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Refinancing Student Loans Online: 3 Borrowers Share Their Stories

Lance CothernByLance CothernJan. 15, 2020
Refinancing Student Loans
Attending college can get expensive. While some families can help pay the costs of higher education, many students end up taking out student loans. Once you graduate from college, you generally start making student loan debt payments within a few months. That’s when reality sinks in and you discover the student loan payment you must make.

Certain types of student loans have flexible payment options while others may only offer a single payment choice. 

If the payment options don’t work for you or you’d like to change other terms of your student loan debt, there may be a way to restructure your student loan debt to meet your goals. 

Similarly, you might be wondering if there’s a way you can save money on the remaining debt you owe. You might be able to refinance your student loan debt to lower your interest rate or lower your monthly payment depending on your goals. 

Thanks to the many top online student loan refinancing companies that exist today, figuring out if you can refinance your student loan debt is easier than ever.

In fact, refinancing your student loan debt online has many advantages over the traditional method of refinancing debt in person at a local brick-and-mortar location. These benefits include:

  • The ability to get many rate quotes quickly with only a soft credit pull
  • Easier to compare quotes to make sure you’re getting the best terms
  • Can fill out the requested information and upload documents from the comfort of your home
  • Fast application processing

We interviewed 3 people who’ve recently refinanced their student loan debt to give you a taste of what the process of refinancing your student loan is really like. This way, you can know exactly what to expect before you get started.

Brandon Wilson, a senior digital marketing strategist at Reink Media Group, refinanced $124,000 of undergraduate and graduate student loan debt using SoFi in August 2019.

In April 2017, Kat Tretina, a freelance writer, used CommonBond to refinance $7,000 of student loan debt.

Logan Allec, a CPA and owner of the personal finance website Money Done Right, refinanced around $16,000 of student loan debt using Earnest in June 2015.

Reasons to Consider Refinancing Your Student Loan Debt

Refinancing your student loan debt can provide a wide range of desired outcomes depending on how you refinance. 

The result could be a lower interest rate, a shorter or longer repayment period, or a lower monthly payment depending on your needs. You could also refinance your student loans to switch from a fixed interest rate loan to a variable interest rate loan or vice versa.

Before you consider refinancing your student loan debt, decide what your desired outcome is. “I would suggest really looking at your budget and financial goals. Are your interest rates high or already competitive? Is your credit score in good shape to help qualify for better rates?” says Brandon.

Many people focus on paying their student loan debt off faster, paying less interest, or obtaining a lower monthly payment to make managing their finances easier. “For me, I didn’t care about the monthly payments. The only thing that mattered was getting the lowest interest rate possible,” Kat adds. 

Once you know your objective, you can start searching for lenders that can help you achieve your goal. However, don’t automatically assume refinancing your student loan debt will help you. In some cases, refinancing your student loans may not be a smart option.

In particular, those with federal student loan debt should be careful when deciding whether to refinance their debt. 

Federal student loans come with certain protections and unique repayment programs. You lose access to these programs when you refinance your federal student loan debt to a private student loan. 

If you’re in a strong financial position and don’t need access to these programs and protections, refinancing your student loan debt could save you money. “I wish I had refinanced my student loans earlier. I kept putting it off because they were federal loans, and I was worried about losing federal loan benefits,” says Kat.

An unanticipated job loss or other tragic situation could force you into needing these protections and other repayment programs when you least expect to need them, though. 

How to Check Your Student Loan Refinancing Options

Checking your student loan refinancing options is much easier today thanks to the way lenders are going about the process. You can now enter some basic information and allow the lender to use a soft credit pull to see what interest rates you qualify for. “I was able to prequalify for my rate with a soft credit score pull first,” says Logan.

Using a soft credit pull is key because soft credit pulls do not impact your credit score in any way. If a lender has to perform a hard credit pull to determine what rates and terms you qualify for, your credit score could drop a few points due to the inquiry that lands on your credit report.

Armed with the rate and term information the student loan refinancing lenders provide, you can quickly shop around with multiple lenders without impacting your credit score at all. You can compare rates, length of the loan, and other terms to make sure you find the lender that is the best fit for your personal situation.

All 3 people we interviewed looked at multiple student loan refinancing companies before they decided which one to use. In particular, Brandon says, “I considered four total student loan refinancing companies: SoFi, Earnest, Wells Fargo, and Discover.”

Finding the Perfect Lender for Your Situation

The perfect lender to refinance your student loans may be different than someone else’s. The key is finding the lender that gives you the best terms that help you achieve your goals. For instance, Logan simply compared interest rates to determine which lender was the best fit for him. “They offered me the lowest rate,” says Logan about why he chose Earnest.

In particular, the big items you’ll want to consider with each lender are the interest rates and types of interest rates the lender offers for various loan repayment periods. 

Some lenders may only offer variable or fixed rates on certain loan terms or may offer unique repayment periods other lenders don’t offer. “SoFi was the only lender that allowed me to choose a 7-year loan length while each other company only offered 10+ year repayment plans,” Brandon explains.

Additionally, the specific interest rate advertised on a lender’s website may only apply to the shortest loan repayment period possible. In general, the longer the loan repayment period is the higher the offered interest rates will be. “I opted for a five-year term. I wanted a shorter loan term because it offered the lowest interest rate,” says Kat.

Don’t forget to ask if the lender offers any interest rate discounts. “I received an autopay discount of 0.25%,” says Logan. Other discounts may also exist, so be sure to ask if you qualify for any.

You’ll also want to check with the lenders to see what information they consider when reviewing your application. Kat mentions that CommonBond allowed her to include her side hustle income which other lenders did not at the time. “My side hustle made up a significant portion of my total income, so having that included in the approval decision helped me get a lower rate,” says Kat.

