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A Guide to Student Loan Refinancing

Explore the benefits of refinancing your student loans with this in-depth guide to learn if you could save with student loan refinancing.

Published January 22, 2022

Student loan refinancing can be a way for borrowers to save money on interest, manage payments, or change loan servicers.

This guide covers the essentials of refinancing student loans. Let’s take an in-depth look at student loan refinancing, and the ways in which you may be able to save money.

How Does Student Loan Refinancing Work?

With student loan refinancing, a new lender pays off your existing loans and gives you a new loan with different repayment terms. This may mean lower payments, having a single loan instead of several, a lower interest rate, or a different loan term. Refinancing could allow you to save money over time with a lower interest rate, a shorter term, or a lower monthly payment.

What does the refinancing process look like for borrowers? You start by applying with a private lender that offers student loan refinancing, typically through an online application. After applying, you find out if you’ve been approved or not, and what the interest rate is. If you decide to move forward with refinancing, the lender then pays off your existing loans and you begin making monthly payments to your new lender.

Unlike refinancing a mortgage, refinancing student loans costs nothing and does not include any closing fees. Applying may require a hard credit inquiry and may cause your credit score to dip a few points temporarily.

What are the Benefits of Refinancing?

Refinancing your student loans to a lower rate could save you thousands over the life of the loan.1 Ideally, you’ll be able to take advantage of lower interest rates and reduce the total amount owed over the life of the loan.

In addition to potentially saving money, refinancing also allows borrowers to change the terms of their loan, shortening or extending it, and creating a plan that fits their circumstances. Refinancing can consolidate several loans into a single loan, simplifying payments. Borrowers may also choose to switch from a variable rate to a fixed rate.

Here’s an in-depth look at the reasons to refinance:

Pay off loans faster
Lower monthly payments
Shorten the loan term
Reduce the number of loans in repayment
Change between a fixed and variable rate

Pay off loans faster

Reducing your interest by refinancing to a shorter loan term and paying more towards your principal could result in paying off your loans faster, but your monthly payments may be higher overall. If it works with your budget, you may be able to pay off your loans even faster by making higher payments or extra payments when you refinance.

Lower monthly payments

If interest rates have fallen since you took out your loans, refinancing could lower your monthly payments. To qualify for a lower rate through refinancing, factors such as a low debt-to-income ratio (DTI), a relatively stable income, and a strong credit score are important. For most lenders, with a strong credit history you could be eligible for the best possible rates through student loan refinancing.

Shorten the loan term

By refinancing to reduce your term length, you could pay more per month in exchange for paying off your student loans sooner, potentially saving on interest throughout the lifetime of the loan. If you have more income coming in and anticipate further income increases as your career progresses, a shorter loan term could be a good option if it works with your budget.

Reduce the number of loans in repayment

If you have multiple student loans in repayment, keeping track of different monthly payment amounts to different lenders can be a challenge. Through refinancing, you pay off your existing loans and combine the debt into one new loan with a preferable interest rate and term, giving you just one student loan payment to manage each month, which can help you avoid late payment fees.

Change between a fixed and variable rate

If interest rates are expected to rise, refinancing your variable rate student loans could help you lock in a lower rate before that happens. If your credit score or income has recently increased, you may be eligible for a lower interest rate. If you believe you could benefit from lower interest rates or improvements in your credit score or debt-to-income ratio (DTI), refinancing to a fixed rate could help you save more towards your goals.

How Much Could You Save With Refinancing?

A key benefit of refinancing is the potential to save thousands of dollars in interest over the life of the loan.1 These savings can be used toward paying down the principal balance, investing, or starting an emergency savings fund. For example, if you were to qualify for a lower interest rate by 2% on $170,000 in student loans, you could potentially see savings like:

Federal Direct PLUS loan with a 10-year standard repayment Sample refinancing option: Laurel Road’s refinanced 10-year loan
Interest Rate 7.6% fixed 5.6% fixed
Monthly Payment $2,027 $1,853
Yearly Payment $24,324 $22,236
Total Paid $243,218 $222,406
*Information provided in the table is hypothetical. May not be current rates.
This adds up to a $20,000+ savings over the life of the loan by refinancing to a lower rate.1
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This calculator is for illustrative purposes only. If you are using it to compare a federal loan it does not take into account benefits currently offered by the federal government and should not be used for loans being repaid under a federal program other than the Standard Repayment Plan. For additional details click here.

Do You Qualify for Student Loan Refinancing?

Each lender has its own criteria for determining eligibility and rates. All consider credit history, total monthly debt payments, and income. Applicants who are in good financial standing, demonstrate a strong career trajectory, have good credit scores, and have shown they are responsible with debts and monthly budgeting are more likely to be approved. In general, the better your financial history, the better terms you will likely receive. This is because you present a lower risk to lenders.


How much do you know about refinancing?

Student Loan Terms to Know

Accrued interest
The interest that accumulates on a debt or loan balance
A temporary pause on payments for a specific time period, without interest accruing
Loan origination fee
The amount charged by a lender to begin a loan, may include underwriting fee or processing fees
Capitalized interest
When unpaid interest charges are added to the principal loan balance
A temporary pause on loan payments, interest may accrue
Prepayment penalty
A fee some lenders may charge to pay off all or part of a loan ahead of schedule
Loan consolidation
The process of combining multiple student loans into one new loan
Grace period
A set period of time after graduating or leaving school before repayment on student loans is required
Principal balance
The original loan amount you borrowed, without interest or finance charges
Debt-to-income ratio
DTI measures how much of your monthly income goes to paying debt
Interest rates
The amount charged by a lender to a borrower, expressed as a percentage of the principal
Loan refinancing
Replaces an existing loan with a new loan agreement, under a different term or interest rate

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All Laurel Road lending products are subject to credit approval.

IMPORTANT INFORMATION: The U.S. Department of Education recently announced a student loan debt relief plan which includes forgiveness of up to $10,000 for qualifying federal student loans and up to $20,000 for qualifying Pell Grant recipients. For more information, please read the announcement. Please note that if you refinance qualifying federal student loans with Laurel Road, you may no longer be eligible for certain benefits or programs and waive your right to future benefits or programs offered on those loans. Examples of benefits or programs you may not receive include, but are not limited to, student loan debt relief or public service loan forgiveness, repayment options such as Income Based Repayment or Pay As You Earn, or COVID-19 relief benefits such as a 0% interest rate, suspension of payments or loan forgiveness. Please carefully consider your options when refinancing federal student loans and consult StudentAid.gov for the most current information.

1. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.

The calculator on this page compares an individual's current student loan to a student loan refinanced with Laurel Road. The calculator assumes: (1) the current loan is being repaid under a standard repayment plan where the individual makes consecutive monthly payments based on the number of monthly payments remaining on the loan as inputted by the user; (2) the current loan has a fixed interest rate over the remaining term of the loan; and (3) that the monthly payment amount the user inputs pays off the loan in the number of monthly payments remaining.

Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice, legal, financial, or tax advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. Calculators do not include the fees and restrictions that certain products may have. This calculator does not indicate whether you would qualify for a Laurel Road loan. Please visit the applicable banking product pages on laurelroad.com for specific terms and conditions.

This information provided is for informational purposes only and does not substitute consultation with a legal, tax or investment professional for important financial decisions. Laurel Road assumes no liability for loss or damage incurred by use of the information provided. Please visit laurelroad.com for full product details, terms and conditions.