Guide on How to Refinance Student Loans

Grace Lemire
Grace Lemire

Grace Lemire is a freelance writer and editor with over five years of experience in the personal finance industry. She has been featured on a variety of publications, including NPR, CNN, FinanceBuzz, Dollar Geek, Pangea, and True Finance. Her work focuses on the intersection of personal finance and technology. In 2023, Grace was nominated for the Best Personal Finance Advice award in’s FinTok Awards.

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Daniel Kahn
Daniel Kahn
Daniel is the co-founder and COO at Sparrow. Daniel is responsible for the day-to-day operations of a company, working closely with other members of the executive team to develop and implement strategies to support the growth and success of the company.
Daniel was a 2023 Forbes 30 Under 30 lister in the Education category.  Daniel was born and raised in Raleigh, North Carolina and graduated from Duke University in 2020.
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Camden Ford
Camden Ford

Camden leads Sparrow’s business operations – everything from product management to business analytics. After graduating Cum Laude from Duke University where he studied Civil Engineering, Camden worked as a Consultant for A.T. Kearney where he worked in their Strategic Operations practice. With a strong background in analytics, Camden strives to deliver data-driven conclusions and insights.

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November 10, 2023

In a very simple sense, student loan refinancing allows you to swap your current student loan for one with a better interest rate or terms. By doing so, you can save thousands of dollars over the life of your loan. In fact, borrowers who used Sparrow to refinance reduced their interest rate by 2.29 percentage points, saving them around $17,000 over the life of their new loan, on average. 

While the prospect of saving $17,000 may have you ready to jump straight into refinancing, there are several things to consider beforehand. Let’s break down the process of refinancing your student loans, including everything you should consider before signing the dotted line.

How to Refinance Student Loans in 7 Steps

To make the process of refinancing your student loans simple, follow these 7 steps.

#1: Decide if Refinancing Makes Sense for You

Before you refinance your student loan debt, it’s important to consider whether refinancing is a good idea in the first place. You should consider refinancing under the following circumstances:

Your financial situation is sound. Most lenders will require you to have a strong credit score, typically of at least 650, to refinance. Lenders will also expect you to have a stable income as it confirms to them your ability to make loan payments. If your credit score is low, or if your income is unstable, you should consider refinancing when both are in check.

You know you can qualify for a lower interest rate or better terms. If your interest rate is high, and you are confident you can qualify for a lower interest rate, it makes sense to refinance. Likewise, if you are unsatisfied with your current loan terms, and are confident you could qualify for better ones, refinancing your student loans makes sense.

You have a federal student loan but don’t plan on using any of the federal protections. Federal student loans have certain advantages that private student loans do not, such as student loan forgiveness and income-driven repayment plans. If you don’t plan on using either, however, refinancing to a private student loan may make sense for you.

On the flip side, you should not consider refinancing if any of the following circumstances apply to you:

You plan to use federal student loan protections. As soon as you refinance federal student loans to private student loans, you lose federal student loan benefits such as loan forgiveness opportunities and income-driven repayment plans. If you plan to use either of those benefits, it’s better to hold off on refinancing.

You are pursuing loan forgiveness. If you have federal student loans and are currently pursuing a loan forgiveness program, you should not refinance. By doing so, you will lose the opportunity to have your loans forgiven.

You recently declared bankruptcy. The purpose of refinancing your student loans is to secure a better interest rate or terms. Many private lenders will not allow you to refinance if you have declared bankruptcy within the last 4-10 years. If they do allow you to refinance with them, they will likely give you less favorable terms given your financial situation. If you have filed bankruptcy in the last 10 years, consider seeing if you qualify for a refinance loan, but understand that it is unlikely.

Your financial situation hasn’t improved since you borrowed the loan. To secure more favorable terms, you will almost always need a better credit score or income than when you initially borrowed the loan. If your credit score has dropped or if your income has dwindled since you initially borrowed the loan, however, you may not qualify for a better loan.

With that all said, you should explore your student loan refinance options to see if you qualify for a more favorable loan. There is absolutely no harm in exploring your options on Sparrow, as it doesn’t hurt your credit score, and you never know what refinance loan you may qualify for.

#2: Fill Out the Sparrow Application

After you’ve decided if refinancing is right for you, complete the Sparrow application. By completing the Sparrow application, you will be able to see what student loan refinance options are available to you at our 15+ partnering student loan lenders.

Completing the application will not hurt your credit score in any way.

To complete the application, you will need the following information:

  • Personal information
    • First and last name
    • Email address
    • Phone number
    • Date of birth
    • Citizenship status
    • Social security number
  • Address
    • Permanent address
    • Mailing address
  • Loan information
    • Amount needed
    • When you need funds disbursed
  • Financial information
    • Income
    • Housing expenses
  • School information
    • Where you currently are/previously studied
      • Enrollment status
      • Graduation date
      • GPA

#3: Compare Loan Offers

After filling out the application, offers will appear on the screen, showing you what refinance loans you qualify for at our 15+ partnering student loan lenders. The rates and terms shown are prequalification offers, meaning they are estimates of what you will qualify for at each given lender. If you have multiple offers, compare them to ensure you’re selecting the best refinance loan for you. 

