Refinancing Student Loans: The Ultimate Guide By FitBUX

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  • Refinancing Student Loans: The Ultimate Guide By FitBUX
Author: Joseph Reinke, CFA

Refinancing student loans is always a hot topic.  We’ve helped over 30,000 new grads that have more than $2.6 billion in student loans explore refinancing. 

Unfortunately, most are extremely confused about it.  Therefore I developed this extensive guide.

As a side note before we dive into the article, you don’t need to be overwhelmed. We have a student loan refinance service whereby you speak with an expert student loan planner and they walk you through all of this.

FitBUX Student Loan Refinance Give Away

Who Should Look Into Refinancing Student Loans?

The first place to start is to figure out if you should refinance your student loans at all.

There are three scenarios you need to evaluate.  Answering these questions can make your decision really easy:

  1. Do you have private student loans?
  2. Do you have Federal student loans and are you going to pay them off?
  3. Do you have Federal student loans and are you going to pursue loan forgiveness? (Note: These are also known as IDR or income-driven repayment plans)

If you have private student loans, the decision is easy. You will look into refinancing and most likely do it.

If you are pursuing Federal student loan forgiveness then stop reading.  You do not want to refinance because you will lose the loan forgiveness benefit.  This applies to public service loan forgiveness and income-driven repayment plan forgiveness.

Below is an info-graphic summarizing the three scenarios and the decision-making process.


Student Loan Refinancing Decision Tree

What Exactly Is Student Loan Refinancing?

Refinancing in general (this includes any type of refinancing such as home, auto, and credit card consolidation) means that you are replacing one loan with a brand new loan at a new company.  This means you will have a brand new rate and term (term means length, i.e. how many years).

This is especially important to understand if you are thinking of refinancing your Federal student loans.  Federal student loans have a handful of benefits that private student loans do not include.

For example, you can change your Federal student loan repayment plan whenever you’d like to. Once you refinance your student loans, the only way to change it is to refinance again.

This is important because of “worst case scenarios”. Let’s say something happened to you and your credit score falls below 650.  You would not be able to refinance again. If you kept your Federal student loans it would be easier to request deferment, forbearance, or enter and Income-Driven repayment plan.

Here is an article that specifically discusses the pros and cons of refinancing Federal student loans if you’d like to read more.

Why Would A Lender Give Me A Lower Interest Rate?

This is a question we constantly receive from new graduates.

New grads are confused because they are comparing their old rate to the new rate after they refinance their student loans.  They are thinking “Why would someone accept less money from me?”

However, you have to look at it from the student loan refinance companies’ point of view. They are investors and have a huge pool of money.  This money is sitting there not earning any interest.

The refinance company looks at risk and how much they are rewarded for taking that risk.  The reward for risk is the interest rate they charge you.

Therefore, the student loan refinance company has one of two choices: 1) Don’t give you the money and have it sit there earning nothing.  2) Invest in you by refinancing your old loans and collect interest.

Thus, student loan refinance companies do not care what your old rate is….they aren’t collecting the money you pay on the loan you currently have.

This concept of why a refinance company would give you money is important to understand.  It will help you realize what their incentives are.

Refinancing Vs. Consolidation

As we discussed above, student loan refinancing is replacing one loan with a brand new loan. Student loan consolidation is simply combining two or more loans into one loan.  I’m not going to go into a lot of detail about consolidation because we do so here: Student Loan Consolidation – 4 Things To Know.

You can also check out this video to learn the differences between refinancing and consolidation.

However, there are two points I need to make.

First, when we refinance student loans, sometimes we also consolidate them. For example, we might take multiple student loans, refinance them, and consolidate them into one new loan.

Second, if you are paying off your loans and you decide not to refinance your Federal loans, DO NOT CONSOLIDATE THEM. To find out why, make sure to read the Student Loan Consolidation article mentioned above.

The Four Student Loan Refinance Decisions

Now that you have a high-level understanding of refinancing, its time to make four decisions. We detail each of these decisions below.

Decision #1: What Term Do I Use?

