How to refinance student loans: a step-by-step guide

Student loan refinancing is the process of opening a new loan to replace an existing student loan (or multiple loans).

Refinancing a student loan is something you do through a private bank or lender. On the other hand, consolidating student loans is when you combine multiple student loans from the federal government into a new loan.

Borrowers often refinance to get a lower interest rate or a lower monthly payment. Many borrowers also want to simplify things by combining several loans, or they may want to refinance when they no longer need a cosigner for the loan (like a parent). 

Do you currently have federal student loans with benefits? 

If your federal student loans include benefits like income-based payments or loan forgiveness, those federal benefits would no longer apply after refinancing with a private lender. Other federal student loans might also come with payment deferment (a payment pause) or forbearance (a payment pause, but with interest accumulating) — all benefits you’d lose during a refinance. 

Will you qualify for a better interest rate? 

Lenders typically evaluate factors such as credit history, income, and employment stability. Borrowers with stronger credit profiles may receive lower rates or longer repayment options, while others may receive less favorable terms or be required to add a cosigner.

Are market interest rates favorable? 

Compare your current interest rates with what’s available now to compare your current interest rate with current market offers to understand how refinancing could change your loan costs. Beyond the interest amount, look at whether extending your loan term might actually cost you more money in interest paid over time. 

1. Research & pre-qualify with lenders: Start by researching interest rates and getting quotes from banks or private lenders. This lets them run a soft credit check to pre-qualify you — which typically involves a soft credit check that does not affect your credit score.
2. Compare terms & lender features: Loan terms will differ with your quotes, so look at the details. Understand whether the interest rates are fixed or variable, length of the repayment period, what fees are associated with refinancing, and whether the terms include any forbearance or deferral options. If you have a cosigner, make sure there’s a release provision included for them.
3. Submit application: You’ll need to submit an application to get a formal offer from your lender. That typically includes income documentation (such as a pay stub), a hard credit check (that will show up on your credit report), and details on your existing loans such as the provider, interest rate, and total loan amounts. 
4. Review offers & choose one based on your priorities: Review your offers by checking the interest rate, your monthly payment amount, and the total cost of your loan including interest and any other fees. Consider whether you’re trading off any existing loan benefits for the new loan and if so, whether the new loan outweighs those benefits. Then, pick the best offer.
5. Close the loan & pay off existing debt: Once you close on your chosen loan, your new lender will pay off your old lender (or lenders). You’ll make payments to your new lender, so don’t forget to update your autopay if needed.
6. Monitor & manage your refinance loan: Keep an eye on your loan and current interest rates as time goes on and revisit your loan terms if things change. Making payments on time and in full can help reduce the risk of late fees and support healthy credit behavior over time.

• Lower interest rates may reduce the total interest paid over the life of the loan.
• One payment is easier than multiple.
• Your monthly payments could be lower if you extend the loan term, though this may increase total interest paid.

• Loss of federal loan benefits like deferment or forgiveness. 
• You’ll pay more interest over time if you extend your repayment term.
• If your credit profile isn’t strong enough, you may end up with higher interest or a cosigner requirement.

• Update automatic payments & loan servicer info: Cancel automatic payments to your old lender and set up autopay with your new one. 
• Track your progress: Keep track of how your interest costs and repayment progress compare with your previous loan.
• Reevaluate if your situation changes: Life situations like losing your job or having medical issues can happen. Know your options in these cases and reach out to your lender if making payments may become an issue. 
• Consider future opportunities: Now may not be the right time to refinance or consolidate, especially if you have federal loan benefits and protections. It’s okay to revisit the question of refinancing student loans later on as your career or life circumstances change.

Mistake: Refinancing before understanding what you’ll lose.

Refinancing without fully understanding existing loan benefits can lead to unintended trade-offs.

Mistake: Choosing lowest monthly payment by extending term without calculating total interest cost.

Lower interest rates can save money, but you may end up paying more total interest if you extend your loan term. Calculate that cost before going ahead with refinancing for a lower monthly payment.

Mistake: Not shopping with multiple lenders.

For the most favorable terms, get quotes from multiple lenders.

Mistake: Ignoring forbearance/deferment options of the new lender.

Take time to understand all of your new lender’s terms, including any forbearance or deferment options.

Mistake: Letting credit deteriorate before applying.

Neglecting your credit by missing payments or due dates can result in unfavorable terms like higher interest rates. A bank may even decline to refinance your student loans altogether.

Refinancing your student loans can change your interest rate, repayment term, and monthly payment — but whether it’s the right move depends on your current loans, financial goals, and the offers available to you. Taking time to compare multiple lenders, understand the trade-offs (especially the loss of federal benefits), and review total loan costs can help you make a more informed decision.

If refinancing is part of a broader plan to manage your money more efficiently, Raisin can help you take the next step. While Raisin doesn’t offer student loan refinancing, it gives you access to a marketplace of high-yield savings products that can support your overall financial strategy — whether you’re building an emergency fund, setting aside cash for loan payments, or working toward other goals.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.