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Refinancing Your Student Loan Debt: A Guide

Andrew Dehan5-minute read
UPDATED: March 10, 2023

Chances are you’ve heard of refinancing a mortgage, but did you know you can refinance your student loans? One of the best parts about student loan refinancing is that, unlike a mortgage, refinancing student loans is often free.

Whether it’s to consolidate your loans, get a better interest rate or longer loan terms, refinancing your student loans may be an option for you. Here we’ll cover what this refinance entails, as well as its pros and cons.

What Is A Student Loan Refinance?

Student loan refinance is replacing your old loans with a new loan. There are three big benefits of a student loan refinance: consolidating multiple loans into one loan, securing a lower interest rate and changing the term of the loan.

For those with several loans, a student loan refinance may be a good option. Especially if you have several private loans, refinancing could lower your interest rate and monthly payments. You also have the option to lengthen or shorten the loan term. Depending on the loans you have, you may save a significant amount of money by refinancing your loans.

How Does Student Loan Refinancing Work?

To refinance your student loans, you’ll need to do some research. If you have multiple loans, determine which you want to consolidate and refinance. You may not want to refinance federal student loans, as they come with special protections you’ll lose if you refinance to a private loan.

After you’ve decided you want to refinance, here are some requirements lenders will look for.


To get the most out of a refinance, you’ll need to meet some requirements. If you’re looking for a lower interest rate, these requirements are important. You’ll need to satisfy lenders and show them you’ll be able to repay the loan. Keep these requirements in mind:

If you have poor credit, you may still qualify for a student loan refinance. The most common way to qualify this way is with a co-signer, such as a parent or a spouse. The co-signer is responsible for the loan if you don’t pay it.

The Process

When you’re ready to apply, look for lenders that refinance your type of student loans. Once you’ve narrowed them down, get rate estimates from each from their websites.

You will have to submit some information to pre-qualify and see an estimated rate. For pre-qualification, the lender will do a soft credit check. It usually won’t affect your credit score, where an application may briefly lower your score.

When evaluating loans on offer, consider whether the interest rate is adjustable or fixed. A fixed rate will stay the same through the loan, whereas an adjustable rate may start out low and adjust with the market throughout the loan term.

If you want to save money and pay off your loan quickly, a shorter-term loan may be right for you. It will come with higher monthly payments, but you will pay less interest over the life of the loan. The inverse is true for longer term loans: lower monthly payments but paying more interest over the term of the loan.

Compare the lender’s annual percentage rates (APR) vs. interest rates. APR is how much that loan will cost yearly, including interest and other fees. Before applying, look at multiple lenders to find the lowest APR/interest rates for the loan term you want.

After you’ve decided on a lender, gather your paperwork together to apply. Here’s a few things you’ll need:

  • Proof of employment and income (W-2s, tax returns and pay stubs)
  • Government-issued ID with photo (driver’s license, passport, etc.)
  • Social Security card and number
  • Statements from your current loans

Fill out the application. If you have any questions, call or email your lender. But before you apply, determine if refinancing is right for you.

Cons Of Refinancing Your Student Loan Debt

We’re starting with the cons because they’re significant. This is especially true if your loans are federal. Federal student loans come with special perks that aren’t available to you with private loans. If you refinance these loans, they’ll become a private loan.

Here’s what to think about before you refinance your federal student loans.

During The Pandemic, Federal Student Loans Payments And Interest Accrual Are Paused

During the COVID-19 pandemic, federal student loans have had payments and interest accrual halted. If the pandemic has put you in a situation where you can’t pay your loans, your federal loans don’t need to be paid.

This pause in payment could happen in future national crises as well. Private lenders don’t offer this kind of relief.

You’ll Lose All Perks Of The Federal Student Loan Program

If you refinance federal student loans to private loans, you’ll lose perks like forbearance and income-driven repayment plans. Furthermore, programs like Public Service Loan Forgiveness or the Teacher Loan Forgiveness Program will no longer be available to you. 

You Could Miss Out On Student Loan Forgiveness

Many politicians are talking about a broad student loan debt forgiveness plan. This could be part of a larger economic stimulus package. The idea is all the federal student debt is such a drain on the economy that it would make more financial sense to forgive it. While this has not happened, if it does, you may not be able to benefit if you refinance.

Pros Of Refinancing Your Student Loan Debt

The pros of refinancing your student loan debt are easy to see, especially if you have several private student loans. Not only can you simplify your loan payments through consolidation, but you can make financial decisions that make sense for you.

You Can Set Your Monthly Payment

One of the best things about refinancing is you have more control over your monthly payment. Before refinancing, figure out how much of a payment you can handle. Work back from that payment to determine how long a loan term you need at what rate.

There are several student loan refinance calculators online, but we’ll talk a little about what this looks like.

For example, you’ve determined you can pay $250 a month. You owe $20,000. At a 3.5% rate, it will take you 7 years and 7 months to pay it off. If you want to pay it off sooner, you can increase your monthly payment, or if you need to lower your monthly payment, you can lengthen the time it takes to pay off your loan.

You Can Save A Lot Of Money

Depending on the amount of money you owe and the interest rate you’re charged, there’s a potential to save a significant amount with a refinance. This applies on a monthly basis or the length of the loan.

Say your original $20,000 debt was at 6% interest. At $250/mo. it would take you 8 years and 6 months to pay off. If you refinance to 3.5% and pay the same monthly, you’ll pay the loan off sooner and save $2,797.13 in interest.

If you’re refinancing hoping to lower your payment, you could lower your payment to $200/mo. You’ll pay it for 9 years and 10 months, but you’ll still save $1,924.28 over the length of the loan.

You Can Be Debt-Free Sooner

Like we said above, if you refinance to a lower rate and keep your payment the same, you’ll eliminate the debt sooner. If you up your payment, you’ll pay it off even quicker.

A huge part of debt is psychological and emotional. For many, the feeling of eliminating debt is freeing. After the debt is eliminated, you can use that money elsewhere, whether to increase savings, make investments, or live more comfortably.

Summary: Student Loan Refinancing Can Help You Save, But Could Cost You

When it comes to student loans, you have options. If you have a sizable debt in higher-interest private loans, refinancing and consolidating those loans could save you a lot of hassle and money. You could also lower your monthly payment and/or get out debt sooner.

Federal student loans come with their own perks that you’ll lose if you refinance, so closely consider this before proceeding. You don’t want to refinance them only to learn that you were eligible for a needed forbearance or forgiveness program.

Need some more tips? Check out this great guide on building your credit.

Andrew Dehan

Andrew Dehan is a former writer for Rocket Mortgage. He writes about real estate and homeownership. He is also a published poet, musician and nature-lover. He lives in metro Detroit with his wife, two children and dogs.