Sparrow's Student Loan Refinancing Guide

Ultimate Guide to Student Loan Refinancing

This guide explains how student loan refinancing works and the advantages and drawbacks to consider.
Sparrow Team
February 9, 2023

What is student loan refinancing?

Student loan refinancing is when a private lender pays off your existing loan(s) and gives you a new loan, ideally with a lower interest rate or shorter repayment plan. It’s a chance to swap your current loan for a new one with more favorable terms. The goal of refinancing is often to reduce your monthly payment, interest rate, time in debt, or all the above.

By refinancing, you can consolidate multiple loans into one, and the new loan may have more favorable terms than the original loans. It’s important to note that refinancing federal student loans with a private lender will result in the loss of certain federal student loan benefits, such as income-driven repayment plans and loan forgiveness options.

Learn more about student loan refinancing

Pros and cons of refinancing student loans


Refinancing can result in a lower interest rate on your loans, which can reduce the total cost of your debt.

For example, say you have $60,000 in student loan debt at 7% interest on a 10-year term. If you were able to refinance that amount at a lower rate of 4% for the same term, you would save $10,701.

More: Best refinance rates for student loans.

Refinancing allows you to choose a loan term that fits your individual needs, such as a longer-term for lower monthly payments or a shorter term for a quicker payoff.  This makes it easier to manage your debt.

Keep in mind that a longer loan term will lead to lower monthly payments, but a higher total loan cost. On the other hand, a short loan term will lead to higher monthly payments, but a lower total loan cost.

More: Best place to refinance private student loans.

If you have multiple student loans, refinancing can simplify the repayment process by consolidating all of your loans into one loan with a single monthly payment. This can help reduce your chances of missing payments and paying late fees.

More: What exactly is student loan consolidation?

Refinancing allows you to release your cosigner from your current loan. This means the cosigner to no longer responsible for the loan, freeing them from the obligation to repay it in the event that you default.

More: What is a cosigner release policy?

If you’re dissatisfied with the service provided by your current student loan servicer, refinancing can fix that. As you assess which lenders to refinance with, look for lenders that have a strong reputation for customer service.

More: Student loan servicers: everything you need to know.


Private lenders typically require you to have a high credit score and meet a specific income threshold, which can make it difficult to refinance your student loan.

While eligibility requirements vary lender by lender, in general, you must have a stable job, a completed degree, a credit score of 650 or above, and maintain a debt-to-income ratio of less than 50%.

More: What credit score do I need to refinance my student loans?

If you refinance your federal student loans, you are no longer eligible for Public Service Loan Forgiveness (PSLF), which is accessible to borrowers who work for the government or non-profit employer. This includes teachers, firefighters, first responders, nurses, military members, and other public service workers.

More: What is student loan forgiveness?

If you have federal student loans, you might be eligible to enroll in an income-driven repayment plan, which bases your monthly payments on a percentage of your earnings. These plans are designed to make your payments more manageable as your income changes.

If you choose to refinance a federal loan into a new private loan, you will no longer have access to this alternative, as private student lenders do not offer income-based repayment plans.

More: Pros and cons of an income-driven repayment plan.

Most federal student loans offer a six-month grace period after graduation before you are required to begin making loan payments. However, if you opt to refinance your federal student loans immediately after graduation, you will forfeit this grace period and must begin making payments right away.

More: What is a student loan grace period?

Student Loan Refinancing in Four Steps

Step 1: Do your research
First, determine if refinancing is right for you. Consider the type of loan you currently have (federal vs private), your current interest rate, credit score, and financial situation. If you don't plan on utilizing any federal student loan benefits (or have a private student loan), refinancing is an easy way to get out of debt sooner and possibly reduce your monthly payments.
Step 2: Compare rates
If you determine that you want to refinance, start by comparing rates. Sparrow's free search engine allows you to compare pre-qualified rates from multiple lenders, without impacting your credit score. We'll help you compare interest rates, repayment terms, and other loan features. Once you've found the right loan, we'll bring you to the lender's website to complete the process.
Step 3: Complete the application
After selecting a lender, you will need to complete an official loan application. This typically triggers a hard credit check, which gives the lender access to your complete credit report and may temporarily impact your credit score. As part of the application process, you may be required to provide and verify personal, financial, and employment information.
Step 4: Sign and start repayment
If your loan application is approved, you will be asked to sign new loan documents. Once you have signed the loan documents, your existing loan will be paid off by your new lender and you will start making payments on the new loan to your new lender. Before signing, make sure you fully understand the new loan terms and what you are agreeing to.

How much debt can you afford to repay?

Sparrow recommends student loan payments consume no more than 10% of take-home pay. How much does that payment allow you to borrow?

Expected first year salary
The average pre-tax college graduate salary for 2023 is $55,260
Loan term
The standard repayment plan for most student loans is 10 years
10 years
Interest rate
The federal direct student loan fixed rate is 4.99%
Loan Costs
The calculations below assume a tax rate of 25% and limit payments to 10% of your take-home pay
Estimated monthly take-home pay (post-tax)
Affordable monthly payment
Total amount of loans you can afford

Explore our top student loan refinancing picks

Explore our student loan refinancing tips

Student Loan Refinancing FAQS

1The nuts and bolts

The eligibility requirements for student loan refinancing vary by each lender. In general, to be eligible to refinance your student loans, you typically need to meet the following criteria:

1.) Credit Score: Most lenders require a minimum credit score of 650 or higher to refinance student loans. A higher credit score can also help you get a lower interest rate.

