Student Loan Refinance Guide

refinance student loans

Student Loan Refinance: Introduction

Congratulations!  You’ve passed your exams, gotten your degree, maybe even landed the dream job…but along with it, you’ve got what feels like a nightmare of student loan debt to go with it. You’re not alone – there is approximately $1.3 trillion of outstanding student loan debt that affects over 40 million borrowers.

But you’re savvy and you’ve been preparing for this day since you bought your first set of bed sheets for your dorm room (ok, maybe not…but you still want to pay off those student loans as fast as possible). 

Wanting to pay off student loans and actually paying off student loans are two different things though – so how will you tackle that student loan debt? You’ll need to be proactive and look for all of the student loan help you can get. 

Student loan help comes in many shapes and sizes – student loan refinance, student loan consolidation, student loan forgiveness and the more nebulous cousins, student loan deferment and student loan forbearance.  Today, we’re going to look closely at student loan refinancing (and explain how you can potentially save more money with student loan refinance over student loan consolidation).

What is Student Loan Refinance?

The goal of student loan refinance is to get you a better deal on your student loans so you can pay them faster and save money as you do it. Student loan refinance is also about getting you a lower interest rate based on your financial profile, and not just the same fixed interest rate that the government offers regardless of your financial profile.

  • Lower payment.  Lower your monthly student loan payments
  • Lower interest rate.  Get a lower interest rate
  • Change loan term.  Shorten or extend your student loan term
  • Fixed vs Variable. Switch from a fixed interest rate to a variable interest rate, or vice versa
  • Simplify payments.  Simplify your monthly student loan payment with a single student loan repayment

Sounds great, right? You are probably asking yourself a few questions:

  • Why can I save so much money with student loan refinance?
  • What’s the difference between student loan consolidation and student loan refinance?
  • What is the eligibility criteria?
  • Am I a good candidate to refinance student loans?
  • Who are the best student loan lenders with whom to refinance student loans?

Many people have never heard of student loan refinancing and did not realize it was even an option. That’s why we put together our Doc Benjamins Student Loan Refinance Guide to help you understand the basics, navigate your options, answer key questions, provide the facts, and help you through the student loan refinance process.

Student Loan Refinance vs Student Loan Consolidation?

Well first, there is a difference between student loan consolidation and student loan refinance.

Student loan consolidation, specifically direct loan consolidation, is offered by the federal government, and applies only to federal student loans. As the name suggests, student loan consolidation means you just combine your existing federal student loans into a single student loan. The interest rate on your new consolidated student loan is simply a weighted average of the interest rates on your existing student loans.

Student loan refinance, or private student loan consolidation, is both a consolidation (combining of existing loans) and a new student loan with a lower interest rate. A private lender can give you a new student loan, pay off your existing student loan, allow you to refinance both federal student loans and private student loans into a single student loan. Plus, your new student loan interest rate will be based several factors, which may include your credit score, track record of financial responsibility, income, and ability to manage debt payments.

Since the federal government does not refinance student loans, you can think of student loan refinancing as a form of private student loan consolidation – meaning that you refinance with a private student loan company, rather than the federal government, with the primary goal to save money and lower your monthly payments. Many private student loan companies will refinance, though, both your federal and private student loans. When you refinance your student loan, your new lender pays off your existing student loan and issues you a new private student loan. The goal is to lower your overall interest rate so you can save money on student loan interest costs.

Unlike a federal government loan in which each and every borrower receives the same interest rate, private student loans are credit-based, which means that your credit history, income, and/or credit score may impact the interest rate on your new loan. Private student loan companies use different underwriting models to determine qualifications and interest rates.

But you can expect that the stronger your financial profile and demonstrated financial responsibility, the lower your interest rate will be. The good news is that some private student loan companies enable you to have a co-signer (such as a family member), who will assume financial responsibility for your student loan and can help you obtain approval for your student loan application based on their financial profile.

