Should You Refinance Private Student Loans?

Refinancing your private student loans can mean a lower rate and better terms. Most private lenders don’t charge fees to refinance and many allow you to check your rate before completing a full application. The benefits of refinancing include lowering your monthly payments and reducing the total cost of borrowing.

Why refinance private student loans

Private student loans generally feature variable interest rates determined based on a borrower’s credit history. When borrowers first take out private student loans, many have a limited credit profile and are treated as credit risks by lenders. This means that, for many borrowers, private student loan interest rates can be quite high. And for many other borrowers, a cosigner was needed to get the loan in the first place.

Now that you’ve graduated, got a job, and have good credit it may be a good time to refinance since you’ll likely qualify with refinancing through a private lender.

Find the best private student loan refinancing companies.

Need more reasons to refinance private loans? Consider the following:

It saves you money

The best reason to refinance is to save money by lowering your interest rates. A lower interest rate can decrease your monthly payments and the total cost of borrowing.

A Nerdwallet article shared an example:

“Let’s say you have a $35,000 private loan with a 12% interest rate and 10 years left in repayment. Your payments would be about $502 each month, and you’d repay $60,258 overall, with interest.

By refinancing at a 7% interest rate and choosing a 10-year repayment term, your monthly payments would drop to roughly $406 and your total repayment amount would fall to $48,766 — saving you more than $11,000 overall.”

Simplify repayment and change terms

When you took out your loans, you agreed to specific terms. The only way to change these terms is through refinancing with a different lender who pays off your existing loans.

If you have multiple student loans, refinancing can combine them into one new loan thus simplifying repayment. Instead of multiple payments each month, you’ll only make one payment.

Additionally, refinancing gives you the opportunity to choose a different repayment term. For example, you can choose to extend the repayment period from 5 years to 20 years or vice versa. Extended repayment periods can mean lower monthly payments improving your cash flow. A shorter-term can mean higher monthly payments but a drastically lower total cost of borrowing.

Change your lender or servicer

Refinancing allows you to change your lender and potentially your loan servicer. Basically, if you’re unhappy with your lender, the only way to leave is through refinancing with an alternative one. Private lenders are competing for your business and refinancing with a different lender can mean added benefits. Some private lenders offer their borrowers more generous forbearance plans and employment resources.

Remove your co-borrower

If you needed a cosigner to get your private loan, then refinancing is an opportunity to remove them. In the event a cosigner is needed for the refinancing, you can choose a lender that has a cosigner release option. This option allows you to remove a cosigner without having to apply for a new loan or go through a refinance again.

Private Student Loan Refinancing FAQs

To learn more visit our Student Loan Champion resource for all things student loans.

Where can I find a private lender to refinance my student loans?

You have options. Check our financial marketplace for private lenders and review our list of the best private loan marketplaces and best student loan refinancing options.

Is refinancing private student loans the same as consolidation?

The simple answer is yes. Many lenders interchangeably use consolidating and refinancing. With refinancing, you refinance a single loan or multiple loans (consolidate) into a new loan. The new loan will have different rates and terms. Learn how to consolidate or refinance private student loans.

Can I really save money with student loan refinancing?

That all depends. It is possible to save thousands during the life of the student loan by refinancing. However, it’s important to look closely at the APR. The monthly payment on your new loan might be lower because the loan term might be spread out over more years. But with a higher interest rate mean more interest payments. In some instances, a longer repayment term can be a strategy to pay off debt sooner by adding extra money with each student loan payment.

Should I refinance my federal student loans into a private loan?

Federal student loans have special benefits such as income-driven repayment plans and loan forgiveness programs. In some instances, refinancing both federal and private loans might make financial sense. However, consider the pros and cons. Additionally, you can keep your federal loans separate and only refinance the private loans. Read more about the benefits of refinancing student loans.

Is it possible to consolidate my private student loans with federal loans?

No. You cannot consolidate private loans into the federal loan consolidation program. Only federal and other non-private loans are eligible. Federal loan consolidation combines all eligible loans together making repayment simpler while keeping all federal benefits intact.