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Yes. The main point of a refinance is to get a lower rate, and graduates who qualify can save serious money.

Interest Rate, Explained

An interest rate is the rate charged to borrow money. Interest is calculated as a percentage of the unpaid principal amount. Federal student loans have a fixed rate, while many private student loans have a fixed or variable rate.

Student loans generate interest daily. Lenders typically add the accrued interest to the balance each month when the bill is generated.

The interest rate paid on any loan may make a big difference. If you have $75,000 in student loan debt and 20-year repayment term, the difference in interest paid with a 6.5% rate and a 4% rate is over $25,000.

To refinance student loans, people with excellent credit and a healthy income — or a solid cosigner — will generally qualify for the lowest rates.

Lowering Your Interest Rate With Consolidation vs Refinancing: How They Differ

For Federal Student Loans

Consolidation is a term reserved for federal student loans and is different from refinancing. Student loans are combined into one loan with a longer term (up to 30 years), reducing the monthly payments. The rate is the average of the existing loans’ rates, rounded up to the nearest one-eighth of one percentage point.

Opting for a Direct Consolidation Loan allows borrowers to retain access to federal programs like deferment, forbearance, and income-driven repayment plans.

But because the new interest rate is the average of the existing rates, rounded up a hair, consolidating loans and drawing out the term usually results in more total interest paid.

Normally, if you had started paying toward Public Service Loan Forgiveness and then consolidated your loans, you’d have to start your qualifying payments over. But a waiver through October 31, 2022, will count repayment on loans before consolidation.

For Private Student Loans

Refinancing means paying off your private or federal student loans with one new loan with a new rate and, sometimes, term.

Refinancing with a private lender may lead to substantial savings.

Then again, it might not be the right move for every borrower. For those with federal student loans, refinancing means losing access to federal student loan forgiveness and income-driven repayment plans.

But borrowers with higher-interest student loans may find the allure of a lower rate — fixed or variable — tempting. If you qualify, you could reduce your payments or save a lot on total interest paid.

Recommended: Can Refinanced Student Loans Still Be Forgiven?

Understanding Your Options to Lower Interest Rate

Federal student loan consolidation is meant to make your monthly payment more manageable by lengthening your repayment term, but it will not lower your rate.

Only by refinancing with a private lender can you try to lower your current private or federal student loan rates. This student loan refinancing calculator can give you an idea of how much you could save by refinancing.

Before you start browsing interest rates, take a look at your current loans. How much do you owe? What are the rates? Are you enrolled in any federal benefits, eligible for any, or hoping to be?

Having this information at the ready can provide valuable insights as you start comparing the rates and terms you might qualify for from different lenders. A rate quote is usually quick and entails only a soft credit pull.

After you’ve determined how much you could potentially save by refinancing, consider looking at other benefits offered by the lender.

Refinancing With SoFi

Refinancing student loans to a lower interest rate makes sense for borrowers who are able to do so and who don’t qualify for or need income-driven plans or other federal programs.

SoFi offers student loan refinancing with low fixed or variable rates, as well as access to member benefits at no cost.

There are no fees when you refinance with SoFi, and the application process can be completed online. If you’re ready to take the next step in paying off student debt, get a rate quote in two minutes.

FAQ

What is federal student loan refinancing?

If you refinance federal student loans, a private lender pays them off with one new private student loan that ideally has a lower rate. Federal student loan consolidation is different.

Do low interest rates apply to student loans?

Federal Direct Subsidized and Unsubsidized Loans for undergraduates have a fairly low fixed rate for all borrowers. The rate for Direct Unsubsidized Loans for graduate and professional students is higher. The rate for Direct PLUS loans, for graduate students and parents of dependent undergrads, is yet higher. Most federal student loans also have loan fees that are a percentage of the total loan amount. The fee for PLUS loans has run over 4% in recent years.

Private student loan rates generally are higher than federal student loan rates, but refinancing rates may be quite low for those who qualify. There’s never any cost to refinance, and you can do so as many times as you want.

Can you refinance a student loan for a lower interest rate?

Yes, if you qualify to do so.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

If you’re like most borrowers, particularly those with six figures’ worth of student loans from graduate or professional school, you might find that looking at your student debt square in the face is a downer, but repayment can be managed.

Is refinancing a good idea? It can be. When? When you can snag a lower interest rate and in a few other situations.

Student Loan Repayment Plans

Chances are you set up a student loan repayment plan after graduation and figured you’d revisit it later — when you’re making more money, when your career is more secure, when you have more time. The standard repayment plan for federal student loans is 10 years. Direct Consolidation Loans have a repayment period of 10 to 30 years.

Putting off the repayment thought is understandable. After receiving your undergraduate or graduate degree, your focus is on other things (like building a career).

But if you let that nebulous “later” turn into “never,” the repercussions can be costly. At some point, refinancing your student loans could potentially save you a significant amount of money. You just need to figure out if it is the right move for you.

When to Finance Your Student Loans

1. Your Current Student Loans Have High Interest Rates

Look at the interest rates you’re paying on your student loans, particularly federal Direct Unsubsidized Loans (graduate or professional), federal grad PLUS loans, and/or private student loans.

