Student loan refinancing is a process by which a borrower can obtain a new loan—typically with a lower and/or fixed interest rate—to pay off one or more private and/or federal student loans. Refinancing is accomplished through a private lender, such as a bank, credit union, or other commercial lender.

During the refinancing process the lender will access the creditworthiness of the borrower and issue a new loan with a new interest rate based on the applicant’s credit history and other factors. This new loan will be used to pay off the old loans, and then the borrower will be obligated to make payments on the new loan.

Refinancing can save a borrower a significant amount of money over the life of a student loan, particularly if he or she has a high interest rate loan or loans, or if one or more loans has a variable interest rate. With refinancing, you can shave one or more interest points off of your student loan, and shorten the loan term at the same time. Doing so can help save thousands of dollars and allow you to pay off your loan more quickly than you otherwise would have.

If you are refinancing a student loan or loans for the first time, you will generally need to have a credit score that is at least 660 or higher, a steady job and income, and have a history of making regular, on-time payments on your student loans. Each of these factors will demonstrate to the lender that you are a good risk for a new, refinanced loan.

What to Do After Rejection

If you are not approved for refinancing, you can attempt to refinance your loans at a later date, so you can try to refinance multiple times if you want.

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Generally, if you are denied a loan, it is because one of the factors listed above was insufficient. Your credit score might have been too low, your income might not have been high enough, or you might have had a history of missing student loan payments. If you spend time improving these issues, then you may be approved when you re-apply.

Improving your credit can involve paying off your credit cards or making all of your student loan payments on time consistently. What is important is that you shouldn’t apply until you qualify for the refinanced loan under the criteria listed above.

If you are approved for refinancing your private student loans, you can refinance them more than one time. However, it would not likely make sense for most borrowers to refinance their private student loans unless their loans had an extremely high interest rate or market interest rates drop to an exceptionally low rate. Each time you refinance you are starting a new loan which can extend the overall life of your loan.

If you refinance multiple times for just a minuscule reduction in your student loan’s interest rate, then you will not see much of a benefit to student loan refinancing because you will end up paying on your loan for longer. Instead, it makes more sense to wait until your credit score is optimal and/or interest rates are lower to get the best possible interest rate for your refinanced student loan. Then you can apply for a refinanced loan to take advantage of the savings.