Student Loan Refinance Guide

student loan refinance guide

The average student loan refinance can save you up to $20,000 over the lifetime of the loan. Whether you owe $5,000 or $200,000, refinancing your student debt will likely save you a lot of money. If you took out a private loan and your interest rate is above 4% then you might be able to get a lower rate. Even you have both federal and/or private student loans then you can consolidate them, refinance, and get a better rate.


Refinancing your student loans is easier than you think and many Millennial Money readers have refinanced, saving hundreds of thousands of total dollars in interest. To get you the best rate, I personally worked with Credible and LendKey to get the best available rates for you.


If you want to save time and check your rate now, I recommend using Credible. They work directly with many lenders and help you compare real rates from each of them quickly. Use the tool below to search for rates now.



How to easily refinance student loans


To make it easier to refinance I’ve put together this Student Loan Refinancing Guide to break down the process of student loan repayment. My goal is to give you the best practices for reducing your student debt fast while saving thousands of dollars over the life of your loan.


I know there are lots of companies out there able to refinance your loan. I also know a lot of these lenders look the same. They’re not. I recommend you read through this guide and contact one or each of our preferred lenders to get any of your student loan refinancing questions answered.

If you have any specific questions on student loan refinancing, here is a breakout of each of the topics covered in this refinance guide. Now, feel free to jump to any section that you want to learn more about.

Let’s face it. Undergraduate or graduate school is expensive. During the 2016-2017 academic year, the average cost of tuition and school fees at a private college or university rounded out to almost $34,000 a year. Four-year public universities will run you about $10,000 a year…but only if you’re going to school in-state. If you’re out-of-state, that public school starts to look like more of a private school at nearly $25,000 for each year of education.


Add room and board, books, transportation and personal expenses to the mix and you’re probably looking at another $15,000 – $20,000. The math? Getting your bachelor’s degree in four years is likely going to cost somewhere between $80,000 and $200,000. Getting your master’s, going to law or medical school can easily double that amount alone.


That’s not to say students are footing the bill themselves. Financial aid, student jobs and generous family members all make it possible to afford a critical education that would otherwise be out of reach for many of us.


The point is, it probably doesn’t matter where you went to school. If you got your bachelor’s, master’s or other higher degree in the past 10 years there’s a good chance a chunk of student loan debt graduated alongside with you. For a lot of young professionals like you and me, it’s simply a reality.


Just remember. No matter how much student loan debt you have, your education is still an amazingly importantly investment that you made in your future. Now let’s work together to figure out the best way to manage your loans.


How much student loan debt do you have?


The first step to solving any problem is gathering information. It’s no different when you’re goal is managing your student debt like a boss.


Do you know how much you owe? If you don’t know, then getting a handle on the size of your loan should be at the top of your list. When you consider interest over time, there can be a huge difference between owing $30,000 and $50,000 in student loans. In addition to loan amount, you should also be familiar with the terms of your loans, how long you have to pay them off, and the types of loans you are dealing with.


To get things started, let’s take a look at the different types of loans – federal and private student loans.


Federal Student Loans

Let’s cover federal first. To put it simply, federal student loans are funded and provided by the Federal Government. While there are different types of federal loans, they often offer specific benefits over private loans, such as income-based repayment plans (which we will cover later) and fixed interest rates. In addition to being fixed, these interest rates are often lower than those you will find with private loans. These benefits alone often make federal loans more appealing to borrowers, in addition to being backed by the government. To figure out how much you owe, check out the federal government’s website to search for your loans at


Federal loans also allow many borrowers to defer loan repayment for current students. This means you probably won’t have to start repayment until graduation, or you become a student enrolled at less than half-time. If you find yourself having difficulty covering your monthly loan payments, you will probably have more flexibility in finding a repayment solution that fits your current financial situation.


Federal student loan programs include:


Direct Subsidized and Unsubsidized Loans – Direct Federal Student Loan Program

Subsidized and unsubsidized loans are often known as Stafford Loans and Direct Stafford Loans. They are available through the U.S. Department of Education and allow borrowers to attend four-year universities and colleges, community college, career or technical schools. Subsidized loans are available to undergraduates who demonstrate the need for financial aid, while unsubsidized loans are available to both undergraduate and graduate students who are not required to show the need for financial aid.


