How Does Student Loan Refinancing Work? Your FAQs Answered

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Christy Rakoczy

By Christy Rakoczy

March 10, 2020

Refinancing student loans could potentially lower your interest rate, saving you money. But there are also drawbacks to refinancing student loans. Here are the most common questions asked about refinancing student loans: 

How does refinancing student loans work?

When you refinance student loans, you take out a new loan with a lender like SoFi or Earnest to repay one or more of your existing student loans. Your new refinanced loan will come from a private lender and will have different repayment terms than your current loans.

Use our Student Loan Refinancing Calculator to estimate how much you could lower your total and monthly loan payments by refinancing your student loans.

Will student loan refinancing save me money? 

Refinancing student loans can save you money if you qualify for a student loan refinance loan with a lower interest rate than your current student loans. However, the loan repayment term also matters. If you extend your repayment timeline, your monthly payment will be lower but your total cost of debt repayment could be higher than if you had chosen a shorter payoff term, as you’ll be paying interest for a longer time.

How do I pick a lender for refinancing student loans?

When you are considering a lender for refinancing, you want to find a lender that offers you a low interest rate and favorable loan terms. But there is more to consider. Does a lender charge other fees, such as origination fees, prepayment penalties, or late fees? What does the lender require for qualification and do you meet these qualifications? Also, consider additional perks that lenders may provide, including the option to skip a payment every year or pause payments if you’re unemployed.

What are the requirements for refinancing a student loan?

Each lender has different requirements for refinancing a student loan. In general, many lenders for refinancing want to see the following:

  • Debt-to-income ratio under 50%
  • Minimum credit score of 650
  • Steady job or consistent income
  • Minimum loan amount to refinance (at least $5,000 in most cases)
  • A completed degree in many cases
  • Student loans that aren’t currently in default

Does refinancing a student loan impact your credit? 

Refinancing a student loan does not have a large impact on your credit, but it will have some. For most borrowers, any negative impact on your credit is small. And as you repay your loan, you’ll develop a positive payment history that could raise your score.

What are the pros of student loan refinancing?

Refinancing your student loans could potentially lower your interest rate, which means you will pay less money on interest. Depending on the term of your loan, a lower rate may mean you will pay off your student loans faster. You may be able to choose a different loan term (the length in which you repay your student loan).

If you opt for a longer loan term, you will pay more interest, but you it may reduce your monthly payment.

Refinancing can simplify loan repayment by combining multiple private loans into one payment. If you’re currently paying several lenders, it can be a lot easier to just have one monthly payment.

Refinancing also allows you to release a cosigner from your original loan and get a loan servicer with better customer service.

What are the cons of student loan refinancing? 

If you refinance federal student loans, you’ll give up important borrower protections including income-driven repayment options, the possibility to have a portion of your loans forgiven and generous deferment and forbearance policies that enable you to pause payments. And if you refinance subsidized federal loans, the government will no longer cover interest costs on them during periods of deferment. 

Depending on the new refinanced loan, repayment could also become more expensive. While lowering your monthly payment might help loosen your budget a bit, you could raise your total costs if you stretch out your repayment timeline. Or your monthly payment could increase up if you refinance to a shorter-term loan, although this would reduce the total you pay.

Plus, if you just graduated, you will lose your grace period.

When I’m refinancing my student loan, which repayment term should I choose?

A shorter loan term means higher monthly payments, but your student loan will be paid off faster and with less interest paid. You’ll save money over the life of the loan with this option.

With a longer loan term, you will pay more total interest over time. But you will likely have lower monthly payments. You will end up paying more with a longer loan term, but it could make making payments more manageable if you’re struggling. A lower student loan payment will also allow you to save for an emergency fund and retirement.

Before you choose, consider your income, other monthly expenses and your ultimate goal for refinancing.

How many times can I refinance my student loans?

You can refinance multiple times. Actually, refinancing student loans multiple times is what helped Travis and Kevin both pay off their student loan debt.  

Does the federal government refinance student loans?

The Department of Education doesn’t offer refinancing for student loans. If you want to refinance either federal or private student loans, you’ll need to obtain a refinance loan from a private lender.

What’s the difference between student loan consolidation and refinancing?

Refinancing can have the effect of consolidating multiple student loans if your refinance loan repays several creditors. But this isn’t the same thing as a Direct Consolidation Loan. A Direct Consolidation Loan is offered by the Department of Education and you can only consolidate eligible federal student loans.

While a refinance loan can result in a change to your interest rate, a Direct Consolidation Loan doesn’t. Your Direct Consolidation Loan rate is a weighted average of federal student loans you consolidated. You’ll keep federal borrower benefits and get even more flexibility in student loan repayment options with a Direct Consolidation Loan.

Learn more about the difference between refinancing and consolidating student loans.

Can I refinance my parent loans?

Yes, you can refinance a Parent PLUS loan.

Should I refinance federal loans?

Refinancing federal loans are a whole different ballgame than refinancing your private student loans. There are pros and cons to refinancing federal loans.

Refinancing federal loans means you’ll lose the perks that come along with federal loans – including income-driven repayment plans, the potential for Public Service Loan Forgiveness, as well as generous deferment options (postponing payments) in times of unemployment or economic hardship.

However, you also may be able to qualify for a lower interest rate if you have an excellent credit history. Understand your loans and think carefully about your personal situation before deciding.

Can a cosigner help me with qualifying for a student loan refinance loan?

If you’re not able to qualify for a refinance loan on your own, applying with a cosigner can help your eligibility. The cosigner’s credit and income will be considered. If the cosigner is qualified, the lender will likely approve your loan. A cosigner with good credit could help you get a better interest rate. 

What responsibility does a cosigner have for student loan refinance loans?

Cosigners share legal responsibility for repayment. Their credit will be affected if you’re late on payments and they will be expected to repay the loan if you don’t.

Is cosigner release available on student loan refinance loans?

Many, but not all, lenders allow cosigner release after you make a certain number of on-time payments on your student loan refinance loan.

Should I cosign for my spouse refinancing student loans?

Cosigning for a spouse is a big decision and there are many pros and cons to this. On the positive, it could increase the chances of approval and get a better interest rate, assuming you have good credit. However, you will be equally responsible for the new loan, even in divorce. Tacking on this debt may also make it harder to qualify for a mortgage or car loan.

At, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.

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