Refinancing Private Student Loans: Worth It or Not?

Written by: Kristyn Pilgrim
Updated: 12/19/19

Private student loans can be a lifeline when you don’t have enough money to pay for school, but if you’re still financially struggling after graduation, refinancing your loans can provide some relief. Now that you’ve graduated and established credit, you might be  entitled to a better deal.

A refinanced private student loan could come with a lower interest rate and/or a lower monthly payment – and potentially significant savings, in general. That means you’ll have more money to buy a car, put a down payment on a house, and otherwise build your future.

But some homework is required before you make the final decision to refinance your private student loans. We’ll help you get started. In this article, we’ll outline:

  • How you might save money with a refinanced student loan. 
  • How refinance loans work. 
  • Companies that focus on refinancing private student loans. 
  • How to make a smart choice.

Will You Save Money?

You needed money for school, and a bank or credit union helped you. At the time, you were probably grateful for the assistance. But look closely at your statement, and you might see that you’re making significant loan payments each month, and the loan terms aren’t as favorable as you might now be eligible to obtain. 

Banks and credit unions look at a variety of factors to assess your creditworthiness. They check your:

  • Debt-to-income ratio. What are your current loan amounts? How many credit cards do you have? How does that compare to the amount of earnings you bring in?
  • Borrower history. When you borrowed money before, did you pay it back? Did you ever walk away from a loan without paying anything? 
  • Assets. Do you own a house or a car? How much money do you have in a savings or retirement account?
  • Utility and rent payments. Are you quick to pay your bills when they arrive? Or do you let them linger unpaid for weeks? Do these obligations make it hard for you to cover loan payments?

When you were a college student, you probably had non-existent credit. Considering that most students don’t have an established credit history, you were not alone.

When you don’t have a credit track record (or if you’ve made financial mistakes), you’re a risky borrower. Banks hedge their bets by giving you a loan with a high-interest rate and/or requiring a co-signer with strong credit.

It’s common for that to change with graduation. You have a steady job, you’re earning good money, and you’ve picked up an asset or two. You’ve also worked with other loan companies during your lifetime. 

You can, experts say, take advantage of that experience. When you set out to refinance private student loans, you’re likely to get a lower interest rate. That could save you thousands over the life of the loan. 

How Do Refinanced Student Loans Work?

While you may have a bit of knowledge on private student loans — like how they work and what you’re expected to do — refinanced loans have slightly different terms and conditions than what you’re accustomed to.

When you apply for a private student loan, the lender communicates with your college to determine the cost of tuition. You’re offered a balance that doesn’t exceed that amount (less any other aid you’ve received and/or money you are able to pay directly). When you apply for a refinanced student loan, the amount you need will be determined by how much you private student loan debt you currently hold.

You have a few options:

  • Refinance one student loan. Imagine that you have five student loans. Some are federal products, and others come from private companies. One has a very high-interest rate, and you know it’s wasting your money. You could apply to refinance just the loan that bothers you. 
  • Consolidate and refinance all your student loans. You can bundle all of your student loan debt into one package and borrow the entire amount. Each month, you’ll make one payment. If the resulting interest rate and/or resulting monthly payment isn’t lower, experts say the sole payment is the main benefit of refinancing all your loans. 

To refinance private student loans, you’ll need to work with a private lender. The federal government, which does offer ways to refinance federal student loans, doesn’t offer any programs that can help with debt held by private lenders. Every lender works differently, and you’ll need to read the fine print about rates and terms. (Note, however, that you may refinance your federal loans – together with private student loans – in a student loan refinance loan from a private lender).

Companies That Refinance Private Student Loans

Once you have borrowed, it’s nearly impossible to get rid of your debt, as student loans (federal or private) are not dischargeable through bankruptcy. Of course, that’s true of the existing debt, as well. Before you settle on a lender, do your homework. Research as many private loan companies as you can and compare terms. 

These are five companies that offer competitive private student loan refinance products:

  • Discover: Sign up without a cosigner. You can choose between a fixed rate and variable rate. You can also select your repayment terms, and repay your debt in 10-yr/20-yr based on creditworthiness.

    You’ll need at least $5,000 in debt to get started. Some types of loans are excluded, so you’ll need to read the fine print.
  • Wells Fargo: Work with an established, large company. Get an interest rate based on your credit history, not a marketing template. Pay back your loan in up to 20 years with their repayment plans, but know the bank will set that term for you. Get discounts for opening a checking account or allowing for automatic payments.

    Apply online in minutes. Use the company’s online calculators to determine how much you’ll pay for the loan.
  • SoFi: This company claims to be a leader in the student loan refinancing space. Use a slick interface to check eligibility and apply online. Pay no application or origination fees.

    Choose between a fixed-rate loan or a variable version. But know the company won’t share your price with you until you apply.
  • Earnest: Interest rates start at 2.05% and 3.45% APR, depending on which plan you choose. Find out how much you’ll pay in about two minutes with an online tool.

Drop one payment per year and make it up later. Adjust your payment amount or make an extra payment with ease using the company’s online dashboard.

  • CollegeAve: Fixed interest rates range from 3.54% to 6.24% APR, while variable interest rates range from 2.74% to 6.24% APR. The better your credit, the less you’ll pay.

    Choose your repayment options based on your budget and goals. Take up to 20 years to pay the debt in full. You’ll need at least $5,000 in student loans to apply, and some degrees are excluded. 

This is just a sampling of the companies that refinance private student loans. There are many more, including community banks and credit unions.

Take a deep breath. Remember that you have time to make a smart decision about your financial future. Compare these companies side by side, and don’t be afraid to be methodical as you look over your options. When you find one that offers a product that works best for you, you’ll consider your time well spent.