How Student Loan Refinancing Works

If you have student loans you might be wondering how student loan refinancing works. This is especially helpful is you have private student loans that are not eligible for student loan forgiveness.

I recently refinanced student loans 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 after many people reached out with questions like:

  • Why did I refinance?
  • What is student loan refinancing?
  • How does student loan refinancing work?
  • Can student loan refinancing help you save money?
  • How does student loan refinancing help you pay off debt?

In this student loan refinancing guide I’m covering everything you need to know. I share my own experience, information about student loan refinancing, an easy explanation of student loan debt refinancing works 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.

My experience has been slightly different than a traditional student loan refinance. This is because I’m refinancing Parent Plus loans into a new loan in my name. Due to this I was unable to use certain companies. I also had to sign additional paperwork saying I was taking over the loan. Otherwise it was a similar experience to anyone else going through student loan refinancing.

The main reason I refinanced was to get a lower rate which to save money on interest. I paid these loans off quickly but still wanted to save money during this time.

I’ve learned a lot about student loan refinancing during this process. I learned through my own experience and with my audience sharing their stories as well.

What is student loan refinancing?

Student loan refinancing is when you refinance your student loans with a private lender. Most people do this in order to consolidate multiple loans or 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.
  • Anyone with federal or private student loans.
  • People who have private student loans.
  • People who have a consistent monthly income.
  • Anyone who wants 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.
  • Anyone with unstable income or low income.
  • People who have low interest rates already.
  • Graduates 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.

How student loan refinancing works 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. You need to know how student loan refinancing works compared to student loan consolidation or forgiveness.

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 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? There are actually a lot of options about there to use for student loan refinance. In this list I share two that I would recommend to friends (but have not personally used).

Below are the student loan refinance options I recommend.

I am not a partner of nor do I recommend Credible.

Splash Financial (Dave Ramsey Endorsed)

how student loan refinancing works with splash financial

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 Splash Financial lets your compare who has the best student loan refinance rates since they compare multiple student loan refinancing rates from multiple companies.


how student loan refinancing works with sofi

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.

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.

Tips For Student Loan Refinancing

If you are planning to refinance your student loans, here are a few tips to consider:

  • Learn how student loan refinancing works. You might be in student loan debt because you didn’t know how the loans worked. Don’t make the same mistake with refinancing. Learn everything you can before taking action.
  • Apply to multiple lenders. I like Splash Financial 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
  • 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 Is NO Quick Fix

Just because you refinance your student loans doesn’t mean they will be paid off. You are still in debt!

I hope this post helped you understand how student loan refinancing works. It is not a quick fix to get out of 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!

Mary is the founder of Pennies Not Perfection where she shares her journey to build wealth through online income. She quit her day job in 2021 after she paid off her debt and doubled her 9-5 salary.

Mary's favorite free financial tool is Personal Capital. She uses their free tools to track net worth and work toward to financial freedom.

Her favorite investment platform is M1 Finance, where she built a custom portfolio for free with no fees. She shares her portfolio growth and savings progress every month on YouTube.