Generally speaking, the loan with the lowest interest rate will save you the most money over the life of the loan. However, you should consider other factors such as:

  • Whether the interest rate is fixed or variable
  • The repayment terms
  • The repayment plans available to you
  • Member benefits
  • Cosigner release policies (if applicable)
  • The total cost of the loan

Fixed vs variable interest rate. Fixed interest rates will remain the same throughout the life of the loan. Variable interest rates will change as the market fluctuates. If you prefer one over the other, make sure the refinance loan you choose provides that.

Repayment terms. Repayment terms include all the conditions involved in borrowing money from that lender. Make sure you are reading the fine print before agreeing to borrow a loan — there may be fees noted in the repayment terms that you don’t want to miss.

Repayment plans. Each individual lender will offer a different set of repayment options. Most, however, will have a standard repayment plan, which gives you fixed payments for the duration of your repayment period. If you are looking for a specific repayment option, double check that the lender you select has it.

Member benefits. Some lenders have additional benefits for borrowers such as free career assistance, autopay discounts, or the ability to skip one payment per year. While you shouldn’t put member benefits ahead of other factors such as the interest rate, they’re a nice bonus to consider if deciding between two near-identical loan offers.

Cosigner release policies. If you plan to include a cosigner on your refinance loan, you should consider the lender’s cosigner release policies. While some lenders do not offer a cosigner release option, meaning the cosigner must remain on the loan until it is paid off, other lenders do offer the option for the cosigner to be released from their responsibility, typically after the primary borrower makes a certain number of payments on the loan. Make sure to read the lender’s cosigner release policy if your cosigner prefers to be removed from the loan down the line.

Total cost of the loan. The purpose of refinancing, in a very simple sense, is to pay less on your student loan over time. Consider the total cost of the refinance loan in comparison to the loan you currently have. Does it save you money in the long run? If so, refinancing makes sense. If it costs you more in the long run, however, reconsider the decision to refinance.

Use these factors to compare loan offers and choose the one that is best for you.

#4: Complete the Formal Application

Once you’ve decided which refinance loan offer is best for you, it’s time to complete the lender’s formal loan application. Remember, the loan offers you see on Sparrow are prequalification offers, or estimates of the loan terms you will receive after submitting the lender’s formal application. To officially apply and borrow with a lender, you must complete their formal application.

To do so, find the loan offer you’d like to move forward with and click “Explore,” then “Get approved with [lender].” The application will then reroute you to the lender’s website to complete their formal application. To complete the lender’s formal application, you will need the same information you used to complete the Sparrow application. 

After the lender processes your request, you may need to provide additional information such as proof of your income or official identification. While you wait to hear back from the lender, gather the necessary documents you may need to prove your income or identity such as:

  • Recent pay stubs
  • Proof of employment
  • W-2s
  • Bank statements
  • Valid driver’s license
  • Passport
  • Social security number 

#5: Accept the Loan

Once you’ve received a formal refinance loan offer from the lender, review the offer to be sure it still suits you. Because loan terms can fluctuate with the market, they may not be identical to what you prequalified for through the Sparrow application, although they should be fairly similar.

Once you’ve double checked the loan terms, go through the lender’s process to accept the loan.

#6: Verify That the Loan Was Paid Off

After accepting the loan, the lender will use the amount of your new loan to pay off your initial loan. The length of this process will vary depending on the lender(s) involved.

Ask your new lender directly how long they estimate the process will take. After that timeline passes, check in with the lender to verify that your initial loan was completely paid off.

#7: Begin Making Payments on Your New Loan

Once your initial loan is paid off, you will begin making payments on your new loan. Be sure to check in with the lender to find out when your monthly payments will be due. If you have concerns about making the payments on time, consider opting in to automatic payments.

Commonly Asked Questions About Student Loan Refinancing

While the process of refinancing with Sparrow is fairly simple, it’s common to still have questions about whether refinancing is right for you. Below are some of the most commonly asked questions about student loan refinancing.

Is It Worth It to Refinance Student Loans?

Refinancing your student loan(s) is worth it if you will be able to secure more favorable terms, and thus, save money over the life of the loan. Whether it is worth it is ultimately subjective and highly dependent on the amount you are able to save by refinancing.

Can I Refinance My Student Loans at Any Time?

Generally speaking, you can refinance your student loans at any time. While some student loan lenders may require you to have graduated, others will allow you to refinance while still in school.

Can I Refinance My Student Loans More Than Once?

Yes. You can refinance your student loans as many times as you’d like.

Does Refinancing Hurt Your Credit?

Submitting a formal loan application with a lender will result in a hard credit inquiry, which will temporarily hurt your credit. However, according to FICO, a hard inquiry typically only decreases your credit score by less than 5 points.

Can Student Loans Be Forgiven if Refinanced?

If you refinance federal student loans, they will no longer be eligible for federal student loan forgiveness programs. 

What Credit Score Do You Need to Refinance Student Loans?

The credit score requirements for refinancing will vary depending on the lender. In general, most lenders will require you to have a credit score of at least 650 to qualify. The higher your credit score, however, the more likely you are to receive a better interest rate and terms.

What is the Best Student Loan Refinancing Company?

There is no single best student loan refinancing company. The best lender will always be the one that offers you the best interest rate and terms, which will vary from person to person. To find the best student loan refinancing company for you, complete the Sparrow application.

Final Thoughts from the Nest

The idea of swapping around your student loans may feel overwhelming. However, following these 7 steps can help guide you through the process. To what rates you qualify for with our 15+ partnering student loan lenders, complete the Sparrow application.

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