Why Refinance Student Loans?

The primary reason to refinance student loans is the potential to receive a lower interest rate than your existing student loan. Federal student loans may have interest rates as high as 6.8% on an undergraduate student loan, and even higher for a graduate PLUS loan. You may have other private student loans at even higher interest rates that you borrowed while you were a student. Now that you have graduated and have an income and established work history, private student loan lenders are likely to offer you a lower interest rate than these types of student loans.

One downside of refinancing student loans is that you lose federal student loan protections such as income-driven repayment options, Perkins Loan cancellation, and public service loan forgiveness, and teacher student loan forgiveness, student loan deferment and student forbearance programs, among others. So if you think you will need these benefits, then you should check for eligibility to see if you qualify before refinancing student loans. However, if saving money on your student loans is your top priority, then student loan refinance may be your best option.

Income-Driven Repayment Plans

Federal student loans offer benefits that are not offered by private student loan companies such as income-driven repayment plans, which allow the borrower to make student loan payments based on income. For example, a graduated student loan repayment plan enables the borrower to make low monthly payments at the beginning of the student loan repayment period and increase the student loan payments over time as the borrower’s income increases. Other income-driven repayment programs for borrowers with high debt-to-income ratios allow the borrower to make small monthly student loan payments, and then any remaining principal can be forgiveness after 20 or 25 years.   

These income-driven repayment plans can be beneficial to lower your monthly student loan payments and provide flexibility, particularly if you have a lower income in the beginning of your career. The downside is that with a lower student loan payment, interest still accrues, or accumulates, on the principal balance. So, even though the monthly student loan payment is lower, you actually end up paying more for your student loans because of the interest costs. 

Student Loan Forgiveness

Federal student loans can offer student loan forgiveness benefits as Public Service Loan Forgiveness and Teacher Student Loan Forgiveness. If you work in either of these professions, you may want to check whether these benefits apply to you before your refinance student loans.

Student Loan Deferment and Student Loan Forbearance

Most federal student loans allow you to postpone making student loan payments due to financial hardship. The most common benefits are student loan deferment (during which student loan interest does not accrue) and student loan forbearance (during which student loan interest does accrue). Most private student loan companies do not offer student loan forbearance, but do offer some form of student loan deferment, including monthly payment postponement and help finding a new job if you lose your current job. You can check out our student loan company reviews to learn more.

Where Can I Refinance Student Loans?

You can learn more about private student loan companies who can offer fixed and variable student loan interest rates as low as 2-3%. Plus, if you sign up for autopay, you can earn a 0.25% discount on your student loan interest rate, which adds up to big savings over the course of your student loan.

Flexible Student Loan Repayment Terms

Private lenders offer borrowers multiple options for student loan repayment, with terms ranging typically from 5 to 20 years. You also will have an opportunity to choose between fixed and variable interest rates. If you want to pay off student loans and get out of debt as quickly as possible, then you will want to choose a shorter-term option (such as 5 years or 10 years).

While you will save on student loan interest costs (compared with a 20-year student loan, for example), your monthly interest costs will be relatively higher than with a longer term student loan option. However, you may be able to save money depending on how much money you save with your new student loan interest rate.

Summary Comparison: Direct Consolidation Loan vs. Student Loan Refinance

We often get the question: Which is better – direct federal student loan consolidation or student loan refinancing? Each have their benefits…

 Direct Loan ConsolidationStudent Loan Refinancing
Are federal student loans eligible?
Are private student loans eligible?
Is a credit check required?

Can I lower my interest rate?
Can I save money?
Can I get one bill?

Am I A Good Candidate To Refinance My Student Loans?

When you first borrowed your student loans, you may have had both a federal student loan and a private student loan. Your federal student loan is likely at the same high rate as everyone else’s, since the federal government offers the same fixed rate to all borrowers. If you have a private student loan, it likely is a variable rate loan with a high interest rate. This is because when you borrowed that loan, you were in school and you may have had a limited credit history, which meant that your student loan company deemed you a higher credit risk.