2.) Debt-to-Income (DTI) Ratio: Generally, you’ll need a DTI below 50% to be able to refinance student loans. The lower your DTI, the better your chances of qualifying and getting a low-interest rate. Lenders determine the debt-to-income ratio, or DTI, by dividing your total monthly debt payments by your gross monthly income.

If you don’t meet the criteria above, you may want to consider adding a creditworthy to help you qualify.

More: What credit score do I need to refinance my student loans?

There are certain private lenders with more stringent criteria, but in general, you can refinance any type of student loan, regardless of whether it’s federal or private.

Want to refinance a Parent PLUS loan? Check out SoFi and Brazos (Texas residents only).

The best time to refinance your student loans depends on several factors, including:

1.) Credit Score: If your credit score has improved significantly since you took out your original loan, it may be a good time to refinance as a higher credit score can result in a lower interest rate.

2.) Financial Situation: If you have a stable income and a good credit score, you may want to consider refinancing if you are looking to save money on your monthly loan payments or overall interest costs.

3.) Loan Terms: If your monthly payments are too high or too low, refinancing is a great way to adjust the loan terms to align your monthly payments with your financial goals. A longer loan term will lead to lower monthly payments, but higher total cost. On the other hand, a shorter loan term will lead to higher monthly payments, but lower total cost.

4.) Variable Interest Rate: If you have a student loan with a high variable rate, you may want to consider refinancing to lock in a fixed rate. Unlike fixed interest rates (which are stable over time), variable interest rates fluctuate over time, making it difficult to predict monthly payments and budget accordingly.

5.) Interest Rate Changes: If interest rates have dropped since you took out your original loan, it may be a good time to refinance as you may be able to get a lower interest rate on your new loan.

More: When should I refinance my student loans?

Refinancing student loans may not be the best option if:

1.) You have federal student loans and expect a decrease in income: If there’s a chance your income could decrease, consider against refinancing federal student loans. If you do refinance, you’ll miss out on federal student loan relief options, as well as government programs like income-driven repayment.

2.) You are seeking loan forgiveness: Refinancing federal loans makes them ineligible for federal loan forgiveness programs such as Public Service Loan Forgiveness and Teacher Loan Forgiveness.

3.) You have recently filed for bankruptcy: Refinancing student loans after bankruptcy can be challenging as most lenders require a waiting period of 4 to 10 years after the bankruptcy.

More: What to consider before refinancing your student debt.

The time it takes to refinance a student loan depends on several factors, including the lender you choose, the type of loan you have, and the information you need to provide. On average, the process of refinancing a student loan can take anywhere from a few days to a few weeks.

Here’s a general outline of what to expect:

1.) Research and compare lenders: Shop around for the best interest rates and terms. This can take a few minutes or a few weeks, depending on how how you go about your search. Sparrow can help expedite the process to ensure you’re getting the right loan before you apply.

2.) Apply for refinancing: This typically involves completing an online application and providing documentation such as proof of income, employment, and education. The timing on this step is entirely in your control.

3.) Review and approval: The lender will review your application and determine if you are eligible for refinancing. This process can take several days to a week or more.

4.) Loan disbursement: If you are approved, the new loan funds will be disbursed to your previous lender to pay off your old loan. This can take a few days to a week.

It’s important to note that some lenders may have faster turnaround times than others, and the process may take longer if you need to provide additional information or documentation.

More: Guide on how to refinance student loans.

Pre-qualifying through Sparrow does not impact your credit score.

Sparrow conducts a soft credit check when you apply for pre-qualified rates. The soft credit check allows us to instantly show you the rates you qualify for at each of our lenders, and it does not impact your credit score.

Submitting an application with a lender can result in a hard inquiry on your credit report, which does impact your credit score. A hard inquiry temporarily lowers your credit score by a few points. However, this decrease is short-lived.

Getting approved for refinancing while closing the previous loans could temporarily affect your credit history, which is a factor that impacts your credit score. This impact is usually minor and temporary. Over time, refinancing your student loan could actually improve your credit score if it allows you to make consistent and timely payments in full.

More: Does refinancing student loans hurt your credit?

Yes, you can refinance your student loans more than once. In fact, some borrowers choose to refinance their loans multiple times over the years to take advantage of lower interest rates or better terms.

However, it’s important to keep in mind that each time you refinance your student loans, you will likely be subject to a hard inquiry on your credit report and a new loan application process. This could impact your credit score, although the impact is usually temporary and minor.

Before deciding to refinance your student loans, it’s a good idea to consider your financial goals, the terms and interest rates being offered by different lenders, and the potential impact on your credit score.

More: How often should you refinance your student loans?

Ultimate Guide to the FAFSA
See how to qualify for federal student aid to help pay for college.
Ultimate Guide to Student Loans
Everything you need to know about student loans before you borrow.
Ultimate Guide to Federal Student Loans
An overview of the types of federal student loans and how to apply.
Ultimate Guide to Private Student Loans
A step-by-step breakdown to ensure you're getting the right private student loan.