How to Refinance Private Student Loans: A Guide

First Republic Bank
March 24, 2022

Private student loans account for more than 8% of student borrowing, exceeding $140 billion nationwide. In 2020, private student loans grew 14%, with the average borrower owing $40,904, though many have balances that surpass the six-figure mark. Those high balances, particularly when coupled with high-interest rates, can impact a young professional’s monthly cash flow. That can easily cut into funds that could otherwise be used to get a jump start on long-term financial goals.

The good news for borrowers is that there are multiple options available to help them tackle their private student loan debt. Whether borrowers are looking to cut overall student loan costs, reduce a repayment term or combine several different types of debt into one loan, options like a personal line of credit and other refinancing products are available to make these payments more manageable — and free up funds for other financial goals.

To help you make an informed decision, this guide will walk you through the basics of refinancing your private student loans and answer a few frequently asked questions.

What’s the difference between federal and private student loans?

In short, a federal student loan is offered by the U.S. government, while a private student loan is offered by a private lender like a bank or credit union. Each offers different benefits, interest rates and repayment options, so it’s essential to know which types of loans you carry. 

Federal student loans are funded by the government with terms that are set by law, and generally don’t require a credit history or cosigner. They often offer federal loan-specific benefits like income-based repayment, loan forgiveness or interest subsidies for borrowers. In most circumstances there is a cap on how much students can borrow.

Private student loans, meanwhile, are made by private lenders, like banks or credit unions, and have terms set by that specific lender. Because the interest rates and terms and conditions of private student loans vary by lender, it’s important to carefully review your options before moving forward. A credit check, among other qualifying factors, is typically required.

Refinancing a federal student loan with a private lender can help borrowers meet certain financial goals — for example, refinancing can offer a lower monthly payment, more attractive interest rates or a shorter repayment term. In many cases, however, borrowers may forfeit federal protections like income-based repayment plans, deferment and forbearance options and loan forgiveness for qualifying borrowers.

It’s important for borrowers to take stock of their current financial situation and speak with financial and tax advisors before committing to a refinancing solution.

Please note: Currently, all payments for certain types of federal student loans are suspended until May 1, 2022, per an executive order by the President. Interest will not accrue during this time period. 

Should I refinance my private student loans?

In general, refinancing student loans can reduce your interest rate and shorten your repayment term, which can help you save over the years.

While most lenders’ qualifications for refinancing student loans may vary, those who meet the following criteria are most likely to receive lower interest rates and favorable loan terms:

  • Have excellent credit scores with a demonstrated track record of on-time payments;
  • Demonstrate a positive career trajectory with an income that can service debt after refinancing.

Still, there are important nuances to consider, particularly if you exclusively hold private student loans or a combination of private and federal student loans. Before refinancing, we recommend you review your current loan terms, the terms of potential refinancing products and discuss your options with a qualified financial advisor.

When should I refinance my private student loans?

The answer to this question will depend primarily on your own personal financial goals and current financial situation. Refinancing private student loans can combine several payments into one low, fixed monthly payment. Refinancing can also reduce a monthly payment, save you money in interest over the life of the loan or shorten the time to repayment.

The most beneficial refinancing opportunities are usually offered to those who have been making on-time payments for their private student loans and maintain an excellent credit profile.

How do I refinance my private student loans?

The best private student loan refinancing method will depend on your personal financial situation and goals. We would encourage you to speak with qualified financial and tax advisors before making a final decision.

Personal loan

A personal loan is money that you borrow from a lender, which you repay in fixed monthly payments over a set time period. If you know you’ll need a large sum of money all at once to cover something necessary that you want to pay over months or years, an affordable personal loan might make sense.

Based on the lender, personal loans may be secured or unsecured.

Since a personal loan is an installment loan, your payments will encompass both principal and interest, and will remain constant each month, though you can pay more to expedite payoff.

