Want to refinance your student loan to a lower rate? Here's what experts say to do

While interest rate cuts and financial assistance programs were helpful during the pandemic, corrective actions over the past year have left many pinching pennies — and they're not over yet. In October, the federal government is resuming federal student loan payments.

"Now that payments on federal student loans are restarting, many people are exploring ways to reduce their payments or interest rates. Depending on your circumstances, refinancing your student loans may help accomplish either of those objectives," says Brian Walsh, Ph.D., CFP at SoFi.

However, you have to be careful you don't give up more than you stand to gain. Here's how experts recommend you approach student loan refinancing to land a lower rate. 

Start by checking your private student loan options here to see if this could be a path for you.

Assess your creditworthiness

Start the refinancing process by looking at your financial situation and credit reports to see where you stand. 

"Don't underestimate the power of your credit score. This three-digit number can be your best friend or worst enemy when looking for a lower rate," says Andrew Gosselin, CPA and senior editor at Money Inc.

Lenders look at factors like your credit scores, payment history, income and job stability to evaluate the amount of risk you present. The stronger your financial health and credit, the better your chance of qualifying for competitive rates and terms.

"If your credit score is low, work on improving it before refinancing," says Michael Hammelburger, CFA at The Bottom Line Group, "Paying your bills on time, lowering your credit card balances, and correcting any errors on your credit report can all help to improve your creditworthiness."

Learn more about how you can qualify for a competitive student loan here now.

Review your current loan

Before you can find a better student loan, it's important to fully understand your current loan. Take note of the outstanding loan amount, interest rate, fees, hardship options, discounts and any other perks or protections offered by your lender. You'll want a complete picture of exactly what you're looking to gain from refinancing your loan, and which current benefits you should be prepared to forgo.

Shop around and get quotes

If your credit and finances are in good shape, it's time to shop around. "Look into various lenders that provide student loan refinancing options with competitive interest rates, flexible repayment terms and positive customer feedback," says Hammelburger.

Once you have a shortlist of lenders, get quotes. 

"Many lenders have interest rate ranges online, but it's helpful to check your rate with a soft credit check to understand the unique options available to you," says Walsh, "A soft credit check won't negatively affect your credit score because it doesn't count as a hard inquiry."

With real rates in hand, you can compare the offerings side by side to see which is best and if it beats your current loan.

"Carefully examine each refinancing offer's terms and conditions. Look for features like autopay, interest rate discounts, forbearance options, and loan forgiveness programs. Compare the total cost of the loan, including any fees and penalties," says Hammelburger.

Be mindful of loan terms

When reviewing loan offers, pay careful attention to the term options.

"It's all about balancing your present financial capabilities with your long-term financial health," says Gosselin. A longer term could help lower your monthly payments, but leave you paying more in the long term. A shorter term, on the other hand, could result in higher payments now but leave you debt-free more quickly — with less overall interest paid.

"If your priority is getting the lowest interest rate possible and you can handle a higher monthly payment, a shorter repayment term might be the way to go," adds Walsh.

Consider a cosigner

If you can't qualify for lower rates on your own, consider applying with a well-qualified cosigner. 

"A creditworthy cosigner can help you get a lower interest rate. However, keep in mind that cosigners share loan repayment responsibility," says Hammelburger. 

To go this route, you'll need to find someone who both qualifies and is comfortable taking on the liability.

When refinancing may not be the best move

Opting to refinance a student loan can be helpful, but it won't always be the best solution. In some cases, you may end up losing more than you gain. For example, federal student loans come with protections like income-based repayment plans, loan forgiveness programs, and hardship options that you forfeit when you refinance into a private loan.

"While refinancing can lower your interest rate and potentially save you money, you must consider the trade-offs, such as the loss of certain federal loan protections," says Hammelburger. "A qualified financial advisor can provide personalized advice based on your unique circumstances." 

Learn more about private student loans and check your options here.