When you refinance your student loans, you have to decide the term you want to use. The term simply means how long you have to repay it if you only make the minimum monthly required payment.  It sounds simple but choosing the wrong term is one of the top 3 mistakes we see borrowers make when refinancing.

There are two important concepts you must understand when choosing the term:

  1. The shorter the term the lower the interest rate.
  2. The shorter the term the higher the required monthly payment.

This is important to understand because the shorter term loan (i.e. a 5-year loan vs a 20-year loan) has a much lower interest rate. However, refinancing student loans is more than just savings.  You have to look at how it impacts your budget as well and factor in items such as cost of living.

One last important point to make.  All the student loan refinance companies we partner with have zero prepayment penalty. This means you can go into a longer-term loan and make payments greater than the required monthly payment.

Decision #2: What Type Of Loan Do I Use?

There are three types of student loans that refinance companies offer:

  1. Fixed Rate Loans
  2. Variable Rate Loans
  3. Specialty Loans

Fixed rate loans have the same interest rate for the entire term of the loan.  If you are trying to keep your student loan plan simple then I highly suggest sticking to fixed-rate loans.

Variable rate loans have interest rates that can change monthly. Sounds awful, right? So why are people enticed to use these loans?

Variable rate loans have lower starting interest rates than fixed-rate loans and depending on your strategy can be useful. When to use variable rate loans is a complex topic so we created this Variable Student Loan Refinance Video Guide for those that are interested in learning more.

Specialty loans are infrequently used so we won’t go into too much detail in this guide. However, for your reference, they have special features.

For example, one of FitBUX’s lending partners offers an interest only loan whereby you pay only interest on the loan for a given period of time.

Another one of our lending partners offers a Hybrid loan. This loan has a fixed rate for the first five years then has a variable rate thereafter.

In short, if you are trying to save money and keep it simple, stick to fixed-rate loans and move on to the next decision.

Decision #3: Which Loans Do You Want To Refinance?

When one of our FitBUX Members is refinancing we always ask if they’ve checked rates already. One answer we often time receive is, “Yes.  However, I didn’t refinance because they offered me a rate in the 5% range and I have loans that are 3% and 4%.”

Guess what? You don’t have to refinance all your Federal loans.  If some of your Federal loans are in the 3% or 4% range and the new refinance offer is at 5%….don’t refinance them.

To do so, you’ll most likely need to get a document called the Payoff Statement. The problem is that your current loan servicers don’t always make this easy for you to get.

We are constantly getting on the phone with Members of FitBUX and calling loan servicers to get this information. Approximately 80% of the time we have to get a manager on the phone to get it.

Sometimes it’s worse. Fed Loans won’t give you one but don’t worry. There are workarounds for this problem.  Let your FitBUX Coach know if you are struggling to get the payoff statement. We’ll jump on a call to help you as part of our  student loan refinance service.

Decision #4: Choosing The Right Student Loan Refinance Company

In this guide, I want to concentrate on items you need to know about. These items influence who will give you a loan, what rate they will give you, and if you should refinance your student loans or not. The following is a list with details of each item.

(Note: Companies publicize some of this data but not all of it.  They do not publish it because they consider it proprietary. 

We’ve helped so many new grads refinance that we have a good feel of who will give you the best loan based on your circumstances.  Our lending partners do not have a problem with our FitBUX Coaches advising people based on what we’ve found.  However, they have asked us not to put together a guide detailing our observations and we’ve signed agreements forbidding it. This is why we do not name specific companies and examples in the Refinance Student Loan Guide or our student loan refinance company reviews.)


This is extremely important. Often times we hear from FitBUX Members that work in health care.  They tell us about a co-worker who referred them to a certain lender, they checked rates and it was horrible.

For example, MDs will get really good rates at 3 of our lending partners. The physical therapist they work with can go to the same lender and have the same qualifying figures (i.e. the same credit score and same debt-to-income ratio) and they don’t get anywhere near the same rate.

This is the number one reason why we hear people say they didn’t refinance. That is, they heard from a co-worker that they should check XYZ company so they did. It was such a bad rate they figured all the companies would be the same.  Therefore, they decided not to refinance their student loans. Thus, costing themselves money in the long run.