Keep in mind, personal loans may come with additional fees, such as service fees, origination fees or prepayment penalties, which may add to the total cost.

Personal line of credit

A personal line of credit is a set amount of money from which you can borrow (up to the limit) for a given period of time, referred to as your draw period.

Typically, a personal line of credit offers flexible draw periods and repayment term options. In short, you can borrow available funds  on an as-needed basis This feature can keep a loan balance as low as possible while maintaining available funds for future financial needs.

Like personal loans, a personal line of credit may be secured or unsecured based on the terms and conditions of the lender.

This option is generally available to highly qualified borrowers with a strong credit score. 

Refinance your private student loans with First Republic

In the end, there are many options available for student loan refinancers, particularly for those looking for a lower interest rate or to pay back a loan sooner. For example, First Republic Bank's Personal Line of Credit offers the flexibility to pursue more than one financial goal — either concurrently or sequentially.

First Republic's Personal Line of Credit features a two-year draw period, during which interest-only payments are required. After the first two years, the borrower enters the repayment period, when both interest and principal monthly payments are due.

Check out the First Republic Bank Personal Line of Credit rate calculator to see if it’s an attractive option for you.

Note: Please note, First Republic Personal Line of Credit is not a student loan and by refinancing student loans, you may permanently be giving up tax and repayment benefits, including forbearance, deferment and forgiveness. Please consider this as you make a decision to refinance student loans and talk to a banker if you have any questions.

Private Student Loan Refinancing FAQs

How do I know if my student loan is federal or private?

If you’re not sure if your student loans are federal or private, try reaching out to your university’s financial aid office (if you’re still in school) or access the federal student aid site with your federal student aid (FSA) ID. Any loans listed on the site are federal. Any others were issued by a private lender.

Can I transfer my private student loans to federal?

Federal student loans can be refinanced with a private lender, but private student loans cannot be converted to federal student loans. While the federal government does offer a program to consolidate several federal loans to one lump-sum loan, there is no program to consolidate private student loans. Instead, consider refinancing with a personal loan or a personal line of credit.

How often can I refinance my private student loans?

You can refinance your private and federal student loans as often as you’d like. Learn more about refinancing your student loans multiple times.

1. Annual Percentage Rate. Rates effective as of 3/22/2022 and are subject to change.

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Personal Line of Credit is an unsecured consumer loan that consists of a two-year, interest-only, revolving draw period followed by a fully amortizing repayment period of the remainder of the term. Draws are not permitted during the repayment period. Full terms of 7, 10 and 15 years available.

This product can only be used for personal, family or household purposes. It cannot be used for the following (among other prohibitions): to refinance or pay any First Republic loans or lines of credit, to purchase securities or investment products (including margin stock and cryptocurrency), for speculative purposes, for business or commercial uses, for a down payment on any property or for the direct payment of post-secondary educational expenses. This product cannot be used to pay off credit card debt at origination. Please note only debts that appear on your consumer credit report or student loans are eligible to be repaid at origination.

The terms of this product may differ from terms of your current loan(s) that are being paid off, including but not limited to student loans. By repaying such loans, you may permanently be giving up tax and repayment benefits, including forbearance, deferment and forgiveness, and you may not be able to reobtain such benefits if this loan is refinanced with another lender in the future.

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Personal Line of Credit minimum is $65,000; maximum is the lesser of $350,000 or debt amount to be repaid at origination plus $100,000. If no debt to be repaid at origination, the maximum loan amount is $100,000. This product cannot be used to pay off credit card debt at origination. Please note only debts that appear on your consumer credit report or student loans are eligible to be repaid at origination. Line of credit cannot be fully drawn at origination. Contact your legal, tax and financial advisors for advice on deciding whether this is the right product for you. Terms and conditions apply.

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The strategies mentioned in this article may have tax and legal consequences; therefore, you should consult your own attorneys and/or tax advisors to understand the tax and legal consequences of any strategies mentioned in this document.

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