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How to refinance your student loans in 5 steps

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Refinancing your student loans involves taking out a new loan to pay off your existing educational debt. For some people, it’s a smart move that can save money and improve their financial lives. For others, student loan refinancing may not be the right step. Read on to learn how to decide if refinancing student loans makes sense and the steps you can take to start the process.

Should I refinance my student loan?

Refinancing a student loan could help you get out of debt sooner and possibly reduce your monthly payment obligations, but this hinges on whether you can qualify for a good deal.

Before you decide to refinance your student loan, there are a few factors to consider:

  • Type of loan: The type of loan you have may impact your options for refinancing. Refinancing can only be done through private lenders, so refinancing your federal loans means that you’ll lose federal protections — like federal forbearance, income-driven repayment plans and more.
  • Remaining time left: Refinancing into a longer repayment period could increase the overall amount of interest you’ll pay on your loan, so if your loan is almost paid off, it could be cheaper to stick with the loan you already have. If you’re at the start of your repayment period, on the other hand, refinancing may not impact you as much.
  • Current interest rate: Most people choose to refinance in order to get a lower interest rate. Getting a lower rate means you could pay less in interest over the loan term, as long as you don’t stretch out your repayment term.
  • Monthly payment: Refinancing is a good idea if you have an unmanageable monthly payment. Extending your repayment term may ultimately increase the amount of interest you pay, but it will also lower your monthly bill.

When in doubt, use a student loan calculator to compare your current loan with any new loans you’re considering.

How to refinance your student loan in 5 steps

There are five steps to take if you’re ready to refinance your student loan:

  1. Check your credit.
  2. Shop for the best rate.
  3. Choose a loan offer.
  4. Fill out an official loan application.
  5. Sign your loan documents and start paying your new loan.

1. Check your credit

When you apply to refinance your student loans, one of the first steps a lender will take is checking at least one of your credit reports and credit scores. This is why you should go over your reports from Equifax, TransUnion and Experian regularly to check for any mistakes or errors. If you discover inaccurate information on a credit report, the Fair Credit Reporting Act (FCRA) gives you the right to dispute those items with the appropriate credit-reporting agency.

It’s also wise to get an understanding of where your credit currently stands prior to filling out loan applications. If you find that your credit isn’t in the best shape, you can work to improve your credit before you try to refinance.

The FCRA lets you claim free reports from all three credit bureaus weekly at AnnualCreditReport.com.

Loan Student
Key takeaway
Reviewing your credit scores before refinancing will help you understand where your credit stands and confirm that your reports are error-free.

2. Shop for the best rate

Researching student loan refinancing rates and checking with multiple lenders to find the best rate is a key element in successfully refinancing your student loans. In fact, rate shopping should be something you do anytime you’re looking for a new loan or credit card.

Search online to compare lenders’ rates and fees. If a lender offers a prequalification tool, take advantage; these types of applications require only a soft credit inquiry on your credit report. Getting prequalified can help you see the type of rates and loan terms you might qualify for if you refinanced. You can use this information to see if refinancing would leave you any better off in terms of your monthly payment or total interest paid.

Loan Student
Key takeaway
Take the time to check rates and fees with at least three separate lenders before you commit to a new loan.

3. Choose a loan offer

Once you’ve reviewed (and hopefully prequalified for) several loan offers, you’ll be better equipped to choose the option that suits you best. The lender you choose to work with may let you select your preferred repayment terms as well.

A shorter loan term (e.g., five years) might help you secure a lower interest rate and pay off your debt faster. However, your monthly payment would likely be higher. If you extend the loan term, on the other hand, you could reduce the size of your monthly payments and make managing your budget easier. The trade-off would be more interest paid over the life of the loan and more time passing before you eliminate the debt.

Loan Student
Key takeaway
Look at your budget and overall financial picture to decide which loan terms make the most sense.

4. Fill out an official loan application

You’ll need to fill out an official loan application once you’ve narrowed down your preferred lender and loan offer. Even if you went through a lender’s prequalification process, you will need to complete this step before your loan can be approved.

At this point, the lender will likely request a hard credit inquiry to access your full credit report.

The lender will also want additional information that you didn’t include on your prequalification form. If you’re applying with a co-signer, you’ll need to provide their information as well. You may need to provide the lender with copies of documents and information such as:

  • Social Security number (SSN).
  • Driver’s license or government ID.
  • Loan payoff statements from existing student loan lenders or servicers.
  • Proof of graduation.
  • Proof of employment (paystubs, W-2, etc.).
Loan Student
Key takeaway
Having your loan documents ready before you fill out your application to refinance will help the process go smoother and faster.

5. Sign your loan documents and start paying your new loan

Once you’re approved for your loan, you’ll sign your loan documents. Technology has made this step considerably easier; where you once had to sign loan documents in person or fax or mail them in, most student loan companies now handle their entire process online for ultimate convenience.

Once your documents are signed and filed, you will begin making payments on your new loan just like you were with your old one. However, keep in mind that your new lender may not pay off your former loans right away; sometimes the process can take a few weeks. Continue making any student loan payments that come due in the meantime so you don’t face late fees or potential negative credit reporting.

Loan Student
Key takeaway
After signing your loan documents, keep making payments on your old loans until the transfer officially goes through.

FAQ about student loan refinancing

How do you find out if you’re eligible for student loan refinancing?

Getting prequalified is an excellent way to see if you’re eligible for student loan refinancing. While prequalification doesn’t guarantee that you’ll be approved, it can help you see if you meet the minimum criteria set by lenders. In general, you’ll need to have a credit score in the mid- to high 600s, a debt-to-income ratio of less than 43 percent and a source of steady income.

How long does it take for a student loan refinance to be approved?

Once you fill out a loan application and submit the required documentation, your refinance request could be approved within a few days or a few weeks.

Can you refinance federal student loans?

You can refinance federal student loans, although you will need to do so with a private lender. This means that you’ll give up federal protections like deferment and forbearance, as well as access to benefits like income-driven repayment plans.

Can you put student loans in someone else’s name?

Refinancing a student loan allows you to transfer student loans to someone else. Some parents do this with loans that they took out for their child’s education — transferring those loans to the child once they’re in the workforce. Keep in mind, though, that the loan will have new terms and new rates, which are based on the new borrower’s credit.

Can you refinance student loans with bad credit?

There are many lenders that refinance student loans for people with bad credit, although if a lender does accept a lower credit score, it will almost certainly offer higher rates. As with new student loans, you can often apply for refinancing with a creditworthy co-signer, which could help you get qualified if you have poor credit.

Next steps

Do your homework, compare multiple offers and consider both the risks and benefits of refinancing before you fill out an official loan application. Refinancing student loans is a good option for many people, but not for everyone. It’s usually not wise to refinance federal student loans, but if you have private loans and you can get a better rate through refinancing, it’s worth considering.

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Written by
Michelle Black
Contributing writer
Michelle Lambright Black is a credit expert with over 19 years of experience, a freelance writer and a certified credit expert witness. In addition to writing for Bankrate, Michelle's work is featured with numerous publications including FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others.
Edited by
Student loans editor