For many student loan borrowers, refinancing is a strategic move for getting out of debt fast. Refinancing can lower your interest rate while streamlining your monthly payments. If you’re looking for information about how the refinancing process works, you’ve come to the right place! Refinancing allowed me to pay off $39,000 in student loans in 17 months, so I’m a big fan of refinancing, as long as you’re aware of the pros and cons.
Even if you’re undecided about refinancing, it’s easy to browse offers with no impact on your credit score. Here’s our step-by-step guide on how to refinance student loans.
1. Check your interest rates with multiple lenders
2. Choose a lender and your loan repayment
3. Gather your existing loan documentation and fill out the application
4. Keep paying your loans as you wait for approval.
4 steps to Refinance Student Loans
1. Check interest rates with multiple lenders
It’s really easy to browse interest rates and repayment terms with lenders. This is important because you want to make sure you’re getting the best deal possible, so that you can pay as little interest as possible. Student loan refinancing is all about saving money, so the more you save, the better! The best part? You can browse multiple offers without any risk to your credit score, and you’re under no obligation to choose one unless it would benefit you.
There are lots of banks, online lenders and credit unions that refinance student loans. Just a few pieces of information are required to get loan offers, and the inquiries won’t affect your credit, because they’re soft credit pulls. I refinanced my student loans with SoFi (affiliate link), but there are lots of companies out there offering student loan refinancing options, like CommonBond and Credible. Always do your research when exploring refinancing companies.
When you’re ready to proceed, you’ll need the following information, at a minimum:
- Degree and university
- Total student loan debt
- Monthly housing payment
If your income and credit score meets the lender’s eligibility requirements, you’ll see a range of offers. Most lenders offer loans with five-, seven-, 10-, 15- and 20-year repayment terms.
You’ll also see variable and fixed interest rates. Variable rates can fluctuate with the market, while fixed rates stay the same over the life of your loan. Variable rates tend to start lower than fixed rates, but they could increase over time, so keep that in mind.
Generally, it’s only wise to choose a variable rate if you can pay off your loan fast (within about 1 year). If you have a longer repayment term, going with a variable rate carries more risk.
2: Choose a lender and your loan terms
If you land some good offers, it’s time to choose a lender and a loan. Most borrowers go with the lender that offers them the lowest interest rate. Do the math with a student loan refinancing calculator to estimate how much you’ll save with a new interest rate.
You can also compare loan terms to help you choose a five-year, 10-year or longer repayment term. A longer term can help lower your monthly payments, but it could also mean more accrued interest over the life of your loan.
If you need to free up more of your monthly income, a longer term could be the way to go. But if you can manage higher payments, a shorter term will save you money on interest and help you get out of debt fast.
Besides interest rates, repayment protections might also factor into your choice. If your job is on shaky terms, for example, you might prioritize lenders with unemployment protection or economic hardship forbearance programs.
Finally, customer service could sway your decision. Online reviews offer good insight into how well a company treats its customers. If that’s an important element to you, do your homework before selecting your lender. You might start by testing its customer service’s responsiveness online over the phone, or by reading customer reviews written by other customers.
3: Have your documents ready and fill out the application
Before locking in your new interest rate, you need to submit a full application. You’ll upload documents, such as loan statements and proof of income. Plus, you’ll consent to a hard credit check at this point.
Here are the main documents and information that most lenders require:
- Proof of citizenship (Social Security number or government ID number)
- Valid ID number (driver’s license or passport)
- Proof of income (pay stubs or a job offer letter)
- Official statements for all your federal and private loans
If you’re applying with a cosigner, you’ll also provide that person’s information. You’ll upload any supporting documentation to your online account with the lender.
If anything is missing, the lender will notify you. You can also call or chat with customer service if you have any questions.
Feel free to call your current loan servicers if you’re not sure where to locate full statements. Statements need to show your original balance, date of disbursement and full history of repayment.
4: Keep paying your loans as you wait for approval
Even though you can browse initial offers in an instant, you may have to wait a few weeks for full approval of a refinancing application. The process usually takes two to three weeks to complete.
In the meantime, it’s very important that you don’t stop paying your current loans. Only stop paying your current servicers when you get the green light from your new lender.
Once you’re approved, set up automatic withdrawals from your bank account so you don’t miss a payment. Many lenders offer an additional 0.25% discount on your interest rate when you set up autopay. You might qualify for an additional loyalty discount if you refinance with a bank where you already have a bank account.
Refinancing is a strategic way to get rid of student loan debt
Now that you know you can easily refinance student loans, it will only take a few minutes to check your rates and compare lenders.
If you find a good offer, you can submit a full application. Once you’re approved, you can say goodbye to your old loan servicers.
Plus, your new interest rate could save you lots of money over the life of your loans. As long as you’ve thought through all the pros and cons, it can be a smart way to get out of student debt faster.