Student loan refinance rates for fixed-rate loans have gradually increased in recent months.
Here’s a look at how student loan refinance rates are trending, what student loan refinancing is, and when it can make sense to refinance your student loans to try to get the lowest rate.
- What is student loan refinancing?
- Compare interest rates
- When should you refinance?
- What are the requirements to refinance?
- Calculate your potential refinance savings
- Are there any downsides to refinancing?
- How to refinance student loans
What is student loan refinancing?
Refinancing a student loan involves taking out a new loan with a private lender to pay off your existing student loans. If you qualify for a lower rate, you can save a lot of money. Plus, refinancing multiple student loans can help you streamline your monthly payments into a single bill.
You can refinance your federal student loans, private student loans, or a combination of both. But keep in mind when you refinance federal student loans, you lose access to federal loan benefits. If you’d like to keep your benefits, a Direct Consolidation Loan consolidates one or more federal loans into a new one, which can often lower your monthly payment amount.
Compare student loan refinance rates
The student loan refinancing rate you receive, if you qualify, depends on several factors, including your FICO score and whether you choose a fixed- or variable-rate loan.
| FICO score | Average 10-year fixed rate | Average 5-year variable rate |
|---|---|---|
| 680 to 719 | 8.06% | 6.16% |
| 720 to 779 | 7.19% | 6.54% |
| 780+ | 6.51% | 4.94% |
| Good to know: Due to the CARES Act, federal student loan payments are paused and interest rates have been temporarily reduced to 0% and are set to expire 60 days after June 30, 2023. President Biden announced a student loan debt relief plan on Aug. 24, 2022 that included up to $20,000 in federal student loan forgiveness for eligible borrowers. But the forgiveness plan is currently blocked by the courts — as a result, it’s uncertain whether this forgiveness will take place. Because of this, it’s a good idea to wait until the Biden-Harris debt relief case is resolved before refinancing your federal student loans. |
When should you refinance your student loans?
The answer varies depending on your unique situation, but it generally depends on factors like:
- The type of student loan debt: Whether you have a federal or private loan can play a factor. Remember, if you refinance your federal student loans, you’ll lose certain benefits, like access to student loan forgiveness programs and income-driven repayment (IDR) plans.
- Possibly saving money: If you can qualify for a lower interest rate without extending your loan term, refinancing could be a good idea.
- Lower monthly payment: If you’re having trouble keeping up with your payments, refinancing to a loan with a longer term can reduce your monthly payment. But keep in mind that you’ll likely pay more interest over the life of the loan.
What are the requirements to refinance student loans?
Although eligibility requirements vary, lenders generally review the following factors when you apply for student loan refinancing.
- Good credit: Lenders generally require you to have a good to excellent credit score to refinance your student loans. If you have a negative credit history — such as a bankruptcy or student loan default listed on your credit reports or a thin credit file — you’ll likely have trouble qualifying for refinancing without a cosigner.
- A cosigner: Some lenders will allow you to add a cosigner, someone who agrees to be responsible for repaying the loan if you’re unable to. If you have bad credit, applying for student loan refinancing with a cosigner who has good credit and a stable income can improve your approval odds.
- Solid income: When you apply for refinancing, a lender will review your income to assess whether you can afford to repay the new loan.
- Low debt-to-income (DTI) ratio: Your DTI ratio measures how much debt you have in relation to your gross annual income. If your DTI is too high, it can indicate to a lender that you’re overextended financially and might have trouble repaying your loan. While minimum DTI requirements vary, it’s a good idea to try to keep yours below 43%.
Calculate your student loan refinance savings
How much you can save by refinancing your student loan depends on many factors, such as how much you’re refinancing, your new interest rate, and your new loan term.
The following table shows how much you could save by refinancing based on a few different scenarios.
| Old student loan | New student loan | Lifetime savings |
|---|---|---|
| 10-year, $100,000 loan with an interest rate of 7% | 10-year, $100,000 loan at 5% interest | $12,052 |
| 5-year, $30,000 loan with an interest rate of 6% | 5-year, $30,000 loan with an interest rate of 4% | $3,519 |
| 5-year, $10,000 loan with an interest rate of 9% | 5-year, $10,000 loan with an interest rate of 6% | $1,879 |
Are there any downsides to refinancing a student loan?
If you have federal student loans, the biggest drawback to refinancing student loans is giving up federal protections, such as access to income-driven repayment (IDR) plans, student loan forgiveness programs, and federal forbearance.
Refinancing private student loans can come with downsides as well. For example, refinancing to a longer repayment term can cause you to pay more in total interest. Also, if you refinance to a variable-rate loan, your rate will fluctuate — and it’s possible that it can end up being higher than the rate on your existing loan.
How to refinance student loans
If you’re ready to refinance your student loans, follow these steps:
- Check your credit. Review your credit score before you apply to ensure you meet a lender’s credit requirements. Also, review your credit reports for inaccuracies from all three major credit bureaus — Experian, Equifax, and TransUnion. You can view all three of your credit reports for free weekly through Dec. 2023 by visiting AnnualCreditReport.com.
- Shop around and compare loan offers. To find the best deal for your unique situation, compare rates and terms from at least three to five lenders. The best way to do this is to use an online comparison website.
- Submit a refinance application. After you’ve chosen a lender that best matches your needs, submit a loan application. You’ll likely have to provide personal and financial information, such as your Social Security number, income, current student loan statements, and most recent pay stubs.
- Repay your new loan. Continue making payments on your existing loan until your new lender informs you they’ve been paid off. Afterward, repay your new loan as promised to avoid late fees and harm to your credit score.