What It’s Like to Refinance Your Student Loans Online

“I think it's just so much easier to refinance student loans online,” says Logan. Kat agrees, “The convenience of refinancing online can’t be beat. I was able to compare offers from lenders, choose a lender, and complete my application all within 30 minutes.” 

Once you’ve decided on which lender you want to refinance your student loans with, you’ll fill out a formal application to refinance your student loans. “I was completely comfortable applying for a refinancing loan online. CommonBond’s platform felt very secure and professional, so I had no qualms submitting my information,” Kat explains.  

At this part of the process, the lender will have to perform a hard pull on your credit report to officially check your credit. The lender will ask for additional information as well as information to verify what you have already told them. Typically, you may need to provide the following:

  • Basic identifying information such as address, phone number, Social Security Number, etc
  • Proof of employment, income, citizenship, residency, and graduation
  • Statements or payoff letters from your loans you want to refinance
  • Monthly housing payment and other debt payments

“Once the SoFi team confirms that your information is correct and you can indeed qualify for your desired rate and loan terms, then you're sent digital documents explaining the repayment process and all of the legal language,” says Brandon. If you’re approved, you’ll have to sign the final loan documents that will govern your newly refinanced student loans.

If you get denied, the refinancing process won’t go through. Reach out to the lender to find out what went wrong and why they denied you. 

The denial may have been due to an error on your credit report that you could get fixed. If it isn’t due to an error, find out what you can do to get to a point where you can get approved in the future.

The nice thing about refinancing online is you don’t have to go to the local bank branch to manage the process. “Personally, refinancing online is convenient and I was able to do so in the comfort of my own home,” recalls Brandon.

What Happens After You’re Approved?

After you’re approved, your current lender will usually send funds to your previous lenders to pay off your old student loans. “My new lender, SoFi, sent direct payments to both the private and federal institutions where my old loans were located,” says Brandon. 

During this time, it is extremely important that you keep up with the process. Do not assume the payoff will go through without any issues. If you have any regular payments due during the payoff process, be sure to make the appropriate payments so you don’t end up in a situation with a missed payment.

Some of your old lenders may have prepayment penalties for paying off your student loan debt early. “I was very fortunate that my old lenders did not charge prepayment penalties,” says Brandon. 

If your old loans have prepayment penalties, make sure your new lender accounts for these penalties in the final payments they send to your former lenders. If not, there may be a balance remaining even though you think your old student loans were paid off in full.

Verify that your previous lenders received the payoff payments on time and that your loan has been repaid in full. 

As far as your new loan goes, you’ll need to start making payments based on the agreed-upon terms in your new student loan documents.

Will Refinancing Your Student Loan Debt Impact Your Credit Score?

Refinancing your student loan debt can impact your credit score in many ways. The three people interviewed for this piece didn’t see any significant impacts. “After CommonBond reviewed my application, my score dipped by about five points. But it bounced back within a few months,” says Kat.

The credit scoring formulas used have a variety of factors that impact your credit score. One of the smallest factors is new credit. When you formally apply for a loan to refinance your student debt, a hard inquiry will end up on your credit report which could result in a score drop of a few points. 

Other aspects could also impact your credit scores. If you miss a payment during the refinance process, it could put a big dent in your score. The payment history portion generally accounts for 35% of FICO scores.

Other influencing factors include the amounts you owe on your debt, length of credit history, and credit mix according to FICO.  “My credit score did drop a few points once the new credit inquiry was picked up. It wasn't anything drastic, I would say less than 10 points total, and perhaps that's because it impacted my average credit age even though the total loan amounts remained the same,” says Brandon.

The good news is, refinancing your student loan debt may not impact your other credit decisions. If you have an exceptional credit score, a dip of a few points may not make a difference. “I was in the middle of purchasing my first property, and I was able to close on it a few months later with no problem,” says Logan.

Make the Most of the Student Loan Refinancing Process With These Final Tips

If you’ve decided to look further into refinancing your student loan debt, here are a few tips that can help you get the most out of the experience:

  • Do your best not to get overwhelmed with the process and put it off. Both Kat and Logan wished they had refinanced their student loan debt earlier. “Refinancing helped me pay off the debt ahead of schedule and save a little money. The impact would have been much bigger if I had done it early on, when I had $35,000 of student loans,” says Kat. 
  • Before you start shopping for loans, determine what your ultimate goal is for refinancing your loans. “I would suggest using a refinance calculator to see where you stand,” says Brandon. Once you know your goal, come up with a list of lenders that can help you reach that goal.
  • After you’ve found lenders that may meet your needs, research whether each lender gives out rate quotes by using a soft inquiry that will not impact your credit score. “If I were to refinance my student loan debt again, I would likely consider more lenders,” says Brandon. 
  • For each lender that uses soft pulls, get quotes to determine what rates and terms they can offer you. Consider at least a few lenders to make sure you’re getting the best deal. 
  • Ultimately, you have to make the decision that best fits your needs. If refinancing your student loans doesn’t put you closer to your goals, don’t refinance. If it helps and you’re aware of all of the potential impacts, get started to help reach your goals faster. 
Lance CothernByLance CothernJan. 15, 2020
Lance Cothern holds a Certified Public Accountant license in Virginia and is the founder of Money Manifesto, a personal finance blog that helps people Master Their Finances to Live Their Ideal Lives. Additionally, Lance is an accomplished freelance writer. He has written for many popular personal finance publications including U.S. News & World Report, Credit Karma, MyBankTracker and more. When he's not writing about money, you can find him enjoying time with his wife and son at the local beach.