9 Best Banks to Refinance Student Loans
When you refinance student loans, you transfer your existing federal and private student loans to a new private lender for the purpose of lowering your interest rate, lowering your monthly payment or consolidating your loans (or sometimes for all three reasons).
This post explains how to find the best student loan refinancing deal and answers all questions related to student loan refinancing.
In the above list, I’ve highlighted the top three lenders based on the fact that they frequently offer the best deals (i.e. lowest interest rates) to the lawyers who read this site. Those readers refinance and consolidate millions of dollars of student loans through the site each month, so you’ll be in good company if you also decide to refinance your student loans.
Biglaw Investor deliberately generates less money from our refinancing referral links to get you a significant cashback bonus on top of the better interest rates you’ll also see when you refinance your student loans through the site.
Student loan refinancing during the Covid-19 pandemic
On March 13th, the president suspended student loan interest for federal loans. Later that month, the president signed the CARES Act into law which suspends all interest and student loan payments on federal loans through September 30th, 2020. The president has since extended the executive order to suspent all interest and student loan payments on federal loans through January 1, 2021.
The deferment of interest and payments does not apply to private loans, including loans that you have already refinanced.
During the federal loan suspension period, if you have federal student loans and are considering refinancing, it’s hard to make an argument for doing so since you are currently paying 0% interest. If it were me, I would keep my loans in the federal system and make the most aggressive payments I could on my loans during this time to pay down as much principal as possible. I would again explore the refinancing market in early December (assuming the 0% interest and $0 payments ends on January 1, 2021).
If you have private loans, during the coronavirus crisis it’s still a good idea to continue to check the offered rates to see if you can get a lower interest rate than you are current paying. Given the market instability, there is no right or wrong time to check your rates but instead I’d be looking at them fairly often because we’ve seen wild swings from one day to another.
How to compare the best student loan refinancing companies
Most people only check their rates with two companies or less. Because each student loan company has a different way of accessing capital in the market, you really need to explore your options to see what will get you the best rate.
Generally there are three types of student loan refinancing companies. Some companies, like Earnest and CommonBond offer refinancing by selling commercial paper in the credit markets. Others, like First Republic, Laurel Road and ELFI are backed by depository banks. The last type, such as Credible and LendKey, act as a marketplace of lenders and give you rate quotes from banks that you probably wouldn’t check on your own.
Finally, like all credit decisions, the rate you are offered depends on your credit score. If you have significantly improved your credit score over the past six months, it’s a good idea to check rates again to see if you can get something better. Since student loan refinancing doesn’t cost anything (other than your time), you should refinance if you can get a lower rate than what you are currently paying.
10 facts about refinancing
Refinancing your student loans is one of the best things you can do when you graduate assuming you aren’t seeking loan forgiveness. Why? You’re paying thousands of dollars of unnecessary interest each year. That interest is keeping you from paying down the student loan balance. And the student loan balance is keeping you from building wealth. So, refinance those loans and start paying them down!
Fact #1: You’ll save a ton of money
Compound interest is a wonderful thing. Compound interest in reverse will kill you. If you’re paying an average 6.8% interest on your student loans, you need $566 a month for every $100,000 you’ve borrowed just to cover the interest alone.
Fact #2: Refinancing is usually quick and easy
When I graduated from law school, nobody refinanced student loans. When the original refinancing players showed up in 2013, there were lots of problems handling applications and processing a deluge of professionals interested in refinancing their loans. Those days are over. You can get a preliminary quote within five minutes. If you have all your loan documents together, it might take you another 15 minutes to submit the application electronically. I recommend you check around with all the different companies (pretty easy once you have your paperwork together) to get the best rate.
Fact #3: You don’t have to refinance all of your loans
Sometimes a lawyer is worried about refinancing everything at the same time. Maybe you have an attractive fixed interest rate on an undergraduate loan? There’s no need to include it in the package that gets refinanced. Maybe you want to dip your toe into the waters but keep some of your loans in the federal program. There’s no requirement to refinance student loans in bulk. Refinance the portion that feels comfortable and keeping moving.
Fact #4: You get better service
There’s a reason the federal government sued Navient in early 2017. The federal student loan servicers have a history of customer complaints. Specifically, the government alleged that Navient “processed payments incorrectly; created obstacles by providing bad information and failed to act when borrowers complained.” Having seen them set such a low threshold, you’re likely to be impressed with a modern web interface, the ability to easily make extra payments and flexible policies. While no company is perfect, the student loan refinancing market is extremely competitive at the moment which means each company has to work hard to win your business.