Depending on how high your loan balance is and how much you could reduce the interest rates by refinancing one or more loans, your cost savings may be significant.

2. Your Financial Situation Has Improved Since You Took Out the Loans

Maybe you were a starving student when you took out federal or private student loans, but ideally your financial situation has improved with time. This is great news for your bottom line, because a higher credit score and income help a borrower qualify for lower interest rates.

If you expect to stay on an upward financial trajectory, you might even consider refinancing to a variable-rate student loan, which will have a lower starting interest rate than a fixed-rate loan. Variable rates are tied to market fluctuations, though, which means rates that are very low today are likely to go up at some point.

The upshot is that a variable-rate loan could be a good option for a qualified borrower who intends to pay off the loan at a relatively fast pace.

3. You Don’t Plan to Use Certain Federal Student Loan Benefits

Borrowers who go to work in the public sector may qualify for the Public Service Loan Forgiveness program. Some federal programs also offer relief for borrowers who experience financial hardships (such as student loan deferment and forbearance, income-driven repayment plans, and the graduated repayment plan).

If you expect your income to be unpredictable or you’re looking into qualifying public service employment, it probably wouldn’t behoove you to refinance federal student loans. But refinancing could make sense if you don’t plan to tap into any of the federal programs listed above and you can gain a lower rate.

Recommended: Looking for more guidance on your student loans? Explore SoFi’s Student Loan Help Center for tips, resources, guides, and more!

4. You’re Going to Take Out a Large Loan

For loans like mortgage loans, lenders will look at your debt-to-income ratio, among other things. DTI is your monthly debt payments per month, including your future mortgage payments, divided by your gross monthly income. A low DTI generally signals better odds of loan approval and better interest rates.

Decreasing your monthly student loan payment by refinancing, with, say, a long loan term, could lower your DTI.

It might make sense to refinance your student loans at least six months before buying a home or making any other large purchase. That will give you time to recoup the points lost after a hard credit inquiry.

Once the mortgage or other big loan has been secured, you could refinance again, this time picking the lender offering the lowest rate, not just the lowest payment. You can refinance student loans as many times as you wish.

If you think student loan refinancing may be a good option for you, the next step is to check out several refinancing providers to compare interest rates and other features.

Refinance Student Loans With SoFi

You can refinance both federal and private student loans into one new loan with SoFi in an easy, all-online process. You can get your rate in two minutes.

SoFi also offers access to an extensive member network through complementary member experiences like happy hours and dinners.

Which means you could gain more than cost savings when you refinance student loans.

FAQ

When should I refinance my student loans?

It might make sense to refinance as soon as you have a stable income and good credit that can usher in a lower rate.

Can I refinance student loans after buying a house?

Buying a home creates new debt, and that can make refinancing student loans more difficult. But by waiting several months or even a year to refinance, the dust can settle on the mortgage decision.

Is refinancing my student loans a good idea?

If you’re struggling to repay federal student loans, you might consider an income-driven repayment plan or federal student loan consolidation.

But if you can qualify, your income is stable, and you would save money by refinancing federal or private student loans, that might be a smart move.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

In order to get approved for some student loans, some borrowers may choose to apply with a cosigner — a creditworthy individual who will be legally responsible for repayment should you default, become disabled, or die.

While there is no credit check or requirement to add a cosigner for most student federal student loans, students applying for private loans may consider adding a cosigner to their application. Applying for a student loan with a cosigner can help strengthen the overall application and as a result, may help a borrower get approved for a loan they otherwise wouldn’t have or could help the borrower secure a more competitive interest rate than they would have alone.

But, adding a cosigner is a serious decision, for both the borrower and the potential cosigner. That’s because both the cosigner and primary borrower are both equally on the hook for the loan. Read on for some cosigner mistakes to avoid.

Understanding the Role of a Cosigner

A cosigner is someone who signs onto a loan with a primary borrower, and in doing so, takes full responsibility for the loan. This means that if the primary borrower is unable to make payments on the loan, the cosigner is responsible for stepping in. The loan will appear on the cosigner’s credit report and if there are any missed or late payments, the cosigner’s credit score can also be impacted.

Pros and Cons of Cosigning on a Student Loan

There are benefits and downsides to having a cosigner on a student loan.

Pros of a Cosigner

If a student isn’t approved when applying for a student loan without a cosigner, the major pro of adding a cosigner to a student loan application is that the borrower becomes a more favorable candidate for the loan.

Additionally, adding a cosigner can help boost the creditworthiness of the application, allowing the student borrower to secure a more competitive interest rate or more favorable terms on their loan.

If the student is approved for the loan with a cosigner, this can help the student borrower build their own credit history as they make on-time payments on the loan.

Cons of a Cosigner

The cosigner’s debt-to-income ratio can be impacted by cosigning on a student loan. This could potentially impact the cosigner’s ability to borrow down the line, depending on their overall financial situation.

