understand its terms and conditions.You can refinance federal student loans and private student loans — and there’s no prepayment penalty whatsoever. Student loan refinance companies typically pay off your existing student debt, and then you repay the refinance lender as specified in your new loan agreement.

Alternatives to Student Loan Refinancing

All borrowers may not benefit from student loan refinancing. If you have federal student debt, you can explore federal income-driven repayment plans.In addition to the new SAVE Plan that replaces the REPAYE Plan, here are the other IDR plans:

Pay As You Earn (PAYE)

Income-Contingent Repayment (ICR)

Income-Based Repayment (IBR)

Depending on your income and family size, all four IDR plans may offer a lower monthly payment compared with the Standard Repayment Plan.If your annual income is low enough, an IDR plan may require no monthly payments for at least one year. Private student loans — including refinance student loans — are not eligible for any federal repayment options.Refinancing federal student loans may not be right for you if you’re eligible for $0 monthly payments under an IDR plan.

The Takeaway

If you’re wondering how to refinance student loans, it all depends on your goals. There are different ways of how to refinance student loan debt. You can refinance for a longer term and lower your monthly payments, or you can refinance for lower interest costs. Shopping around can help you find the right refinancing solution for you.If you want to refinance student loans, Lantern by SoFi can help. Just fill out a form and compare your student loan refinance options. Refinancing may be right for you if you can lock in a lower interest rate. (Refinancing for a longer term may increase your total interest costs.)Lantern can help you compare student loan refinance rates and find the best one for you.

Frequently Asked Questions

Who is eligible for student loan refinancing?

What is a con of refinancing your student loans?

Does refinancing hurt your credit?

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About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.

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