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Refinancing Graduate Student Loans

Refinancing Graduate Student Loans
Rebecca Safier

Rebecca Safier

Updated July 12, 2022
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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.
Graduate students often borrow even more than undergraduates to earn their advanced degrees. According to the Education Data Initiative, the average graduate student loan balance is $91,148 among federal borrowers, nearly two-and-a-half times the average undergraduate balance of $36,635. Graduate school loans from the federal government also come with higher interest rates than undergraduate ones, which might cause you to think about refinancing for better rates. Read on for a closer look at refinancing graduate school loans, including the pros, the cons, and how to apply. 

Do You Have to Pay Undergraduate Loans in Graduate School?

Many graduate students are juggling both undergraduate and graduate student loan debt. If you’re one of them, rest assured that you probably don’t have to make payments on your undergraduate or graduate student loans while you’re in school. The federal government — and many private lenders — let you defer (or postpone) payments on both your undergraduate and graduate student loans while you’re enrolled in a program at least half-time and for six months after you graduate. This deferment option allows you to focus on your studies without having to worry about making an income and paying off your student loans. However, most student loans, with the exception of subsidized loans, will accrue interest during this time. That interest may then be capitalized, or added on to your balance when the deferment ends, resulting in even higher loan costs. If you want to save money on interest charges, consider making in-school payments on your debt. 

How to Refinance Graduate School Loans

If you’re interested in refinancing graduate student loans, here are some steps you’ll need to take: 
  1. Review the requirements. Most lenders require strong credit and a stable source of income for graduate school loan refinancing. Before applying, request your credit report and check your credit score to see if it measures up. A good goal is 700. If you can’t qualify on your own, some lenders let you apply with a cosigner. 
  2. Prequalify with multiple lenders. It’s a good idea to shop around for refinancing offers so you can find the best rate. Many lenders let you prequalify online with no impact on your credit score. Prequalification means the creditor has done at least a basic review of your creditworthiness to determine if you're likely to qualify for a loan or credit card.
  3. Choose your loan offer. As you’re reviewing your offers, consider what repayment terms would work best for your budget. You might use a student loan calculator to estimate your monthly and long-term costs. 
  4. Submit an application. Once you’ve selected an offer, you’ll fill out and submit a full application and consent to a hard credit inquiry. You’ll likely need to provide supporting documentation, such as pay stubs and student loan statements. 
  5. Start paying back your new loan. If you’re approved, your lender will pay off your old loan(s) and set you up on your new repayment plan. Don’t stop making payments on your old loans until you’re certain that the accounts have been closed. 

Pros of Refinancing Graduate Student Loans

Here are some reasons that refinancing graduate student loans could be beneficial: 

Lower your interest rate 

Perhaps the primary benefit of refinancing graduate student loans is lowering your interest rate. By getting a better rate, you can pay less interest over the life of your loan. Let’s say you owe $60,000 at a 7.0% rate. Over 10 years, you’d pay $23,598 in interest. But if you can snag a 4.0% rate through refinancing, you’d pay $12,897 in interest over that same time period. Borrowers with the strongest credit tend to get the lowest interest rates. 

Simplify repayment 

Along with lowering your interest rate, refinancing can help simplify repayment by combining multiple loans into one. If you owe loans from both undergraduate and graduate school, you can consolidate them into a new, single loan with one monthly payment. Instead of having to juggle multiple payments with different due dates, you’ll only have to manage one. 

Choose new payoff terms  

When you refinance, you also get the chance to restructure your debt with new repayment terms. Many lenders let you choose terms between 5 and 20 years. If you opt for a shorter term, you’ll get out of debt faster and pay less interest overall. If you go with a longer term, you can lower your monthly payments so they’re more affordable (but will incur higher interest charges). Whatever you choose, refinancing gives you the opportunity to choose new terms that work with your budget. Note that even if you opt for a longer term in the beginning, you can make extra payments and pay off your loan ahead of schedule without penalty. This approach could make sense if you’re not making much money now but expect your income to increase in the future. 

Cons of Refinancing Graduate Student Loans

Along with the pros, there are potential downsides to refinancing graduate school loans, including the potential loss of federal benefits. Review these cons before you apply. 

Lose access to federal repayment plans 

Borrowers should be cautious about refinancing federal student loans, as doing so means losing access to federal repayment plans. Federal loans are eligible for a variety of plans, including income-driven repayment, extended repayment, and graduated repayment. If you refinance with a private lender, your federal loans will no longer qualify for these plans. Most private lenders don’t offer any form of income-driven repayment, so you’ll be out of luck if you want to adjust your monthly bills to a proportion of your income. If you expect you’ll need any of these plans in the future, it wouldn’t be a good idea to refinance your federal student loans. 

Make your federal loans ineligible for forgiveness 

Along similar lines, refinancing federal loans also disqualifies them from federal student loan forgiveness programs, such as Public Service Loan Forgiveness and Teacher Loan Forgiveness. Before refinancing, explore your options for graduate student loan forgiveness programs to see if you could qualify for any of them. If you could, it probably wouldn’t make sense to refinance your federal loans. 

Miss out on the emergency federal forbearance 

Finally, refinancing federal loans might not be a priority during this period of emergency forbearance put in place in response to the Covid-19 pandemic. Since March of 2020, federal student loan payments have been paused at 0% interest.If you refinance federal loans, you’ll have to start making payments and paying interest on your loans. Rather than prematurely entering repayment on your federal loans, it may be a good idea to wait until the emergency forbearance has ended before you pursue refinancing. 

The Takeaway

Refinancing graduate school loans can be a savvy move for many borrowers. Graduate students tend to take on a lot of student debt. Lowering your interest rate through refinancing could result in major savings over the years. At the same time, refinancing federal loans means forfeiting access to federal protections, including income-driven repayment plans, forgiveness programs, and the current emergency forbearance. Before you apply, make sure you’ve reviewed all the pros and cons of student loan refinancing. If you decide refinancing is the right move, take some time to shop around and compare offers from multiple lenders. Lantern by SoFi can help you find and compare student loan refinancing rates.
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Frequently Asked Questions

Can student loans be refinanced after graduation?
Can you refinance student loans before graduation?
How do you refinance undergraduate loans?

About the Author

Rebecca Safier

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
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