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Loans

Curious if now is a good time to refinance your student loans? Here's who should and shouldn't

Federal and private student loan borrowers have different factors to consider.

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With the three-year payment and interest pause on federal student loans officially coming to an end in the fall of 2023, many borrowers are left wondering whether now is a good time to refinance those loans they're going to start having to pay soon.

On Sep. 1, 2023, federal student loan interest will pick back up again with payments on those loans restarting in October. As student loans soon become due again each month — coupled with the rising-interest-rate environment we still find ourselves in — now is an interesting time to think about refinancing.

Refinancing basically entails trading in your current student loan(s) for a completely new loan through a private lender. By refinancing, you have the opportunity to combine your multiple monthly student loan payments into one, while also ideally scoring a lower interest rate and a new loan term that works best for your financial situation.

Here's what you need to know about refinancing student loans in today's market.

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If you're a federal student loan borrower

Though coming to an end soon, federal student loan borrowers are still hanging onto the suspension of federal student loan payments and interest that has been in effect for the last three years. As long as this suspension is still happening, it doesn't make sense to refinance if you have federal student loans since you're already paying zero interest during this time. It doesn't get any better than that.

September (when interest starts accruing again), however, is right around the corner. When student loan payments eventually resume again, federal student loan borrowers should still proceed with caution before choosing to refinance. Refinancing your federal student loans through a private lender (since you cannot refinance through the government) causes you to lose access to any government protections that you once had.

Such protections include forbearance and deferment options, income-driven repayment plans and student loan forgiveness programs. Even though the Biden administration's student loan forgiveness plan was struck down, it's not to say there can't be some form of forgiveness in the future.

There's also the new income-driven repayment plan, the Saving on a Valuable Education (SAVE) plan, that aims to benefit federal student loan borrowers by cutting monthly payments with higher income thresholds, moving forgiveness closer for those with small student loan balances and cutting the percentage of discretionary income used for student loan repayment calculations. If you refinance your federal loans to private, you'd miss out on this income-driven repayment plan amongst others.

And one last point on this for federal borrowers: The main reason you refinance is to score a lower interest rate, yet in this high-rate environment it's unlikely you'll get a lower rate than the fixed rate you've had on your federal loans all this time.

If you're a private student loan borrower

Though private lenders set their own rates, those rates are influenced by the Federal Reserve's prime rate. Our typical advice for private student loan borrowers would be to refinance when in a low-interest-rate environment. This way, if you're currently paying a high interest rate on your private student loan(s), you can try your hand at seeing how much lower of an interest rate you can score when refinancing is cheap.

But in today's environment, interest rates are high and still rising. In fact, if we look at their record lows from late 2021, the refinance rates on both the 10-year fixed-rate loans and on the 5-year variable-rate loans have jumped significantly since then. As a result, this means that choosing to refinance as a private student loan borrower really boils down to what your current interest rate is. If you shop around and see student loan refinancing lenders offering rates that are lower than what you pay, see what you qualify for through its prequalification tools. For those whose credit score is in better shape than when they last applied for a private student loan, we suggest shopping around to see what your improved credit score could get you.

CNBC Select analyzed and compared private student loan funding from national banks, credit unions and online lenders to rank your best options for borrowers. We rated our top student loan refinance companies and all offer competitive refinancing rates:

Best overall

SoFi

  • Eligible borrowers

    Undergraduate and graduate students, parents, health professionals

  • Loan amounts

    $5,000 minimum (or up to state); maximum up to cost of attendance

  • Loan terms

    Range from 5 to 15 years; up to 20 years for refinancing loans

  • Loan types

    Variable and fixed

  • Co-signer required?

    No

  • Offer student loan refinancing?

    Yes - click here for details

Terms apply.

Best for fair credit score

Earnest

  • Eligible borrowers

    Undergraduate and graduate students, parents, half-time students, international and DACA students

  • Loan amounts

    $1,000 minimum (or up to state); maximum up to cost of attendance

  • Loan terms

    Range from 5 to 15 years

  • Loan types

    Variable and fixed

  • Borrower protections

    9-month grace period

  • Co-signer required?

    No

  • Offer student loan refinancing?

    Yes - click here for details

Terms apply.

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 5.19% APR to 9.74% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.99% APR to 9.74% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 9.99% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

Best for having a co-signer

Citizens™

  • Eligible borrowers

    Undergraduate and graduate students, parents

  • Loan amounts

    $150,000 maximum, or cost of attendance, whichever is lower

  • Loan terms

    Range from 5 to 15 years

  • Loan types

    Variable and fixed

  • Borrower protections

    Forbearance options available

  • Co-signer required?

    No

  • Offer student loan refinancing?

    Yes - click here for details

Terms apply.

