Lower interest rates. By choosing to refinance your student loans, you can often get a lower interest rate on your new loan if you have a good credit score. This can help you get a lower monthly payment and could save you money over time.

Cons of Refinancing

Lose access to federal student loan benefits. As a borrower of federal student loans, you have access to a variety of repayment options, protections, and benefits. For example, if you find it difficult to make your federal student loan payments, you can apply for an income-driven repayment plan, forbearance, or deferment.

If you work in certain professions, you can also apply for student loan forgiveness programs to get part of your debt forgiven. When you refinance federal loans, you give up all of these potential benefits.

For example, if you had refinanced your federal student loans before March 2020, you’d be required to make monthly payments right now even though most federal student loan borrowers aren’t. Why?

Because you wouldn’t have been eligible for the government mandated pause on student loan payments or any of the potential future initiatives to forgive or cancel (some) debt under President Joe Biden’s student loan forgiveness plan.

It’s for these reasons that student loan refinancing is generally recommended for people with private student loans.

How to Refinance Student Loans in 5 Steps

Have you decided that student loan refinancing is a smart move for you? If so, here’s how to do it!

Step 1: Find the Right Private Lender to Refinance

The first step is finding a private lender that can offer you competitive rates. Where do you look for these lenders and how do you know if their terms are competitive?

There are many banks, credit unions, and private lenders for you to choose from. And, on their websites, you can usually request a quote for potential interest rates by filling out a form that asks about your:

• Contact information
• Educational background
• Student loan debt
• Finances (annual income, savings, monthly payment for rent, etc.)
• Social security number

The private lender will use that information to run a soft credit check (i.e. it won’t affect your credit score). This credit score check could take as little as 2 minutes. And, if you qualify, you’ll then have a range of offers from that lender with different interest rates and repayment options.

Aim to request rates from multiple lenders so you can compare and ensure you’re choosing the best lender to refinance your student loans.

Step 2: Choose the Best Lender and Loan Terms

With multiple interest rates and offers in hand, you’re ready to choose the best lender for your financial situation and goals. But what should you look for? How do you determine which one’s the best?

Typically, you’re looking for the lender that can offer you the lowest interest rate. That way, you can reduce how much you need to pay on the loan over time.

You’ll also want to compare repayment plans (e.g. how long you have to pay off the loan), repayment terms (e.g. late fees), and see which lender has the most enticing perks (e.g. the option to temporarily skip a payment).

Step 3: Submit The Application

After you’ve decided on which lender to go with, you’ll need to submit a formal application to refinance your student loans.

At this stage, you’ll be asked for copies of your:

• Government issued ID (e.g. drivers license)
• Proof of income (e.g. pay stubs, tax returns)
• Social security number
• Official statements of the student loans you’d like to refinance

After receiving your application, the lender will run another credit report check (this one may slightly affect your credit score) to determine the exact interest rate they can offer you.

Step 4: Complete the Final Paperwork

If the lender approves your application, you’ll then need to complete some additional paperwork, sign a few documents, and indicate which of your student loans you want to refinance.

Once that’s completed, you’re almost done! But don’t forget about the next step.

Step 5: Continue Making Regular Payments to Your Original Lender

Once the application is completed, your new lender will have to work with your original lender to pay off your student loan balance. The entire process typically takes between three to six weeks, but it could be longer. You’ll be notified by the new lender once everything is done.

Until then, you should continue to make your monthly payments on time to the original lender of your student loan to avoid late payment penalties. You’ll be refunded if you end up making a monthly payment you didn’t need to make.

Final Thoughts

If your monthly student loan payments are too high, you may want to see if you are eligible for refinancing. As we’ve shown in this post, student loan refinancing can help you lower your monthly payments, get a lower interest rate, and gain access to better repayment options.

But before you do any of that, you’ll want to compare student loan refinancing rates and terms from different lenders. That way, you select the lender that can help save you money