There is a significant difference between direct subsidized and unsubsidized loans:


  • U.S. Department of Education will pay the interest of your subsidized loans while you are in school (at least half-time), for the first six months after you graduate, and during a period of deferment.


  • Borrowers are responsible for paying interest during school, the six-month grace period, and periods of deferment, otherwise the interest capitalizes and is added to the principal balance of the loan.


Subsidized Loans

Unsubsidized Loans

Interest accrues after school.

6 month grace period following graduation or program completion.

Interest not capitalized.

Gov’t covers interest during periods of deferment.

Grad students are ineligible.

Interest accrues during school.

6-month grace period following graduation or program completion.

Interest is capitalized and accrues during deferment.

Higher interest rates for graduate students.


Remember, to qualify for a subsidized loan you need to meet the following criteria:


Be an undergraduate student

Be enrolled in school at least half-time

Demonstrate Financial Need

Be enrolled in a program that leads to a degree or certificate


Federal Perkins Loan Program


Federal Perkins Loans, also known as Perkins Loans, are available to undergraduates, graduate students who have demonstrated a higher level of financial need. Perkins Loans also have a low interest rate at 5%. Your school is the lender with Perkins Loans, so all of your payments will be made directly to the school or the school servicer. Heartland ECSI is one large servicer of Perkins Loans across the country.


Keep in mind though that not all schools participate in the Perkins Loan Program, so be sure to check with your school’s (or prospective school’s) financial aid office to see if this type of student loan is available to you.


Federal Family Education Loan Program (FFEL)

The Federal Family Education Loan Program officially ended in March 2010 and previously was the second largest federal loan program. Through the FFEL Program, private lenders were able to make loans guaranteed by the federal government. As you can imagine, this program provided a substantial benefit to private lenders by insuring private lenders against default. The Federal Government also partially subsidized the loans by paying fees the private lender would otherwise need to cover.


Since this program is now defunct, it’s important to know how carrying a FFEL loan impacts your ability to pay it down. FFEL loans are not eligible for all federal repayment programs. In order to make yours eligible, you’ll have to consolidate them into a Direct Consolidation Loan. This effective converts your FFEL loan to a direct loan, thus making it eligible.


Loan TypeBorrower TypeBetween 7/14 – 7/15Between 7/15 – 7/16Between 7/16 – 7/17
Direct Subsidized LoansUndergraduate4.66%4.29%3.76%
Direct Unsubsidized LoansUndergraduate4.66%4.29%3.76%
Direct Subsidized LoansGraduate or Professional6.21%5.84%5.31%
Direct PLUS LoansParent and Graduate or Professional7.21%6.84%6.31%



Before going any further, I want to be clear that this section covers private loans offered to students while attending a college or university. Later in this guide, we will cover some of the best private student loan refinancing options available to working professionals looking to consolidate their student loans and find better interest rates.


In addition to loan options offered by the Federal Government, undergraduate and graduate loans are also available through private lenders. Though not as commonly used by students at first, private loans are available through commercial lenders, state-based programs, and sometimes directly through colleges and universities. While your initial thought might be “that’s great to have a loan option OTHER than the Federal Government,” there are some potential pitfalls that borrowers should be aware of.


First, private student loans don’t usually offer the same number of repayment options as federal loans. In addition, since your ability to obtain a private loan depends largely on a student’s (and often their parents’) creditworthiness, interest rates can vary quite a bit and can potentially be significantly higher than those available through one of the federal options we discussed earlier.


A huge element of borrowing from a private lender for school is the frequent need for a cosigner


Anyone considering a private loan should take a close look at a number of different factors, including interest rate, total cost of the loan, Annual Percentage Rate (APR) and length of repayment.


Finding a Solution to Your Student Loans


If you’re one of the many recent graduates who finished school with a sizable chunk of student loan debt following you out the door, then you’re not alone. In 2015, seven out of ten seniors graduating from a public university had debt upon graduation. What’s more is the average amount for those students debt came in at right around $35,000, and that doesn’t even include debt for those who attended a private college or university.


Thankfully, student debt isn’t the only thing that has been on the rise in recent years. The marketplace is now booming with a wide range of lenders looking to help borrowers like you and me save money while managing student debt effectively and as quickly as possible.