Now, you may have graduated, become employed, and developed a stronger credit history. As a result, you may be able to qualify to consolidate and refinance your existing federal student loans and private student loans into a new private loan with a lower interest rate.

If your goal is to obtain a lower interest rate, lower your monthly payments, switch from a variable interest rate to a fixed interest rate (or vice versa), or change the loan term to a longer to shorter number of years to repay your loan, then you may be a good candidate to refinance student loans.

Do Federal Student Loans Offer the Lowest Interest Rates?

This is a major misconception. Particularly for graduate school and professional school such as business school, medical school, dental school, law school, pharmacy school and other programs, you can get a much lower interest rate by refinancing student loans with a private student loan company.

Why? Interest rates are near an all-time low, so private student loan companies are able to offer lower student loan interest rates than the federal government. Most graduate school loans through the federal government, for example, are comprised of Federal Direct Unsubsidized Loans and Direct PLUS Loans. could have an interest rate with the federal government. These loans can cost almost 6% and 7%, respectively. In addition, a PLUS loan borrower will have to pay a 4.292% origination fee. Even as interest rates have declined (e.g., the 10 Year Treasury Rate has declined from 5% to less than 2% over the last 10 years, Graduate PLUS Student Loans have stayed relatively constant at 6.8%. That’s great news for the federal government as the lender, but not so great for you as the borrower.

Further, the federal government does not “underwrite” student loans based on the individual borrower. Rather, each borrower gets the same interest rate – regardless of your income, financial profile, or credit score. If you score high in these categories, then you are essentially overpaying for your student loan and may be able to obtain a lower student loan interest rate through a private student loan company. This is why student loan refinance with private student loan companies has become such a popular solution for student loan debt payment.

Can I Combine My Federal Student Loans and Private Student Loans When I Refinance?

Yes, you can combine federal and private student loans with certain student loan companies when you refinance student loans. You also may be able to refinance student loans that you previously consolidated with the federal government through the U.S. Department of Education (e.g., Direct or FFEL) or a private student loan company.

Double check with your lender when you refinance your student loans to make sure. Also, when you refinance your federal student loans, you lose most flexible student loan repayment plans and other protections connected with a federal student loan. That said, some student loan companies offer flexible student loan repayment plans, including student loan deferment and student loan forbearance.

Again, you should check with your new prospective student loan company and be sure to ask the new student loan company the differences between your new, refinanced student loan and your existing federal student loan.

What Will My Monthly Payments Look Like?

Hopefully lower than what you are currently paying! You are in the driver seat – so you should consider a student loan that fits your personal and financial needs. Your monthly payment is primarily a feature of your interest rate, loan term and loan amount.

  • Fixed Interest Rate. If you have a fixed interest rate, your monthly student loan payment will remain constant each month for the duration of your loan.
  • Variable Interest Rate. If you have a variable student loan payment, your monthly loan payment may change each month based on the underlying benchmark such as 1 Month LIBOR.
  • Shorter-Term Loan. If you have a shorter-term student loan (e.g., 10 years or less), your monthly payments may be higher than if you have a longer-term loan (more than 10 years) because you have a shorter period to pay off the loan.
  • Longer-Term Loan. The longer the term of your loan (e.g., the number of years to pay back your loan), the more interest that will accrue over time and the more interest you will owe.

So, you should decide how much you can afford to pay now versus over time and find the loan product that works best for your personal and financial needs. And remember – most student loan companies offer up to 0.25% discount off your interest rate if you sign up for auto pay. The autopay savings can really add up.

What Happens To Your Student Loan Interest Rate With Student Loan Consolidation?

This is the biggest different between student loan consolidation and student loan refinancing.  When you refinance student loans you are hoping to get a lower interest rate or better overall terms for your student loan repayment.  However, with a Federal Direct Loan consolidation, your interest rate will be calculated based on the weighted average of the interest rates on the loans being consolidated.

