Federal student loans have benefits and repayment options that are not available for private student loans. If you choose to refinance federal loans into a private student loan, you will lose the federal loan benefits that go along with them. Most federal student loans come with different options for repayment, such as income-driven repayment plans, as well as more deferment and forbearance options and loan forgiveness programs for certain borrowers. These vary depending on the type of federal loan. Federal parent PLUS loans do not have the same benefits as federal loans made to student borrowers.
COVID-19 repayment assistance for federally owned loans is currently available. This includes suspending student loan payments and waiving interest on federally held student loans. Should you choose to refinance qualifying federal loans, you will not be eligible for this benefit.
If you do not foresee any difficulty making your minimum payments and you do not intend to apply for a federal loan forgiveness program, then refinancing federal loans into a new private refinance loan may be a viable option for you.
Private student loans vary by lender. Research your current lender's repayment plans and the options for you to postpone payments should you run into a short period of financial hardship, as you may lose those benefits if you refinance. A new refinance lender may offer similar or different benefits and assistance options.
Will applying to refinance your student loans hurt your credit score?
Refinancing student loans doesn't typically impact credit scores significantly.
When considering your options, check to see if the lender offers a pre-qualification option that provides you with the rates and terms you are eligible for before making a decision to apply. Most of the time, this step does not impact your credit at all since it only involves a soft credit inquiry.
Once you complete an application and authorize a full credit inquiry, your credit score may be impacted a bit but typically only by a few points. If, however, you apply for loans with multiple lenders over a period of time, your credit score may be impacted more.
What do lenders look at when you apply to refinance?
Lenders review a few main factors about your credit history when you apply to refinance as they want to know you will be able to repay your new loan. As with most loans, they consider your credit score and payment history as well as your income and debt levels.
Before refinancing, you may want to know your credit score to see if you are eligible for better rates. It's important to understand, though, that credit scores vary based on the consumer reporting agency and the calculation used, so the credit score you see from one source may not match the one the lender uses.
What steps should you take to refinance your student loans?
If you think refinancing is a good option for you, take these steps to refinance your student loans.
1. Determine your goals when it comes to student loans.
- Are you looking to lower your interest rate?
- Do you want to lower your monthly payment amount?
- Is simplifying student loan repayment so you have just one monthly payment important?
- Do you hope refinancing will result in a combination of the above?
2. Review your current student loan status.
- Do you have federal and private, only private, or only federal student loans?
- Who is your loan servicer?
- Are your current interest rates fixed or variable?
- What are your current interest rates? How many years are left until your current loans are fully repaid and what are your payment amounts now?
3. Seek the best lender to fit your financial needs.
- Does the lender provide customer service on its own loans? Or will your loan be sent to another company for servicing?
- Does the lender have a good reputation for customer service?
- Is the lender solely focused on student loans? Or does it have other products they'd like to sell you?
- What sort of repayment plans, hardship assistance options and benefits does the lender offer?
4. See if you can pre-qualify or get a rate quote before you complete an application. This will let you assess your new interest rates and repayment term options and determine if refinancing is the right option for you.
5. If you decide to proceed, submit an application to be approved for refinancing.