In this section of our student loan guide, we’ll explore options for refinancing and debt consolidation so that you have your most pressing questions answered today.


Student Loan Consolidation and Refinancing


Refinancing your student loans allows a lender to buy out your current loans. This results in a new loan that you can then repay at potentially a lower interest rate, depending on the new loan terms.


When you refinance, the process typically combines all of your previous student loans into one convenient payment. How cool! Depending on creditworthiness, the reduced interest rate and simplicity of having a single payment can really simplify how you manage your student debt.


I know what you’re thinking – a lower interest rate sounds great! But aren’t we talking about refinancing AND consolidation at the same time? Not quite. Take a look at the chart below to learn more about the differences between debt consolidation and refinancing.


Consolidation usually takes place through the Federal Direct Consolidation Program, which lets you combine your government loans so you can make a single monthly payment. You can also extend the term of your loan, at the same interest rate. This could lower your monthly payments but could mean you end up paying more in interest overall.If consolidation is like getting your house professionally cleaned, then refinancing is getting a whole new house. Refinancing is when you pay off your old loan, or loans, by taking out a new loan — typically at a lower interest rate. While a lower rate is good news, your new loan may not come with all the borrower benefits associated with government loans.


So Which is Better for Me?

Understanding the difference between consolidating and refinancing your student loans is an important, but a relatively simple concept to grasp. It’s way more difficult for folks to know which is the better option.


The truth: it depends on your current situation! Let’s take a look at two of the most common problems young professionals face while repaying their student loans.



My monthly payments are too high – I can’t keep paying this much!

If you find yourself stressing each month to cover your new student loan payments, in addition to rent, groceries, car payments, phone bills and everything else life throws at you, you’re not alone.


Debt consolidation is probably a good option for you. By consolidating your loans, you can take all of your current federal loans and boil them down into one simple bill. Since you probably have different interest rates for various loans, consolidating them will get you a weighted average of your current interest rates. This alone won’t necessarily bring down your monthly payments.


Consolidating your student loans will often give you the chance to opt for a repayment plan that extends of the term of your loan. This can help you reduce your monthly payments by stretching out the amount of time over which you pay it back.


There are some important things to consider if you decide to consolidate. Extending the term of your loan probably won’t affect your interest rate, meaning you will pay more interest on the loan since the interest will now accrue over a longer period of time. Also take a look at any borrower benefits you might lose by consolidating, including interest rate discounts, principal rebates, and other potential loan cancellation benefits. By ignoring these important factors, consolidating could cost you in the long term.


I can cover my monthly payments, but these interest rates are ridiculous!


If work is going well and you are able to cover your monthly student loan problems no problem, but don’t like how slowly your loan is being paid down, then there is another option to consider: student loan refinancing.


Don’t feel like spending the next 10 or 15 years paying off your four years at university? I don’t blame you! High-interest rates are often to blame for those worried about how long it will take to pay off student loans. Refinancing your student loans can lower your interest rates, thus allowing you to pay off more of the actual debt you owe and less of the interest accruing on top of it.


Refinancing can be especially helpful for those who took out loans between 2006 and 2013 when interest rates were higher.


Keep in mind that refinancing won’t necessarily lower your monthly payments. But, you should be able to pay off your debt faster and with more confidence.


A Note Before Refinancing with a Private Lender


Of the $1.2 trillion of student debt currently owed in the United States, over $1 trillion comes from federal loans. Because of the sheer amount of federal debt owed by recent graduates, Congress has enacted a few special tools to make student loan repayment more affordable and manageable.


If you are carrying federal student loans, take a closer look these three options that refinancing could potentially affect:


Loan Forgiveness Programs


The Public Service Loan Forgiveness Program (PSLFP) and Teacher Loan Forgiveness Program are two of the most commonly used. Check to see if you’re eligible for either program before refinancing.


Special Repayment Programs


Federal loans often allow borrowers to use different types of repayment plans, including graduated repayment plans, income-driven repayment plans and income-based repayment plans. Before refinancing, check with prospective lenders on the different types of repayment plans offered.


Deferment and Forbearance 


If you rely on the occasional forebearance or deferment while paying down your debt, make sure double check on these options with any private lender looking to refinance your debt.