While most federal student loans are eligible for student loan consolidation – private loans are not.  Also worth remembering – if you’re a parent with Parent PLUS loan, you cannot transfer that Parent PLUS loan to the student (now graduate) when he or she consolidates.

Do I Qualify For Student Loan Refinance?

To qualify for student loan refinancing, you usually need to show a few things.  First you need to have graduated from a qualified degree program or university, which is typically a Title IV accredited school. Second, you need to have a steady stream of income and third, you need a history of making timely payments. There are many different lenders and student loan companies in the market place offering student loan refinancing.  Each student loan company has different criteria for eligibility.

Typically, eligibility criteria to refinance student loans include:

  • Strong monthly cash flow
  • Healthy credit
  • Demonstrated financial responsibility
  • Currently employed or have written job offer
  • Degree from Title IV accredited university or degree program

Of course, eligibility criteria vary by student loan company, but this should give you a general framework. The stronger your financial metrics – for example, credit score, income, historical financial responsibility, current outstanding debt – the lower student loan interest rate you may be able to obtain.

Student Loan Refinance Process

Now that you have made the decision to refinance your student loans, it is time to understand the student loan refinancing process. Over the past five years, the process to refinance student loans has been simplified considerably. Gone are the days of piles of paperwork, long wait times, and bureaucracy.

So, what does the student loan refinance process look like?

1. Easy Application Process

2. Select Your Loan

3. Submit Your Loan Documentation

  • You can submit your documentation online
  • Some lenders will allow you to take a photo of your documents, or even submit via text
  • Key documents include your:

– Driver’s license or passport (or government issued ID)
– Transcripts / Diploma to verify your degree
– Payoff statement from your current lender (if refinancing)
– Monthly rent amount or mortgage payments
– Two most recent pay stubs or tax returns (or offer letter of employment)

4. Lender Underwriting Review

  • The lender will review your submitted documents and credit report
  • The lender will apply its proprietary credit model to ensure that you meet all its underwriting criteria

5. You’re Approved!

6. Review Disclosures & Sign Loan Documentation

  • Review truth in lending and other disclosure statements
  • Sign your student loan documentation

7. Your Student Loan Is Disbursed

  • If you refinance, your lender will issue you a new student loan and directly pay off your existing student loan from your existing lender
  • If you borrow a new student loan, your lender will send the funds directly to your school

Top 10 Must Haves From Your Student Loan Company When You Refinance

When you refinance student loans, here are the Top 10 must haves you should look for:

  1. Lower interest rate

  2. Flexible loan terms

  3. Significant savings compared to existing student loans

  4. Fixed and variable interest rates

  5. Dedicated and available customer service

  6. Ability to refinance federal and private student loans

  7. Online application

  8. Forbearance options in case of economic hardship

  9. Autopay discount

  10. Other benefits


I Am Interested In Student Loan Refinance – How Do I Sign Up?

While it used to be a cumbersome process that involved mountains of paperwork and hours of your time, now in just two minutes, you could learn what your new student loan interest rate could be.  To learn more about student loan refinance options, you can read our student loan reviews and check out the 9 Best Lenders To Refinance and Consolidate Student Loans In 2016.


Want to save money on your student loans? These lenders represent our top student loan refinancing picks for 2017, and may be able to help you save thousands of dollars on your student loans by offering lower interest rates and lower monthly payments. That’s real money back in your pocket.

Learn your new student loan interest rate in a matter of minutes.

Student Loan Refinancing – Best of the Best

LenderRates (APR)Loan Terms (Years)Get Your RateLearn More
2.75% - 7.35%5 – 152 minutesSTART SAVING
2.21% - 8.97%5, 10, 15, 202 minutesSTART SAVING
3.89% - 7.45%5, 7, 10, 15, 202 minutesSTART SAVING