When Refinancing Your Student Loans Makes Sense (and When It Doesn’t)

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

best-student-loans-for-refinancing
Logo

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

Refinancing with Laurel Road

Refinancing rates from 1.89% APR. Checking your rates won’t affect your credit score.

Check out Laurel road

The average college graduate leaves school with almost $30,000 in student loan debt. Over time, interest can substantially add to that burden.

Although refinancing may be a great choice for some borrowers, it’s not a one-size-fits-all solution. Depending on your loan types and interest rates, refinancing isn’t always best.

We’ll look at the pros and cons of refinancing student loans and whether it would be good for you.

Refinancing student loans pros and cons: Times it makes sense
Refinancing student loans pros and cons: Times it doesn’t make sense
Deciding if refinancing is right for you

Refinancing student loans pros and cons: Times it makes sense

If you’re looking to save money, you might be able to get a lower interest rate and a shorter repayment term. If you need more breathing room in your budget, you could extend your repayment term to get a lower monthly payment.

Here are some situations where refinancing can make the most sense:

You have private loans

Private student loans tend to have higher interest rates and less forgiving repayment terms than federal loans. They also generally don’t offer protections common with federal loans, such as income-driven repayment plans or mandatory forbearance.

If you opted for a variable interest rate when you took out your loan, you could see APRs as high as 8.65% via lenders recommended by Student Loan Hero. Since variable interest rates can fluctuate, that also means your monthly payment could change several times over the life of your loan. If you don’t like how variable rates can affect your payments, you can also opt to refinance with a fixed-rate loan. The rate would be set for the length of your loan and your payments wouldn’t change.

To get a better handle on how much you could save by refinancing, try using our Student Loan Refinancing Calculator.

You have high-interest federal loans

Depending on the type of federal student loans you took out, you might be paying a lot in interest. For example, if you went to graduate school and took out grad PLUS loans on or after July 1, 2019, and before July 1, 2020, your interest rate would be 7.08%. That interest rate can add significantly to the cost of your loan.

If you have good credit and earn a decent salary, you could potentially refinance your federal loans and get a lower interest rate. Some lenders offer refinancing loans with fixed APRs as low as 3.21% via lenders recommended by Student Loan Hero.

If you had $10,000 in PLUS loans with a 7.08% interest rate and took 10 years to pay off your debt, you’d pay $3,983 in interest. However, if you refinanced the loans and qualified for a 3.25% APR, you’d pay just $1,726 in interest — and you’d have a lower monthly payment. That switch would save you about $2,250, which you could use to pursue your other goals.

You have loans with a cosigner

If a parent or loved one cosigned a student loan with you, they’re responsible for the debt if you fall behind on your payments. Your cosigner’s credit could be negatively impacted if you miss a payment, making it difficult or even impossible for them to get approved for any new credit, like a car loan or a mortgage.

To prevent these kinds of issues, you can refinance the loans in your name and release your cosigner from responsibility. If you want to help your loved one and can handle the debt on your own, refinancing can relieve them of responsibility. It could also reduce tensions between the two of you.

CommonBond, LendKey and College Ave are among those that allow cosigner release, but you should still note that not all lenders will offer it.

Your credit score has improved substantially

Your creditworthiness plays a big role in your ability to refinance your student loans at the best interest rate for you.

Suppose you’ve been working for a while and paying your accounts on time. There’s a good chance that your credit score may have improved over time. Depending on your income, credit score and other lender requirements, you may be able to refinance your student loans at a much better rate than you currently have.

As with anything else, it pays to shop around to make sure you get the lowest interest rate possible.

Refinancing student loans pros and cons: Times it doesn’t make sense

Here are some scenarios when refinancing might not be wise:

You need an income-driven repayment plan

If you have federal student loans, you might qualify for an income-driven repayment (IDR) plan if you can’t keep up with your payments. Under an IDR plan, your payment is capped at a percentage of your discretionary income — generally between 10% and 20% — and your repayment term is extended to 20 or 25 years, which could reduce your monthly bill.

An IDR plan can be a lifeline when you’re starting out on a small income. But if you refinance your federal loans with a private lender, you’ll lose this as an option. If you refinance and your income later decreases, your new lender might not be flexible about your payments.

One important thing to remember is that if you qualify for an IDR plan, you will have to recertify your income information each year. Your monthly repayment amount may vary depending on your reported income.

You are pursuing student loan forgiveness

If you plan to spend your career in public service, such as by working for a nonprofit or a government agency, you could qualify for Public Service Loan Forgiveness (PSLF). After 10 years of qualified payments, the government could forgive your loans. Notably, though, less than 1% of applicants are seeing their loans wiped away, so take that into consideration.

If you refinance your debt, you’re no longer eligible for PSLF. The program only applies to federal loans. Even though refinancing can save you money right now, it could cost you thousands in the long run if you qualify for PSLF.

Meanwhile, if you are pursuing a career in education, you could have as much as $17,500 forgiven, depending on your specialty.

Deciding if refinancing is right for you

Everyone’s situation is unique when it comes to student loans.

Are there other times when refinancing might make sense? Yes. This includes:

  • When you have multiple loans and want to worry about just one monthly payment
  • When you are already paying more than the monthly minimum and want to pay off your loans quicker

And there are other times when refinancing might not make sense, including:

  • When your credit score is too low and you can’t find a good cosigner
  • When you won’t lower your interest all that much
  • When you’re worried that your income could soon drop

Before refinancing, make sure you do your homework and understand how much you could save with each option. Then you can decide if the savings are worth the potential drawbacks.

Steve Santiago contributed to this report.

Interested in refinancing student loans?

Here are the top 6 lenders of 2020!
LenderVariable APREligible Degrees 
1.99% – 5.64%1Undergrad
& Graduate

Visit Earnest

1.89% – 5.90%2Undergrad
& Graduate

Visit Laurel Road

2.25% – 6.09%3Undergrad
& Graduate

Visit SoFi

1.89% – 6.77%4Undergrad
& Graduate

Visit Splash

2.39% – 6.01%Undergrad
& Graduate

Visit Elfi

1.99% – 5.41%5Undergrad
& Graduate

Visit CommonBond

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.


2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

All credit products are subject to credit approval.

Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of September 9, 2020. Information and rates are subject to change without notice.
 


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 6.09% APR (with AutoPay). Variable rates from 2.25% APR to 6.09% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.18% plus 2.32% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 

4 Important Disclosures for Splash Financial.

Splash Financial Disclosures

Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. ‍All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective August 10, 2020.

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.