Remember that managing your student loans doesn’t mean doing whatever your friends or family members are doing. Always take a look at your current situation and take the time to strategize an attack plan for getting rid of debt. Refinancing might may a ton of sense for young software engineer just entering the industry, while a public defender or government employee could benefit in the long-run from maintaining their federal loans. There is no ‘one size fits all’ formula. Be thoughtful and deliberate with your situation.


How to Refinance Your Student Loans


In a nutshell, the process of refinancing your student loans is simple and straightforward:


  1. Find a lender willing to refinance your student loans. There is a growing marketplace of lenders who can refinance both federal and private loans with attractive interest rates.


  1. Submit a refinancing application to each lender. You will need several pieces of information to apply, including your loan balance, income and credit score.


  1. Select the BEST offer, review the new loan terms and information, and accept.


Keys to Getting the Best Offers


  • Good Credit: Always work to improve your credit score before financing, if needed. Having the best credit possible given your situation is critical to getting better interest rates. If you have bad or fair credit, take the time to strategize improving your credit. Once you have a credit score above 650 or closer to 700, you will probably start to see interest rates start to drop when refinancing.


  • Work Experience: It is important to demonstrate stable employment at your current or desired financial standing. Lenders want to see that you can keep and manage your salary, while paying off current debts. Having a solid job for over a year can go a long way to help you look attractive to lenders.


  • Current Market Rates: This one is simple. Keep an eye on current market rates to make sure you’re not leaving money on the table. It doesn’t take much time to see when interest rates are as low as possible.


  • Low debt-to-income ratio: Your debt-to-income ratio is tied closely to your credit score. It’s always an important and separate element that lenders look at in determining your ability to pay off newly refinanced student loans. Lower your debt-to-income ratio to improve your chances of getting the best offer.


Picking the Right Lender to Refinance

I have seen a lot of different student loan refinance lenders. The key isn’t finding a lender willing to make an offer to refinance your student loans, it’s about finding the RIGHT lender who WANTS to work with you. The truth is, not all lenders are the same.


There are four important things to consider when looking at multiple lenders:


Flexibility: What kinds of loans do you need to finance? Are you looking for fixed or variable rate loans?


Interest Rates: Keep an eye out for competitive rates. Make sure you match your total savings goal with the rates being offered.


Benefits: In cases of financial hardship, such as losing a job, can your lender offer a forbearance, letting you get back on your feet before restarting payments? Keep a running list of the things you need from a lender, and be diligent about getting as many of those benefits when refinancing.


Process: Make sure you are comfortable with the steps required by the lender before accepting an offer to refinance your student loans. How long does it take from application to refinance? Take the time to get all of your questions answered.


Fixed vs. Variable Rates


Interest RateRates will not change throughout the loan’s duration.Interest will increase or decrease periodically due to changes in a base rate set by large financial institutions.
Monthly PaymentsMonthly payments remain constant throughout the loan’s duration (payments can increase with income in income-driven plans).Monthly payment will fluctuate periodically with changes to the interest rate of the loan.
ProsPredictability and certainty of monthly payments and interest rate over time.Generally offers a lower interest rate in short term. If long term interest rates remain low, variable rates can provide lower overall repayment in comparison.
ConsFixed interest rates are in general, currently higher than variable rates in the short term.Interest will increase or decrease.


Loan Duration: Short-Term vs. Long-Term Repayment

Refinancing your student loans with a long-term repayment plan (15 years) might be attractive, but remember that interest rates are going to be higher and will cost you more money in the long run.


Short-term repayment plans (5 years) will have lower interest rates, but will result in higher monthly payments than if you went with longer term repayment.


YearsAPRMonthly PaymentTotal Payment


Why I Recommend Using Credible to Refinance Your Loans

Our friends at Credible have established a dynamic online marketplace that allows you to request personalized loan offers from lenders with ease. Through Credible, you will have access to vetted lenders who can save you money while putting you back in control of our student loans.


credible refinancing

Credible can offer some pretty incredible benefits over direct-to-lender refinancing:


  • Get offers from up to 12 lenders at a time!
  • Higher conversion rate as a result of greater selection and eligibility, with loan products for every state.
  • New loan products are updated as new lenders enter the market.
  • Compare multiple offers from multiple lenders.

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