Fact #5: Consolidation and refinancing aren’t the same thing
Many people mix up these terms. Consolidation is combining all of your loans into one federal loan. Unfortunately (for you), the government averages the interest rates of all of your loans and then rounds them up to the nearest 1/8th%. Refinancing occurs when a private bank or lender repays your federal loans and issues a new loan to you, typically at a much lower interest rate. Refinance. Don’t consolidate.
Fact #6: Refinancing doesn’t eliminate your debt
Refinancing is the first step in beating back the interest rate monster. But don’t get confused into thinking that you’ve actually made progress in paying off your debt. Refinancing student loans is just the first step. While the $12,000 in annual interest kept you from making headway against paying down your federal student loans, it’s the $200,000 of debt that you’re going to have to pay eventually before you can build real wealth. To defeat the $200,000 debt, you’re going to have to make consistent monthly payments and throw any extra one-off “bonus” money that comes your way as you’re making payments toward your student loans.
Fact #7: You can refinance again later
If you’re just starting your career, you might not get the best rate due to your credit score and debt-to-income ratio. Or maybe you’ve paid off half your loan and are now convinced that a variable rate makes sense for the rest of the payoff. There’s nothing stopping you from refinancing your loans again. You’ll get the bonus money every time you do it and the refinancing companies probably won’t care, since their business model is based on selling your student loans into the bond market. There’s also the possibility that in the future we will see low interest rates (people have been saying for years that interest rates can’t get any lower, but then they do).
Fact #8: Don’t refinance if pursuing student loan forgiveness
Refinancing is not right for you if you plan on having your loans forgiven under Public Service Loan Forgiveness (PSLF) by the U.S. Department of Education or any of the income-driven repayment plans (e.g. IBR/PAYE/REPAYE). Forgiveness programs are only available to holders of federal loans. If you refinance, your federal loans are paid off and you now owe a private lender. Don’t refinance if you plan on seeking forgiveness.
Fact #9: Don’t fear the student loan debt monster
Many lawyers are afraid of refinancing their student loans. What are those lawyers really worried about? They’re worried they might not be able to make monthly payments. But if that happens, it’s not like the student loan companies can repossess your brain. Student loans are an unsecured debt. If you stop paying, the student loan companies have limited recourse. They’ll report you to the credit bureaus. But all the credit bureaus can do is lower your credit score. Your credit score is the least of your problems if you can’t make student loan payments. If you’re sure that you’re going to pay off your loans eventually (and forgo seeking forgiveness), then it’s time to refinance the student loans. Paying an extra $7,000 a year in interest so that you can return to REPAYE payments “just in case” is a very expensive insurance policy premium that doesn’t seem worth it to me. Most private lenders offer deferment loans terms and hardship options today anyway.
Fact #10: You get cash back and special service
You’re already going to save tens of thousands of dollars in interest when you refinance. But I’ve got an even better deal for you: extra cash in your pocket. I’ve negotiated a special deal with each of the main refinancing companies so that you get a little extra cash back when you do (and you help support this site). Plus, when you refinance through one of our links you’ll be part of The Biglaw Investor family. It’s hard for a student loan company to ignore a customer that’s literally refinancing millions of dollars in student loans (like us), so if you have questions (or need some extra help), you’ll benefit from being a “big fish”. We have dedicated contacts with each company.
Refinancing law school loans
Law school graduates typically start their career with an enormous amount of law school debt. If you’re looking to avoid this outcome, I’ve listed a bunch of ways to pay for law school. Loan repayment assistance programs (LRAP), scholarships, generous family members and part-time jobs are a few of the ways that law school students have been able to minimize their law school debt while pursuing a legal education.
If you’re a law school graduate who has now entered your repayment period and you’re specifically looking at how to eliminate your law school loans, you have a few options. One is to pursue an income-driven repayment plan, such as income-based repayment (IBR) or REPAYE. Obviously, many conditions apply if you’re pursuing forgiveness of the entire loan amount.