Best for parent loan refinancing

Education Loan Finance Student Loan Refinancing

  • Cost

    No origination fees to refinance

  • Eligible loans

    Federal, private, graduate and undergraduate loans, Parent PLUS loans

  • Loan types

    Variable and fixed

  • Variable rates (APR)

    From 5.28%

  • Fixed rates (APR)

    From 5.48%

  • Loan terms

    From 5 to 20 years for student loan refinancing; 5, 7 or 10 years for parent loan refinancing

  • Loan amounts

    From $10,000

  • Minimum credit score

    N/A

  • Minimum income

    N/A

  • Allow for a co-signer

    Yes

Terms apply.

Best for medical school loan refinancing

Laurel Road Student Loan Refinancing

  • Cost

    No origination fees to refinance

  • Eligible loans

    Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency/fellowship loans, plus special pricing and reduced rates for health-care professionals (physicians, dentists, optometrists and physician assistants)

  • Loan types

    Variable and fixed

  • Variable rates (APR)

    From 5.49%

  • Fixed rates (APR)

    From 5.44%

  • Loan terms

    5, 7, 10, 15, 20 years (but also offers any term below 20 years, subject to underwriting criteria)

  • Loan amounts

    For bachelor's degrees and higher, minimum $5,000; for eligible associate degrees in the health-care field, up to $50,000 in loans for non-ParentPlus refinance loans

  • Minimum credit score

    N/A

  • Minimum income

    N/A

  • Allow for a co-signer

    Yes

Terms apply.

Should you refinance your student loans?

The decision of whether to refinance your student loans is a big one to make. The main reason to refinance is so that you'll save money. Many of the student loan lenders advertise big savings on their websites. For example, Education Loan Finance (ELFI) customers who refinanced their student loans between Jan. 3, 2023, and Mar. 1, 2023, saved an average $278 per month — and $20,774 in total average savings in interest costs over the life of the loan, their website claims. That's a pretty significant saving.

Before applying for refinancing, shop around for the best rates to see what you prequalify for. You can also use loan marketplaces like Credible to compare lenders. You'll also want to make sure you're in good financial standing before you start applying for a refinance. To get the best rates, you'll want to meet the following requirements:

You should also ask yourself the following questions:

  • Would you like to to pay off your loans faster if you could shorten your repayment term?
  • Would you like to make your loan payments more manageable if you could extend your repayment term?

Federal student loan borrowers looking to refinance should be aware that doing so with a private lender means they'll lose any protections they previously had with their federal loans, like income-driven repayment, student loan forgiveness and any current or future relief measures. Some private lenders will offer their own kinds of payment protections, such as deferment or forbearance, so make sure you know your options before taking out a refinanced loan.

Compare offers to find the best loan

FAQs

What is student loan refinancing?

When you refinance your student loans, you trade in your current loan(s) for one new loan through a private lender.

If you have more than one student loan, once you refinance, your payments are grouped together so you make only one monthly payment to one lender, instead of owing multiple monthly payments to various lenders. On top of getting a lower interest rate and streamlined payments, refinancing lets you alter the payment plan on your refinanced student loan. Terms vary by lender, but borrowers can choose how aggressive they want to be in their debt payoff, whether it's five, 10 or 20 years.

How is my student loan refinancing rate determined?

The interest rates lenders advertise for student loan refinancing may not be the rate you receive. Lenders determine your APR based on a handful of factors, including your credit score, your income, your debt-to-income (DTI) ratio, your savings, whether you choose a variable or fixed rate and the length of your loan's term.

How does refinancing affect my credit?

When you refinance your student loan, lenders will pull your report to determine if you're a risky borrower, which is considered a hard inquiry. This may lower your credit score by five or so points, but it's likely to go back up as you continue to make on-time monthly payments on your new refinanced loan.

Many lenders as well as loan marketplaces offer prequalification tools where you can quickly input your personal information and see rate quotes from lenders without actually applying and affecting your credit. You'll be able to get an idea of your interest rate, repayment term and any fees. Choose the lender that offers you an interest rate considerably lower than the one you currently pay.

Can you refinance my student loans multiple times?

There's no limit on how many times you can refinance your student loan. In fact, one CNBC Select reporter refinanced their student loans six times and was able to save thousands in interest this way. The process to refinance student loans is quite simple and there usually aren't any costs or penalties associated with doing so.

Is now a good time to refinance student loans?

Generally, student loan borrowers who are paying a higher interest rate on their federal or private student loans than they could score otherwise may want to consider refinancing. But federal student loan borrowers specifically should keep in mind the government protections they lose when they go private.

Private student loan borrowers should also consider if their credit score has improved since they last took out their private loan; if so, they have a better chance of scoring a better interest rate.

Will refinanced student loans be forgiven?

If you refinance your federal student loans, they will be taken on by a new private lender. Once you have private student loans, you're not eligible for federal protections and benefits, including student loan forgiveness and any suspension on loan repayment.

Bottom line

Whether or not you should refinance your student loans largely depends on if you're a federal or private borrower. Federal student loan borrowers should weigh the government protections they'd lose, while private student loan borrowers should size up their current interest rate with what the market is offering to see if it's a worthwhile jump.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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