How To Refinance Your Student Loans

Girl looking at laptop computer screen while working from home stock photo
Yannis Sfetkos /

With President Joe Biden’s student loan forgiveness plan stuck in limbo pending a decision from the Supreme Court, borrowers are faced with the possibility that they’ll have to restart their payments. The current payment moratorium is set to end by Aug. 30 at the latest if debt relief is not allowed to move forward.

While loan forgiveness would obviously be a great boon to the nation’s student debtors, it’s not something anyone should rely on. Whether or not student loan forgiveness comes to pass, there are steps you can take right now to alleviate the burden of your student debt, the primary one being refinancing.

Can I Really Refinance Student Debt?

In a word, yes. A student loan is just like any other type of loan, issued by a bank, financial institution or the federal government. Refinancing a loan simply means you take out a new loan to pay off your existing loan. You’ll have to do the math to see if refinancing makes financial sense, but yes, you can refinance a student loan just like you could with a personal loan or a home mortgage.

What Are the Steps Involved in Refinancing Student Debt?

There are three primary steps involved in refinancing student debt: Shopping around for rate quotes, choosing a lender and finalizing loan terms and providing documents to complete your application. Here’s a quick overview of each of these steps.

Save for Your Future

Shop for Rate Quotes

Lending is a competitive market. A simple online search will reveal numerous refinancing options. Most lenders can run a soft credit check to determine your interest rate without affecting your credit score. This helps make student loan refinancing comparisons easy. Just remember that your interest rate isn’t the only cost involved in your refinancing. You should also factor in any fees or other administrative costs that may be attached to your new loan.

Choose a Lender and Loan Terms

Your monthly payment isn’t everything when it comes to your student loan refinancing. The term of your loan is equally important. For simplicity’s sake, imagine that you currently have a loan that requires a $100 payment every month for 10 years. That amounts to $12,000 over the full 10-year term. If you refinance into a loan that only requires a $70 monthly payment, that may seem like a bargain; however, if that loan has a 20-year maturity, you’ll end up paying $16,800, which amounts to 40% more. Just like you’ll have to factor in all the expenses of your loan when you get your interest rate, you should also consider the total cost of your payments before you sign up for a new loan.

Provide Required Documents and Sign Your Application

Once you’ve done all the math and found a lender with adequate customer service, it’s time to finalize your loan. You’ll likely need to provide various personal and financial documents to your prospective lender, and they’re likely to run your credit. Once all the I’s are dotted and the T’s are crossed, you can sign your application and enjoy your new, lower-cost student loan.

Should I Refinance My Student Loans?

Whether or not refinancing your student loans makes sense depends on your personal financial situation. In a general sense, if you can move into a loan with lower total costs, it can make sense financially, especially if you have a private loan that won’t be eligible for forgiveness. However, you’ll have to factor in all aspects of your loan to make that determination, from your interest rate and monthly payment to the total amount you’ll pay over the duration of the loan. You should also consider the servicing capabilities of your loan provider. Consulting with a financial advisor can be a good idea since your student loan is likely one of the largest expenses in your life.

Save for Your Future

More From GOBankingRates

Daria Uhlig contributed to the reporting for this article.


See Today's Best
Banking Offers