I just finished refinancing student loans through a lender I found on Credible to get the best rate so I could save money while paying off debt. After mentioning this on my YouTube channel, I thought I’d share more about student loan refinancing in general since many people reached out with questions like:
Why did I refinance? What is student loan refinancing? Can student loan refinancing help you save money? How does student loan refinancing help you pay off debt?
In this post I’m covering everything you need to know about student loan refinancing with an easy explanation of student loan debt refinancing and how it can benefit you.
My Student Loan Refinance Experience
I recently went through the experience of refinancing the Parent Plus student loans left from my debt snowball.
I chose to use Credible to save time with applications for refinancing since it compared multiple rates for me and they included offers from SoFi and other top lenders.
Because I’m refinancing Parent Plus loans into a new loan in my name my experience has been slightly different than a traditional student loan refinance. I was unable to use certain companies and I’ve had to sign additional paperwork saying I was taking over the loan.
The main reason I refinanced was to get a lower rate which would save interest in the long run. I actually plan to pay these loans off very quickly but wanted to still save a few hundred dollars in interest during this time.
I’ve learned a lot about student loan refinancing during this process both through my own experience and many of my audience sharing their stories with me as well.
What is student loan refinancing?
Student loan refinancing is when you refinance your student loans with a private lender in order to either consolidate multiple loans or just to get a lower interest rate.
Refinancing is one way you can work to pay off your student loan debt faster.
Student loan refinancing is good for:
- People who have good credit.
- People who want a lower interest rate on their loans.
- People who have federal and private student loans.
- People who have private student loans.
- People who have a consistent monthly income.
- People who want one monthly payment instead of multiple.
- People who want to pay less interest on their student loans.
Student loan refinance is not good for:
- People with bad credit.
- People with unstable income or low income.
- People who have low interest rates already.
- People who want to use the Public Service Loan Forgiveness program.
Refinancing is not for everyone! You have to look at your situation and determine if student loan refinancing would actually make sense for you. For most people it does make sense but in certain situations it does not at all. Look at your specific numbers and situation to decide.
Student loan refinancing vs. Student loan consolidation
If you are not sure whether you want to refinance or consolidate your loans, then it is important to understand the differences between them.
First, student loan consolidation is a program from the federal government. It’s run through the Federal Student Aid off where you are able to combine multiple federal student loans into one new loan.
Student loan consolidation can be a good option if you want to move to one payment and can achieve a lower interest rate on average. It also can keep you on the path toward various forgiveness programs offered from the government.
Student loan refinancing allows you to combine federal loans and / or private student loans into one new loan. Refinancing your student loans is done with a private lender (you can find various lenders to compare through sites like Credible that list multiple and compare offers for you).
Refinancing your student loans can get you an even lower interest rate than the government will offer you and that lower interest rate can help you pay off your loans faster.
Is there a downside to refinancing student loans?
There are a couple cons to refinancing student loans and one big downside to refinancing student loans.
The biggest negative to refinancing student loans can be the loss of federal repayment protections. When you refinance your federal student loans you walk away with private student loans that lack the deferment and forbearance options available from the federal government.
Refinancing also removes any potential paths to loan forgiveness from the federal government. Refinancing companies do not offer forgiveness options for student loans. So if you are counting on a forgiveness option you will be giving it up with refinancing.
Who is eligible to refinance?
Student loan refinancing companies require borrowers to be creditworthy with good credit scores. If you don’t have good credit then you will likely not be approved. (This is another reason to work on improving your credit!)
To qualify for student loan refinancing you have to have good or an excellent credit score. Most refinancing companies will require a 660 or above for your credit score to qualify.
Luckily many student loan refinance companies offer instant online rate quotes so you can see if you are eligible before going through a full application.
How do you get approved for a student loan refinance?
If you are trying to refinance your student loans you will want to look at the things that will help you get approved for a new loan.
Each student loan refinance is actually creating a new student loan and these loans are approved based on each individual’s background and unique financial circumstances.
Here are some of the things companies look at to determine if you can refinance your loans with them:
- Credit score: do you have good credit? What’s your credit score? Refinance options are generally not available to people with bad credit so you should check your credit and work on improving your credit score if you want to refinance your loans. Aim for a 700 credit score of higher for the best chance of approval with the best rates.
- Income: In order to get approved a lender will want to see that you have income sufficient to pay off your student loans. You’ll have to prove that you have stable recurring monthly income that an service the loans which means you will need to provide paystubs proving your income sources. If you have unstable income you will likely be denied but can improve your chances by finding a cosigner with stable income.
