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Refinancing is not an all-or-nothing process. In fact, you can choose to refinance a single student loan or even a portion of a single loan if it would be beneficial to do so. Let’s say, for example, that you owe a mix of private and federal student loans. Federal student loans were in emergency forbearance with no payments due until Autumn 2023 and zero interest accruing. Since refinancing federal loans would make them ineligible for this forbearance, it probably didn't make sense to refinance them. However, you might be able to qualify for a different interest rate on your private student loans, thereby lowering your interest charges on your loans. In this case, it could be smart to refinance your private loans while leaving your federal student loans alone. Now let’s say that you have multiple private student loans with different interest rates. One loan has a low rate of 3%, while another has a higher rate of 9%. When you check your refinancing rates, you qualify for a rate of 4%. In this scenario, it could make sense to refinance the student loan with the 9% rate, but you probably wouldn’t want to touch the loan with the 3% rate. Luckily, you’re allowed to cherry-pick which of your student loans you want to refinance so you can reap the greatest financial benefit.
How to Partially Refinance Your Student Loans
Applying to partially refinance your student loan debt is simple. When you apply, you can indicate which of your student loans you want to refinance. Assuming the lender approves your application, it will pay off the loans you indicate while ignoring your other student debt. You can also ask the lender to refinance just a portion of a single loan. This process is known as underpayment, and it could be helpful if you’re trying to assume responsibility for part of your parent’s loan or to separate out debts that you share with an ex-spouse.To get started with refinancing, you can check your rates with multiple lenders online. This prequalification won’t impact your credit, and you’re under no obligation to commit to an offer. If you see an offer you like, you can move forward with a full application. Most applications ask for your personal and financial information, as well as require supporting documentation such as pay stubs and student loan statements. If you’re choosing to refinance some of your loans and not others, you’ll only provide statements on the student loans you wish to refinance. If you wish to partially refinance a single loan, you’ll need to communicate this information to the lender. After you apply, a lender will run a hard credit inquiry to check your credit, which could temporarily ding your credit score by a few points. If you qualify, you’ll get your final offer and sign the paperwork. The lender will then pay off your old loan(s) and issue you a new one in their place. You’ll start paying back your new, refinanced student loan, as well as keep up with payments on any of your other loans that you chose not to refinance.
Pros of Partial Refinance
There are a number of benefits to refinancing part of your student loans. Here are some of the top reasons to do so.
Maximize Interest Savings
If you have a mix of student loans, chances are that some have higher interest rates than others. It could be beneficial to refinance the loans with high interest rates while leaving the ones with low interest rates as they are. Compare your current rates to your refinancing offer to decide where you’d get the greatest financial benefit.
Retain Access to Federal Repayment Plans and Programs
Refinancing federal loans makes them ineligible for federal repayment plans and programs, such as income-driven repayment and deferment. Having the option to pay back your student loans on an income-driven plan can be a lifesaver if you’re struggling to afford payments from month to month. Keeping your federal loans eligible for federal repayment plans could be another reason not to refinance your federal student loans when you apply to refinance your private ones.
Take Over a Student Loan From Your Parent
Another potential benefit of partial refinance involves taking over a student loan from your parents. If your parents borrowed a loan to help you pay for school, you could refinance it in your own name. Or if you’re only responsible for part of the amount, you could request that the lender only refinances a portion of the loan in your name while keeping the remaining amount in your parent’s name.
Separate Out Student Loans After a Divorce
If you cosigned a student loan with your spouse but are now seeking a divorce, you might similarly wish to divide up the loan proceeds between you. In this case, you might also ask a lender to refinance part of the loan in your name and the other part in your ex’s name. However, you’d likely both need to individually meet a lender’s credit and income requirements to qualify for refinancing.
One of the benefits of refinancing student loans is combining multiple student loans into one. Instead of having to juggle different payments and due dates, you’ll only have to pay back a single loan. But if you only choose to refinance some of your student loans, you won’t achieve full consolidation. Instead, you’ll still have to track different student loans with various loan servicers. This isn’t a huge con, and you can simplify things by setting up autopay, but it’s still worth considering.
Potentially Miss Out on a Low-Rate Environment
Another potential downside to consider is missing out on a low-rate environment. Maybe you choose not to refinance federal student loans so you don’t forfeit access to the current emergency forbearance. But once the forbearance ends, interest rates may have risen, causing you to miss out on the low rates you could have gotten if you’d refinanced earlier. While there’s no crystal ball for exactly what interest rates will look like in the future, the Federal Reserve has enacted multiple rate hikes throughout 2022 into 2023.
The Takeaway
If you’re thinking about how to refinance student loans, remember that you don’t need to refinance all your student loans at once. In fact, it’s often more beneficial to refinance some of your loans while leaving other ones alone. This approach especially makes sense if you want to retain access to federal benefits, such as the emergency forbearance, repayment plans, and forgiveness programs, including the new federal student loan forgiveness plan. In this case, it may make sense to refinance private loans while leaving your federal loans as they are. When exploring refinancing, consider your student loans on an individual basis, including their interest rates, balances, and remaining terms. You can also check your rates to see if you can get better terms than you have now. Lantern can help you find and compare student loan refinancing rates from multiple lenders at once, no commitment required.
Frequently Asked Questions
Can I refinance a portion of my federal student loans?
Can I refinance only one of my student loans?
Can you refinance half your student loans?
Photo credit: iStock/Daniel de la Hoz
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About the Author
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).
