Best Student Loan Refinance Lenders of April 2023
Refinancing federal, private, or both types of student loans can help you pay off your student debt faster and reach other financial goals. However, the pause in federal student loan payments may affect your choice to refinance.
U.S. News looked at the lowest and maximum APRs reported by private lenders and found that interest rates for refinancing student loans went up last month. Rates for refinancing student loans have been going up over the past year, with variable rates going up more than set rates.
Here are the rates that can be used to refinance student loans in March 2023:
The average set APR is between 4.31 and 9.25 percent, up from 4.16 to 9.06 percent last month.
The average variable APR spread is now between 4.45% and 9.56%, up from 4.24% to 9.12% last month.
Most of the time, people with a high credit score and low debt-to-income ratio will get the lowest APRs, while those with bad credit or a low income will get higher rates.
If you don’t have the credit background you need to get a good rate on a student loan, you might want to get a cosigner. Also, talk to more than one student loan lender to make sure you’re getting the best rate possible for your case.
How Does Refinancing a Student Loan Work?
When you refinance your student loans, a private lender pays off your old loan or loans and gives you a new loan based in part on how good your credit is. This can help you get a lower interest rate. If you can get a better interest rate, you could save money and pay less each month. Federal student loans can’t be refinanced by the federal government, and if you refinance them with a private lender, you won’t be able to get any federal perks you may have had.
Are You Eligible to Refinance Student Loans?
Before you refinance, you should make sure your loans are qualified and that your choice is the best one.
Private Student Loan Refinance Eligibility
Different lenders have different rules about who is eligible, but many private companies that refinance student loans look at these things:
Minimum credit score. If you want to refinance, you may need a credit score in the mid-600s or higher. But even if you can refinance, you might not be able to get a lower interest rate than what you have now.
History of credit. Your creditworthiness can be judged by how long your credit past is and if there are any bad marks on it, like late payments. AnnualCreditReport.com lets you get free copies of your credit report once a week until the end of 2023, so you can check for mistakes and fix them if you find them.
Income proof. Lenders may have minimum annual income standards.
DTI stands for “debt-to-income.” This is how much of your total monthly money goes toward paying off debt. Lenders can use this number to figure out if you’ll have trouble making your loan payments. A lower DTI ratio is better because it means you can spend more each month without going over your budget. You can lower your DTI ratio by moving to longer repayment plans, which would lower your monthly debt payments.
How soon can student loans be refinanced? Most likely, you won’t be able to refinance while you’re still in school. You should be able to refinance your loan once you graduate and get a job. There are also choices for borrowers who did not graduate but still want to refinance.
Who Can Refinance a Parent PLUS Loan?
Student debt can also be refinanced by the parents. When you refinance Parent PLUS loans or private parent loans, you can lower your interest rate, move the debt to your kid, or do both.
Should You Refinance Student Loans?
Travis Hornsby, founder of Student Loan Planner, a consulting company that helps people with at least $20,000 in student loan debt, says that refinancing makes sense if you want to lower your interest rate and pay off your balance in full. You might want to refinance your student debt with a private lender if:
You should be able to get better rates. If you have good credit and meet the minimum income and other standards of the loan refinance lender, you may be able to get a better interest rate, which can lower your monthly payment and the total cost of the loan.
You want to combine your private and government student loans into one loan. To combine private and government loans, you’ll need to refinance your student loans with a private lender.
Your money is steady. If you refinance your federal student loans, you will no longer be qualified for federal hardship programs or income-based repayment plans.
You don’t plan to use federal choices for loan forgiveness or different ways to pay back your loans. These government loan programs don’t cover private loans.
Five steps to refinancing your private student loans
If you’ve chosen that refinancing your student loans is the best way to handle your money, you may be ready to start shopping for loans and filling out applications. This is how that looks:
Check how good your credit is. Since your credit past affects the interest rate and whether or not you can get a loan from a private lender, you should know where you stand before you apply. Most of the time, people with very good to excellent credit, which the FICO scoring model defines as 740 or higher, get the best rates. If you have poor or bad credit, you may need a creditworthy co-signer to help you refinance your student loan debt.
Check the terms of your loan. Review the loan deal for your current student loans to find out how much you still owe, how much interest you are paying, and when the loan will be paid off. If you can’t find this information, contact the company that handles your student loan. Use the rate on your present student loan debt as a starting point.
You’ll want to find a lender who can give you a lower rate to lower your monthly payment and total interest costs. If you want to consolidate more than one loan, you’ll also need to add up the amounts of the loans you already have.
Get pre-approved by several companies. With a soft credit inquiry, most lenders will let you see your expected loan terms, such as your interest rate. This lets you compare the rates for refinancing student loans from different private lenders before you decide what to do. Also, be sure to look at a lender’s fees, loan deals, and programs for people who are having trouble financially.
Fill out an application for a loan. Once you’ve found the right student loan refinancing company for your needs, you’ll need to apply for the loan. This needs a hard check of your credit, which will have a short-term but small effect on your score. The lender may also ask for proof of income and identification, as well as information about your present loan, as well as other financial information.
Keep making payments while the money is being sent out. If you are approved for a new student loan with a cheaper interest rate, the process of refinancing could take a few weeks. Make sure you keep paying your present loan servicer during this time so you don’t miss payments or get charged late fees.