This post may contain affiliate links. Please read my disclosure for more info.
College is all fun and games until student loan payments are due. If you want to know how to refinance student loans with tips and a checklist you’re in the right place.
There are 5 primary steps for finding the best refinance option:
- Know your current student loan and projected interest payments
- Use the student loan payment calculator provided to determine the benefits of refinancing
- Know what benefits you might lose if you choose to refinance
- Compare refinance companies to find the best overall loan package
- Apply to your top choices and choose your best option
If you just want the checklist, it’s at the end of the post.
And remember, you may be able to deduct your student loan interest from your taxes. If you’re curious about deductions, check out How to File a Tax Return (Like a Pro).
How to Refinance Your Student Loans with 5 Easy Steps
You can’t get rid of student loan debt easily. Not even if you qualify to file bankruptcy for free. But refinancing for a better interest rate is still an option.
The best way to refinance at a lower rate is by choosing a company that specializes in student loans. You want the lowest interest rate possible because that gives you the best options.
A lower rate not only immediately reduces your monthly payment, it also gives you the option to maintain your current payment amount and pay off your loan early depending on your loan company. Applying to multiple companies for pre-approval gives you the best options for the lowest overall rate.
To pick the best company for you, start with the 5 major steps to refinancing your loan:
- Know your current loan situation
- Use the student loan payment calculator to determine the benefits of refinancing
- Know what benefits you might lose
- Compare companies to find the best overall package
- Apply to several to get the best option
Calculate Your Current and Potential Refinance Payments
This handles steps 1 and 2 — know your current loan situation and the potential benefits of refinancing. You should know your current monthly and expected interest payments to know if a loan option works for you.
Before you choose a refinancing loan, make sure that the new interest rate you receive is low enough to have a real effect on your payments and interest over the long run.
You should already know the current principal on your loan (the amount you borrowed), your current interest rate, and your loan term in months. Principal and interest (P&I) is the total amount you will pay on your loan.
You can use a calculator to find your current student loan payments as well as your projected P&I. Calculate with some different interest rates to see how much money you might save by refinancing.
Getting a lower rate on your loan can make a huge difference. The difference between an interest rate of 5.25 percent and 4.25 percent on a loan of $38,500 over 10 years is $2,242.65. With 5.25%, you’re paying $413.07 monthly, while a 4.25% rate requires only $394.38.
A reduced minimum payment gives you breathing room and the option to pay down your loan faster if your company provides no fees on prepayments.
In How to Retire Early, the first step in creating a plan for financial freedom is to destroy your debt. If you can afford to increase your monthly debt payments, you’ll reduce your overall interest paid as well as gain freedom from the burden of student debt that much sooner.
Make sure that the loan company you work with offers no-fee refinancing and no early payment fees. You don’t want fees like that eating into your savings. The best companies offer lots of benefits without additional fees that just slow you down.
Know the Benefits You Can Lose
If you choose to refinance a government subsidized loan, you could be giving up benefits you may want or need. Some examples are disability and death benefits which prevent responsibility for your student loans from being placed on your family.
If you think you will benefit from an income-based repayment plan, you may not want to refinance.
If you refinance while you’re in a payment grace period — for example, the first six months after finishing school if you have a federal loan — you may lose this benefit and start getting billed right away.
Finally, refinancing can cause you to lose options for deferment and forbearance which allow you to temporarily stop or reduce monthly payments for a period of time.
Remember that any time you choose to defer debt or pay a lower minimum without reducing the rate, you will pay more interest over time.
Many companies offer benefits similar to those listed above, so you may not have to give up anything to refinance.
Compare Loan Refinance Companies
Do your due diligence when choosing a company. One of the best options for comparing companies is to use the Student Loan Refinancing Reviews & Comparisons on SuperMoney. They offer loan rate estimates and compare benefits to make your research easier.
When it comes to companies that offer refinancing loans with benefits, you have several options.
Earnest, for example, offers death and disability benefits.
Both Earnest and LendKey offer flexible repayment options like the ability to skip 1 payment each year, which can be useful if you have an emergency bill or find yourself unemployed.
SoFi offers unemployment protection and will pause your loan payments if you lose your job. They also offer free career assistance and help with your job search.
Companies like SoFi, Splash, CommonBond, LendKey, and Earnest offer zero-fee refinancing and penalty-free early repayment.
Student loan companies are competing to provide you the best refinancing package. Use that to your advantage and find the best fit for you. Compare the benefits different companies offer. See who gives you the best interest rate and best overall benefits package.
I recommend picking a company that will offer you refinancing without charging an origination fee — a low percentage of your overall loan amount. The companies listed here offer the best benefits without adding fees that make it harder for you to get out of debt.
Apply for Refinancing
After you have done your research, apply to a few companies that offer you a great overall package — the lowest rates along with the best benefits. Many companies offer pre-approval which can be done without pulling your credit. When you’re ready to apply, you’ll receive offers based on your loan amount, your credit score, and possibly some other assets and savings accounts.
Here’s a screenshot of the pre-approval request from Earnest:
You should definitely shop around a bit. One company may offer you an extremely low-interest loan, but their benefits and fee structure may not be your best option.
Try to balance a low interest rate with the benefits that matter most to you.
Student Loans Refinancing with a Checklist
If you’re feeling weighed down by debt, this checklist will help you take the necessary steps to refinance your student loans. After running your numbers in the student loan payment calculator, you’ll have a good idea of whether refinancing is worth it for you.
Compare companies and find the ones that will provide you a balance of the best rates and the best benefits. Once you have submitted your applications with all of your documents, it should take around 2-5 business days until you get a response.
Consolidation is an Option
If you’ve taken all the steps for picking a company and refinancing doesn’t look like a good option for you and you have multiple federal loans to keep track of, you may be eligible for a direct consolidation loan.
As with refinancing, there are benefits and drawbacks. While consolidation can simplify your life by giving you a single monthly payment, it may also extend your repayment period which will likely increase your interest payments in the long run.
One large benefit of consolidation applies to students who have high-interest variable rate loans — consolidating allows you to transfer from variable to fixed interest rates. A fixed rate loan enables you to project out your monthly payments until your debt is paid off without fear that your rate might suddenly (and significantly) increase.