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.
Coronavirus Student Loan Refinancing
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. This does not apply to private loans, including loans that you have already refinanced.
During this time, 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 September (assuming the 0% interest ends on September 30, 2020).
If you have private loans, during the COVID-19 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.
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.