Private student loans don’t qualify for federal income-driven plans or forgiveness, so refinancing them gives up almost nothing. Once your credit or income has improved, prequalify with several lenders and take the lowest rate you can get on a term no longer than the one you have left.
The rate on your private student loan was priced on the credit you had when you borrowed, often a thin student file. If your score has climbed or your income has grown since, you’re still paying a price set for a riskier borrower.
Refinancing replaces the loan with one priced on your credit today. Unlike a refinance of federal student loans, which trades away protections you can’t get back, a private refinance just moves the debt to a new lender. Federal law bars prepayment penalties on private student loans, including refinance loans, so you can pay off the old loan early and refinance again if rates fall further.
A refinance is worth doing when the new loan cuts your rate, shortens your term, swaps a variable rate that can climb for a fixed one, or puts the loan in your name alone, which frees your cosigner. To find one, prequalify with three or four lenders. Prequalification usually runs a soft credit check, which doesn’t affect your score, and the hard check comes only when you apply with the lender you pick.
Compare APRs, the yearly cost with any fees included, on the same term, since the lowest rates usually come with the shortest terms. Then check the new loan’s hardship terms against your current loan’s. Payment pauses vary by lender, not every private lender discharges the debt if you die or become permanently disabled, and a loan from a state agency may carry forgiveness you’d give up.
Say you owe $40,000 at 11% with 10 years left. Refinancing to 7% on the same term cuts the payment by about $87 a month and the total interest by about $10,400, by our math. Stretch the same 7% loan to 15 years, and the payment drops by about $191, but the interest you save shrinks to about $1,400.
Check refinance offers whenever your credit score jumps or rates fall. If one beats your rate on the same or a shorter term, take it.
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