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Refinancing Student Loans While in School: Is It Possible and Should You Do It?

Can You Refinance Student Loans While in School?
Nancy Bilyeau

Nancy Bilyeau

Updated March 22, 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.
The answer to the question “Can you refinance loans while still in school?” is yes. It’s possible. But it is usually not a sound financial strategy to pursue refinancing your loan before graduation.

What Is Student Loan Refinancing?

When you refinance your student loan, you are arranging for a private lender to take over your existing loan or loans and issue you a fresh loan with new interest rates and terms. Most of the loans that help students pay for their college education are federal loans. After filling out their FAFSA form, students learn from their college of choice what need-based financial aid and other aid is offered. Students should also pursue getting a scholarship, which doesn’t have to be repaid. As of 2022, 43.4 million American borrowers have federal student loan debt, according to Educationdata.org. The average federal student loan debt balance is $37,113.Refinancing student loans, which replaces the federal loan with a private loan, can sometimes provide you with a lower interest rate and more favorable terms, such as additional time to pay off your loan if that’s what you want. However, there are disadvantages to refinancing student loans as well. The main one is that you will no longer qualify for federal forgiveness of debt.

Can You Refinance Student Loans While in School? 

Some private lenders are willing to refinance student loans while in school. However, most reputable lenders have certain requirements for all their loan applicants. Lowest advertised rates are available to people with excellent credit scores. This means lenders are looking for an established credit history, years in the labor market, and a low debt-to-income ratio. Students are simply not yet in a position to meet these standards.For some students, the only way to be considered for a refinanced student loan while still in school is to have a cosigner with excellent financial credentials. In other cases, the lender might consider a refinance deal if you are scheduled to graduate by the next semester and you have proof that you have a good-paying job lined up shortly after graduation.

Downsides to Refinance Students Loans While in School

Once you refinance your student loan, you no longer qualify for debt-forgiveness programs or the pause on payments prompted by COVID-19 hardships and scheduled to be lifted on August 31st, 2022. There are also income-driven programs should those paying down their student loans run into hardship. And for certain public interest jobs, student-debt forgiveness programs exist–but only if they are still holding federal loans.When deciding whether it’s time to refinance, students should take a close look at private vs. federal loans. Private student loans must be paid back as soon as they are issued in regular installments. But with subsidized federal student loans, students do not have to make any payments until six months after they’ve graduated. And there is zero interest owed during this time. Bottom line: if you refinance student loans without graduating, you’ll need to start paying while you are in college, which you wouldn’t need to do with a federal loan.

When Do You Refinance When You’ve Not Graduated?

You can seek out a refinancing of your student loan at any point after you’ve received your original loan. Whether you will be successful in getting a better deal is the question.

Interest Rates Have Dropped Since You Applied for Loans

Federal loans have carried low interest rates for the last several years. For the 2021-2022 school year, the interest rate for federal subsidized student loans was set at 3.73% and for unsubsidized federal loans at 5.28%. Students who currently have federal student loans with such interest rates may face a challenge finding even lower interest rates from private lenders before they’ve graduated. Lenders grant the lowest interest rates to those with the strongest credit rating.

Your Credit Score Has Improved

Credit report agencies are looking for a history of on-time payments of bills.  Payment history accounts for 35% of your FICO® score, the credit score used by 90% of lenders. The longer your positive credit history, the higher your credit scores. People with top credit scores also carry a diverse portfolio of credit accounts, which might include a car loan, credit card, and mortgage.Before graduating from college, it will be a challenge to excel in these areas.

You Have a Cosigner Willing to Refinance With You

Finding a cosigner with strong credit rating and low debt to income ratio presents your best opportunity for securing a favorable refinancing deal.Should you refinance your loans with a private lender, it should be remembered that if, years later, you lose your job or have another serious life change, you will not be able to apply for income-driven repayment programs offered by the government

How to Apply for Student Loan Refinancing

No matter what stage of life you’re at, the application process for a refinance of your student loan is pretty much the same. Is it possible to refinance federal student loans? Yes, it is. But private lenders are looking for certain things. It’s up to you to present them.

Review Credit

Find out what your credit score is first. Lenders will expect a good to excellent score before offering a loan with a low interest rate, which means at least 680. You can learn this through a “soft pull” on your credit. It won’t affect your credit score.

Gather the Required Documents

You will generally need proof of identity and proof of income, such as W2s, and your most recent student loan statement.

Get Rates From Multiple Lenders

To find and compare student loan refinance rates, shop for lenders that serve your state. Research their pros and cons. You should be able to see requirements and available terms up front. You’ll likely need to prequalify to get their rates, which won’t affect your credit score.

Choose Your Loan Terms

“Student loan term” refers to how long the lender expects it will take you to repay. Most of the lenders typically offer student loan terms of 5, 7, 10, 15 or 20 years. If you desire lower monthly payments, you might have to get a much longer loan payment.

Complete Your Application

You’ll need to accept the terms of refinancing and sign the documents for your loan to be official. Once you’ve signed, you enter into a three-day right of rescission period, which allows you to cancel the loan refinance if you change your mind. After those three days, the lender will pay off your old loan or loans.

Student Loan Refinancing Options With Lantern

Refinancing your student loan can provide relief to your budget when done at the right time. You’ll receive one new loan from a private lender, ideally with a lower interest rate, to replace your previous loan or consolidate multiple student loans into one loan. Comparing student loan rates with Lantern can help you assess whether refinancing your student loans makes sense for you.
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The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC0122061

Frequently Asked Questions

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About the Author

Nancy Bilyeau

Nancy Bilyeau

Nancy Bilyeau writes about student loans, mortgages, car insurance, medical debt and many other finance topics for Lantern. A veteran of the magazine business, she has edited stories on personal finance for Good Housekeeping and DuJour magazines and has written articles for The Wall Street Journal, Readers' Digest, Parade, Town & Country and Lifetime/A&E, among others. She is a graduate of the University of Michigan.
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