Additionally, because the cosigner is equally responsible for repaying the loan, if the primary borrower have any issues repaying the loan this could lead to serious implications for the cosigner, including:

•   The cosigner is responsible for making payments if the primary borrower cannot.

•   The cosigner’s credit report and credit score could be negatively impacted.

And having a cosigner on a student loan can potentially add stress or strain to the relationship should anything go wrong during the repayment process.

Mistakes to Avoid When Adding or Removing a Cosigner

Borrowing a private student loan with a cosigner is common. According to the Measure One Private Student Loan Report published in December 2021, during the 2021-2022 school year, 92.16% of newly originated private student loans borrowed by undergraduate students had a cosigner. But, before you jump in, make sure you understand the ins and outs of choosing — and removing — a student loan cosigner.

(And while you’re at it, check out SoFi’s Student Loan Debt Navigator tool to assess your student loan repayment options.)

1. Ignoring Your Income and Cash Flow

When you apply for a private student loan or refinance, lenders check your financial fitness (credit score, debt-to-income ratio, etc.) to see if you qualify.

Some lenders, (including SoFi) will review a borrower’s income as part of their eligibility requirements and may also consider something called “free cash” flow — the amount of money you have left at the end of each month after subtracting taxes and cost of living expenses. If the lender feels you lack the necessary free cash flow to repay your loan, either your application will be declined or your loan will be approved at a less-than-desirable interest rate.

If your cash flow is more of a trickle, the lender may prompt you to add a cosigner to your application.

2. Going for Romance

When considering the best cosigner, steer clear of asking your boyfriend or girlfriend. If the relationship goes south after signing, your ex will still be legally responsible for the loan. Would you want to be on the hook for the student loan payments of someone you’re no longer dating?

Instead of focusing on a romantic connection, it may make sense to consider family members. Though anyone can cosign a loan for you, a relative is generally a more reliable choice than a friend. Typically, a cosigner is a parent or guardian, spouse, or other family relative.

3. Going in Blind

A family member may think cosigning a loan is as simple as signing his or her name on a contract, but it’s more complicated than that. A cosigner is a coborrower, which means the debt will show up on your credit report and on his or hers.

Plus, if you can’t make good on your loan for any reason, the lender has the legal right to pursue your cosigner for repayment.

4. Failing to Set Expectations

It may be unpleasant, but it’s important to discuss worst-case scenarios with your cosigner. If you lose your job and can’t make payments, your cosigner must be prepared to assume full responsibility for the loan. Plus, you’ll need to discuss whether you’ll repay that person should he or she have to make payments at some point, or if those payments will be gifts.

Note: Once you set clear expectations, it’s a good idea to sign a legal agreement together. Depending on your relationship, the agreement can be as simple as an email or as formal as a document drafted by a lawyer.

5. Expecting a Handout

If you think a legal agreement sounds drastic, keep in mind that a friendly cosigning situation can go sour when you don’t hold up your end of the deal. As mentioned, if the primary borrower fails to make payments on their loan, the cosigner is equally responsible. That means they’re responsible for repaying the loan if the borrower cannot, their credit score can also be impacted by late payments, and should the loan go into default, collections agencies can try to collect from the cosigner as well.

Word to the wise: Don’t make your cosigner regret doing you the favor. The fact is, your cosigner is taking a risk for you. You should feel confident in your ability to repay the loan fully on your own.

6. Not Understanding How to Remove a Cosigner

When you start conversations with a potential cosigner understand the options for removing them down the line. Some lenders may offer an official cosigner release option. This means filing an application with the lender to remove the cosigner from the loan. If the lender doesn’t offer cosigner release, it may be possible to refinance the loan and remove the cosigner.

Not all lenders offer a cosigner release option — and those that do have stipulations for removal. Typically, you’ll need to make anywhere from 12 to 48 months of on-time, consecutive payments to qualify for cosigner release.

The lender will also look at your overall financial situation, including how well you’ve managed other debts, and may require that you submit supporting documentation such as a W-2 or recent pay stubs.

Understanding your lenders requirements for cosigner release and ensure you are establishing strong financial habits like making monthly payments on time, and are effectively budgeting and saving, could potentially improve your chances of being approved for a cosigner release.

7. Not Realizing Refinancing May Still Be an Option

In the event you aren’t successful in removing your cosigner via cosigner release, another potential option is refinancing the loan. When you refinance a loan, you take out a new loan (sometimes with a new lender), that has new terms. Doing this can allow you to potentially remove your cosigner, so long as you are able to meet the lender’s eligibility requirement on your own.

While refinancing can be an option to consider for some borrowers, it won’t make sense for everyone. When federal loans are refinanced, they are no longer eligible for any federal protections or programs.

The Takeaway

Adding a cosigner to your student loan can truly work to your advantage, potentially helping you qualify for a more competitive interest rate on a student loan or a refinance. So if someone in your life has offered to cosign, consider it seriously — just make sure you both understand what you’re signing up for from the start.

SoFi makes it easy to add a cosigner to student loan or refinance applications and borrowers can apply for a cosigner release after 24 months of on-time payments.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.