In the world of student loans, refinancing federal debt is a hot topic. Borrowers are permitted to refinance federal loans, but it is a risky move.
Private student loans are a different story. Borrowers can refinance private loans at any point, which comes with less risk than a federal refinance.
Even though borrowers may refinance their private loans whenever they want, there are several factors that borrowers should consider before taking the plunge.
Loan Contracts and Prepayment Penalities: A Risk to Private Refinancing?
When a borrower refinances a student loan, the old student loan is paid in full, and a brand new loan is created.
Clever borrowers fear that early repayment of their student loans might trigger a prepayment penalty. Lenders might want to charge this fee, but this practice was outlawed for private loans back in 2008.
However, it is still worthwhile to review your old loan contracts. If the terms of the old loan are better than the new loan, borrowers should avoid refinancing.
Dealing with the Old Lender
Many borrowers fear that their current student loan company will make refinancing difficult or impossible.
Even though some student loan companies have well-deserved reputations for nonsense, refinancing is usually hassle-free. Best of all, if there is an issue, it is the job of the refinance lender to deal with it.
Lenders cannot prevent a refinance. The process happens with enough frequency that all the major refinance lenders have procedures to deal with all the major student loan lenders.
Can I Refinance Only Private Loans?
Borrowers are allowed to refinance just their private loans.
The confusion on this question exists because so much refinance discussion revolves around federal loans. As a result, many borrowers fear there is a limitation on private loan refinance.
Borrowers are permitted to refinance just their private loans. In many cases, it is the best strategy. Federal loans come with generous forgiveness programs and income-driven repayment plans. For this reason, refinancing just the private loans is often the smart move.
Can I Refinance Private Student Loans to Federal?
Because federal loans have the best perks, refinancing a private loan into a federal loan sounds like a great idea. Unfortunately, this option isn’t available.
Even though borrowers can’t refinance a private loan into a federal loan, a couple of tricks are available to convert private debt into federal debt. The process isn’t instant, but because federal loans are usually better than private loans, every little bit helps.
When is it Worth it to Refinance?
The big advantage to refinancing is getting lower interest rates on your student loans.
Generally speaking, if a refinance lender offers slightly better terms, it is worth the time and effort to refinance. A slight interest rate reduction can result in significant savings, and the refinance process takes very little time.
Additionally, there are a handful of times when refinancing is especially smart.
The only major downside to refinancing is that not all borrowers qualify. Current students, unemployed borrowers, and those with a short or negative credit history often struggle to find a refinance lender. Those who are not desperate for help — the employed borrowers with a good credit history — have plenty of options.
Finding the Best Refinance Lender
I’ve spent years reviewing and comparing the best student loan refinance lenders, but for most borrowers, the best refinance lender is the one that offers the lowest interest rate.
Some lenders offer slightly better customer service or borrower perks, but the best rate should be the driving factor.
At present, the following lenders offer the best refinance rates:
| Rank | Lender | Lowest Rate | Sherpa Review |
|---|---|---|---|
| T-1 |  | 5.28% | ELFI Review |
| T-1 |  | 5.28%* | Splash Financial Review |
| 3 |  | 5.49% | Laurel Road Review |
