Cheapest Student Loan Refinance Choices

cheapest student loan refinance

If you’re carrying a student loan, a refinance can help you tremendously.

Finding the cheapest student loan refinance choices are key to getting the most out of transferring your current loan into a new one.

What does it mean to Refinance Your Student Loan?

When you refinance a loan, it means you open a new loan that pays off the old loan, so essentially you have a completely new loan.

Typically, when you refinance a student loan, you use a different financial institution. But you can refinance a loan with the same bank or financial institution if you’d like.

When you refinance a student loan, the goal is to get a lower interest rate on a new loan compared to your current loan.

This is a huge advantage for a few reasons. First, you can lower the monthly payment amounts. So, that can free up cash in your monthly budget to be used for other things, including saving or investing more.

Second, you can save on the overall cost you are paying for your loan. The total amount you repay can be significantly lower with a refinance.

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Finding the Cheapest Student Loan Refinance

The market is full of a growing number of choices for refinancing your student loan.

The best new loan for you will depend on several factors, including whether the rate is actually lower than your current interest rate, and whether you can actually qualify.

Here are some student loan refinancing choices that might get you a cheaper loan (*credit unions may have additional requirements for membership):


LendKey has some of the cheapest student loan refinance choices on the market. Their interest rates start at 2.95 for fixed APRs and 1.92% for variable APRs. To get those cheaper loans, a borrower must enroll in AutoPay. Terms range from 5 years to 20 years, and the company charges no origination fee.

*PenFed Credit Union

With PenFed Student Loan Refinancing, you can find loans with fixed rates for as low as 2.99%. The credit union’s variable rates are as low as 2.19%. (Variable rates mean they can change, however there are caps on by how much the rates can go up.)

SoFi Lending Corp.

SoFi’s Refinance Student Loans has fixed interest rates of 2.99% and variable rates starting at 2.25%. Currently, SoFi is offering a $10 gift card for people who check what interest rate they qualify for. Get another $350 if you actually refinance with SoFi. (Promotion ends 1/31/2021.)

*Navy Federal Credit Union

Navy Federal’s student loan refinance program provides loans with an interest rate starting at 3.16% for fixed rates, and 4.99% for variable rates. You might get a 0.25% interest rate reduction with automatic payments.

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How a Lower Interest Rates Saves Major Money

The lower interest rate is the key to saving, so the lower the interest on your new loan, the more money you can save.

Interest rate is the amount that lenders charge you on the loan. When you make your monthly payments, you are usually paying a portion of the total interest rate along with a portion of the principal.

When your interest rate is lower, you obviously pay less interest. So that portion of your repayment is lower.

How to Know if You Should Refinance

A great first step is to turn to an online loan repayment calculator – and there are many of free ones out there that are easy to use. Here are a few:

Use the calculator for both your current loan and new loan.

Review your terms and total costs of your current loan and compare it to what you would be paying with a new loan at a new interest rate.

If the cost of a refinanced student loan is much lower, it’s probably in your best interest to refinance.

Downsides of Refinancing a Student Loan

Securing a new lower interest rate on your student loan is generally a positive thing, but consider the drawbacks, which are minor.

First, each time you apply for a loan, including a refinanced student loan, your credit score takes a small temporary drop. That’s because creditors don’t like to see borrowers taking out a lot of new loans because it indicates that they might be desperate for funds, and so they might be riskier borrowers.

Keep in mind that if you only apply for one student loan refinance, or to several within a short period of time, the impact to your credit score will be small.

Another possible downside to consider is the fact that some refinancing may actually extend the amount of time you’re in debt. If the terms of your new loan have a longer repayment period, you’ll be in debt for longer. That’s not ideal for someone trying to get out of debt faster.

The Process of Refinancing a Student Loan

Refinancing your loan entails a similar process to the one you used when you originally applied for the loan.

A common way to refinance a student loan is to simply apply online. Find a reputable financial institution with a competitive student loan rates, and complete the forms with your personal information.

The new lender will consider several factors when they decide whether to approve you. They include your:

  • Credit score
  • Income
  • Repayment history

Refinancing a Student Loan with a Co-Signer

If you can’t get approved for a new student loan with a lower interest rate for whatever reason, you might want to get a co-signer like a parent or guardian.

A co-signer essentially agrees to take responsibility for repayment of the loan in the event that you can’t meet the repayment terms. Basically, if you’re not qualified, the bank can rely on someone with stronger credit history as a backup to reduce the risk of lending you the money.

The drawback to co-signing is that the co-signer must take on financial responsibility. If you fail to repay your loan, they will be burdened with repayments or face having their credit score affected. Not everyone wants to be a co-signer, even if they can help you qualify.

Some cheaper student loan refinance options do come with a co-signer release. That allows the co-signer to just take on responsibility for an initial period of time. Then, the student borrower assumes full responsibility for the loan after the co-signer’s term expires.

The cheapest choices for student loan refinancing with a co-signer expiration include:

The Best Time to Refinance a Student Loan

The best time to refinance is as soon as you can save money with a lower interest rate.

So, that means that refinancing is ideal when you are in a better financial situation to qualify for a lower rate.

And, when the overall market is seeing lower interest rates, you can most likely find lower interest rates in student loans at the same time. If you’re seeing headlines about record-low interest rates, it’s a good time to see what’s available to you and compare those terms to your current terms.

The Bottom Line

People refinance for a number of reasons. You may want more room in your monthly budget so you can have more money to pay for bills or necessities. Or, you may just want more spending cash for things like entertainment.

One of the best reasons to refinance a student loan is to reduce the cost you are paying so you can save more money for emergencies or for retirement.

Another excellent reason to secure a new student loan is so that you can pay off your loan faster.

Lowering your debt has a great impact on your financial health – including by helping you improve your credit score and get better access to credit cards, mortgages, auto loans and other financial products.

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