- Debt-to-income ratio: Your other debts like a mortgage, credit cards, and car loans will factor into your refinance application. Lenders will want to see how much of your income you spend monthly to service your debts. Lenders focus on your debt-to-income ration which means the ratio of your total monthly income compared to your monthly debt obligations. The lower your debt-to-income ration the better you will look when you apply. To improve this before trying to refinance you can increase your income or pay off your debt or do both!
- Employment: Just like having a stable income, lenders want to know that you have stable employment. You will need an existing job or a written job offer or contract in order to refinance your student loans. Sometimes they will require work experience but some companies will refinance your loans while you are in school or residency in special situations.
Those are some of the things that will be considered by the company writing your new loan so these are things you can work on improving if you want to qualify for a refinance.
Where To Find Student Loan Refinance Offers
So where do you actually refinance student loans? One of the best options for refinancing is SoFi. They have been the leader in student loan refinancing for a few years and many people have successfully used them to refinance.
SoFi (top lender)
SoFi has established themselves as one of the top refinancing companies and a very trusted source. Most of the people I know personally and who watch my channel have refinanced their loans through SoFi.
If you want recommendations, my comment section is full of recommendation comments like these:
- “I went with Sofi. I paid it off in five months so the interest rate wasn’t really a concern for me. They gave me money for funding my account.” – Sandy
- “will be going with SoFi because unemployment protection. I currently have them and they been nothing but helpful. I got this off the website and this is why the rates are slightly higher but not by much. Plus, the process is quick to refi.” – Sarah
One benefit of SoFi is you can also create accounts to invest, get a personal loan and do more beyond just refinancing. They have expanded their offerings to go beyond just student loans.
Another benefit is that SoFi gives out bonuses to people who refinance through them. If you use my referral link in this post you will get $100 when you refinance.
Check your potential refinance rate at SoFi and get a $100 bonus!
You may also want to check rates for multiple student loan refinancing offers in order to get the best deal. Below are a few companies you might want to use to get refinancing offers and compare the options for your refinance.
Credible (Compare rates)
Credible allows you to get multiple prequalified quotes from companies (including top private student loan lenders) in just a few minutes. I personally used Credible after hearing about them from another YouTuber and shared the step by step of my process getting refinancing rates.
Check out your student loan refinance options on Credible (does not affect credit) and get a bonus gift card if you refinance!
Splash Financial (Dave Ramsey Endorsed)
Splash financial uses leading technology lets you find your new, lower interest rate for your loans in under 3 minutes. They are endorsed by Dave Ramsey which makes them pretty trustworthy and I’ve seen people have major success refinancing their loans through Splash Financial.
Check out your student loan refinance options on Splash Financial (does not affect credit) and get a $250 check if you refinance!
I like both of these platforms because they compare multiple rates for you and also offer bonuses if you do end up refinancing with one of the companies they have shared with you.
Using either Splash Financial or Credible lets your compare who has the best student loan refinance rates since they compare multiple student loan refinancing rates from multiple companies.
Tips For Student Loan Refinancing
If you are planning to refinance your student loans, here are a few tips to consider:
- Apply to multiple lenders. I like Splash Financial and Credible because they handle this for you, but applying to multiple lenders gives you the best chance to get a low rate.
- Apply to multiple lenders within 30 days. Any time you apply for a new loan you have roughly 30 days to get different quotes so it will show as a single hard inquiry on your credit report.
- Check your credit report before applying. Make sure you remove any errors by disputing false claims. You can get your credit reports for free through AnnualCreditReport.com.
- Get a cosigner if you are worried you might not be approved. If you have a big negative factor against you then try to ask a spouse or family member close to you to be a co-signer. I generally recommend never cosigning for someone’s debt but this can often make the difference for many applications and many student loan lenders do offer a co-signer release which releases co-signers of financial responsibility meeting certain qualifications (check with your lender for details and requirements on this).
Those are just a few tips to keep in mind when you are refinancing your student loans.
Refinancing Student Loans Isn’t A Debt Quick Fix
Just because you refinance your student loans doesn’t mean they will be paid off. You are still in debt!
Refinancing the loan itself doesn’t get you out of debt – it just gives you a boost by either changing your payoff plan or lowering your rate to save you money.
Refinancing is not the get-out-of-debt secret or quick fix. You need to make sure that when you are refinancing it is the right move for you and it is the next step you will be taking to get out of debt faster!