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Why so few banks refinance student loans

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If you’re struggling to pay off student debt, refinancing may seem like an attractive option. If you have good credit — or a creditworthy co-signer — refinancing could reduce your interest rate and give you extra money to stash in a savings account or use to pay off other debt.

That said, you may be hard-pressed to find a traditional bank that is willing to refinance student loans. There are several reasons why this is the case, including strict regulations around private student loan lending and a limited market.

Why don’t many banks refinance student loans?

Student loan expert Mark Kantrowitz says that many large banks no longer make or refinance private student loans because it is a small segment of their business, and it comes with additional regulations, such as private student loan disclosure requirements.

Kantrowitz notes that many large banks got out of private lending and student loan refinancing after the FFEL federal student loan program ended in 2010. This loan program had a much larger loan volume and guaranteed profits, he says, so its end meant that there was little incentive for big banks to offer student loan refinancing products to such a limited market.

Some larger banks also tend to see auto lending as an easier way to reach recent college graduates, he says. Other banks with a large online presence may choose to focus on financial products with a much broader appeal instead, such as credit cards or personal loans.

That said, many technology startups have filled in the gaps in the student loan refinancing market, so there are plenty of institutions competing in this space.

Kaitlin Walsh-Epstein, chief marketing officer of student loan company Laurel Road, says that the fact that more and more fintech companies are refinancing student loans is a reflection of these companies’ ability to provide exceptional digital banking services. “We expect to see fintechs continue to advance in the space, especially those with the capabilities to service today’s customer needs.”

Should you refinance with a bank?

If you are hoping to refinance your student loans with a traditional lender, you should make sure that you’re taking steps to get the best possible deal. After all, refinancing your student loans will only make sense if you’re getting a lower interest rate, winding up with a more affordable monthly payment or changing your loan terms so they suit your needs better in some way.

The best way to find the best lender is to get prequalified with several. Your rate will vary based on your creditworthiness, so checking each company’s website to see advertised rates isn’t necessarily the best way to compare loan offers. Try to get prequalified with a mix of banks and online lenders.

In some cases, a traditional bank may offer you the cheapest loan, especially if that bank has discounts for existing customers and you already hold a credit card or bank account with that company. Refinancing with a bank could also be convenient if you have bank branches nearby to go for questions. However, there may also be cases where online lenders offer more flexibility with your loan or unique benefits, which could make them a better choice.

Banks that refinance student loans

While many of the most well-known student loan refinancing companies are digital-only companies, there are a few banks that will refinance student loans:

  • Citizens Bank: Citizens Bank is a good choice for borrowers who already have a checking account, savings account, credit card or other financial product with the company. Citizens Bank offer a 0.25 percent discount to existing customers, in addition to a standard 0.5 percent autopay discount. Borrowers may repay their loan over five to 20 years, although they must refinance at least $10,000.
  • Discover: Discover has taken a fee-free approach to student loan refinancing, eliminating origination fees, application fees and even late fees. Borrowers are also free to refinance while they’re still in school, which is a rare option. Unfortunately, Discover limits refinancing amounts to $150,000.
  • Education Loan Finance: A division of SouthEast Bank, Education Loan Finance offers refinancing with low starting interest rates and a wide range of repayment terms. All borrowers are assigned a student loan advisor to help with questions about repayment, loan options and more. If you do apply with a co-signer, note that Education Loan Finance does not offer co-signer release on its refinancing loans.
  • Laurel Road: Laurel Road does not limit its refinancing product to bachelor’s degree-holders; it will also refinance the loans of people with associate degrees in health care fields. It also offers a 0.25 percent discount to borrowers who link their student loan with a Laurel Road checking account, though borrowers who make a late payment or have insufficient funds will be charged steep fees.
  • PNC Bank: PNC Bank offers low interest rates and a choice of four repayment terms for undergraduate and graduate degree-holders, as well as a generous 0.5 percent discount for setting up autopay. One of PNC’s biggest draws is that it will refinance loans for people who did not earn a degree, although these borrowers may refinance no more than $25,000 in student loans.
Written by
Holly D. Johnson
Author, Award-Winning Writer
Holly Johnson writes expert content on personal finance, credit cards, loyalty and insurance topics. In addition to writing for Bankrate and CreditCards.com, Johnson does ongoing work for clients that include CNN, Forbes Advisor, LendingTree, Time Magazine and more.
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Student loans editor