On the other hand, lawyers can often get great student loan refinance rates thanks to having a law degree since your large student loan balance and low risk of default is appealing to student loan refinancing companies that resell the debt in the public markets. The great thing about student loan refinancing is that there are no origination fees or prepayment penalities, so over the life of your loan you’re incentivized to refinance whenever you can get a lower rate (since even small decreases in your student loan interest rate can result in saving thousands of dollars.)
Typically a student loan refinancing company will look at your credit report and credit history in determining the student loan refinance rate they can offer you. You are also usually offered a small discount if you agree to automatic payments deducted from your bank account. In my experience, I’ve seen lawyers get better loan terms if they work in the private sector vs the public sector, but that is mainly a factor of having a higher starting salary if you work in the private sector. Either way, if you are able to lower your interest rate, you student loan repayment term should be shorter (less interest means you’ll pay off your loans faster) as your interest payments will be lower which allows you to reduce your principal balance faster.
Refinancing student loans means transferring your existing federal loans to a new private lender with new rates and terms. Borrowers typically refinance to get lower interest rates, lower monthly payments or to consolidate their loans with a single lender (or sometimes for all three reasons).
Most lenders only perform a soft credit check when you check interest rates, which means their inquiry won’t affect your credit. You should shop around.
Checking rates is generally easy and doesn’t require the commitment of completing the full application. Of course, if you do end up refinancing, you’ll need to complete a full application with your chosen lender.
A good credit score is a big plus when you want to refinance student loans. If your score isn’t the best, it may be worth asking a friend or family member with a good credit score to co-sign with you.
What’s a good score? Somewhere in the high-600s is adequate for most lenders. However, in order to qualify for the best rates, a score in the mid-700 range or higher will be beneficial.
If your credit score leaves something to be desired, you may not be able to refinance. Lenders will be looking for a score at least in the upper 600s. However, even if you technically meet the credit score requirements you could be denied for other reasons such as not having enough cash flow.
You can augment your credit profile by:
- Getting a co-signer with great credit
- Paying down other loan balances (credit cards and the like) to free up cash flow
- Improving your score before applying
Alternatively, if you’re having trouble qualifying to refinance, you may qualify for a federal relief program so check into that as well.
It really depends on your situation. Remember refinancing your student loans means you will no longer qualify for government programs designed to help if you fall on hard financial times.
In other words, if your job is uncertain and you think you’ll need income-driven repayment terms or that you might qualify for federal loan forgiveness, refinancing may not be the best idea. You could be taking away some important benefits.
However, if you feel somewhat stable financially, refinancing can offer some tremendous savings. Private loans tend to offer cheaper interest rates, which can save you thousands of dollars in the long-term. You may even find that your monthly payment is reduced by a significant amount, making it easier to save for a house or cover other expenses.
Student loans are offered through the federal government. These loans typically come with benefits not offered through private lenders. This includes loan forgiveness programs and income-driven repayment.
In general, if you are in one of the following situations, it may be a good time to refinance.
- You have variable rate loans — interest rates are on the rise so locking in a more stable fixed rate would benefit you
- You have high-interest loans — even if refinancing only lowers your rate by a couple of percentage points, that represents big savings in the long run
- Your credit score has gone up — even if your loans already carry a reasonable interest rate if your credit score has dramatically improved you could qualify for an even better one
You also should consider refinancing if you want to release a co-signer from your current loan. Another reason would be to move the loan from your parent’s name to yours.
Most people have more than one student loan. In fact, if you applied for financing each semester of a four-year degree, you could actually have 8 loans.
Even if you only make one monthly payment, you probably have more than one loan. Payments are made to a student loan servicer assigned to you by the federal government and they handle dividing up your payment between each loan.
By consolidating you take out a new loan and pay off all the smaller ones. This can help your credit score in two ways.
First, the number of credit accounts with balances on your report affects your score. Reducing that number from eight to one can give your score a small boost. It might only be a few points, but every point counts when you’re trying to make a qualifying cutoff.
Second, if you miss your payments for a couple of months, every one of those loans will report you as being late. As you might guess, having only one loan reporting late is far less damaging to your score than eight.
In general, the best lender to choose for a refinance is the one that offers you the lowest rate as that’s how you’ll save the most money. Talk to at least three lenders to get an idea of average rates.
If the offered rates are comparable, you’ll want to look at the company itself. Choose one that offers the features best suited to your situation, such as flexible repayment options in case you fall on hard times.
It’s also a good idea to look at the company’s track record with customer service. Good customer service is not always easy to find but 100% appreciated.