When Did You Graduate

This is important because newer companies look at different items to qualify you than “archaic” companies (FYI: we use the term archaic to describe companies who use traditional industry metrics when qualifying you for a loan. They tend to be banks and credit unions).

The companies that use these archaic qualifications are typically better for borrowers that have been out of school for more than a year and a half.  This is the case because you have payment history (i.e. you’ve already started making payments on your loans).

Newer companies have developed underwriting criteria that are geared towards new grads.  Those companies will give you better rates and should be the ones you focus on if you recently graduated and are refinancing student loans.

Type Of Income

Are you salaried, hourly with fluctuating hours, are you self-employed, or have specialty type of income?  This can make a major difference in getting a loan.

Salary is the easiest for lenders to predict. If you are a salaried employee then you don’t have much to think about.

When you are self-employed or you are an independent contractor you will have to show two years of tax returns to qualify.  The only way around that is to have a co-signer. However, there are exceptions to this.

For example, if you are a 1099 employee (a.k.a. an independent contractor), lenders require two years of tax returns. One company we work with doesn’t need two years as long as you work in health care!

If you are paid hourly, it is extremely important that you submit pay stubs from weeks that you worked “full-time”.  Do not submit pay stubs from a week where you only work 10 to 20 hours.

If you have a specialty type of income, it can be extremely hard for you to refinance. For example, travel health care workers earn about 50% of their income from a tax-free stipend. This is not considered income by lenders which makes it extremely difficult to qualify.

We’ve convinced two out of our ten lending partners to consider stipends as income for our Members. However, they are so strict on this that if you were to apply on your own they will most likely deny your application!

Credit Score

Your credit score is important for two reasons:

  1. Each company has a minimum. Some the minimum is 700. Others will go down as low as 650.
  2. Each student loan refinance company has different rates for different “bands” and different terms. For example, the difference in interest rate between a credit score of 748 vs 752 can be dramatic.

On top of it all, let’s say you have a 752 credit score. Company A might give you a better rate on a 10-year loan and Company B might give you a better rate on a 15-year loan.

Sound confusing? It is and the only thing I want you to take away from this is knowing your credit score will help determine which student loan refinance lenders to look at.  If you want to check your credit score, I recommend opening a free account at Credit Karma.

Want to learn a way to get a higher credit score? Check out this article for a trick I’ve used since college.

Also, if you have outstanding credit card debt it may be weighing your credit score down.  Therefore, you may want to consolidate your credit cards into a personal loan.  We’ve seen a number of people do this and their credit score goes up. However, you must be careful because doing so will affect your debt-to-income ratio which I discuss below.

Do You Have A Co-Signer?

This is important for two reasons…First, if you do not qualify on your own, a co-signer may help you qualify. Second, even if you do qualify it may help lower the rate and save you more money.

There are two important topics you need to know about co-signers:

  1. Co-signor release: Some companies will release your co-signor after 1 year, some after three years, and others will never release them. This may not sound like a big deal to you but it is to your co-signor and can be the difference in them agreeing to co-sign or not.
  2. How do they look at your co-signor: Most student loan refinance companies will look at either you or your co-signor on a stand-alone basis in determining if they are going to refinance your student loans or not. This means, for example, they will only use one income…the highest income levels. However, two of our lending partners will look at combined incomes if you are married. Thus, making it easier for you to qualify for the refinance.

Here is an article that goes into more detail about adding a co-signer on a student loan refinance.

How Do They Treat Your Housing Expense?

This is important for debt-to-income ratios.  Some student loan refinance companies do not look at housing expense.  Others will ask you how much your rent is but won’t verify it.

If you own a house, you don’t have to worry about that debt with the lenders that do not look at this expense. However, others are going to factor it into their debt-to-income calculations. If you are trying to buy a house but are having a hard time qualify because of your student loans, then check out this article on how to lower your DTI ratio to qualify for a home loan.

What Is Their Maximum Debt-To-Income Ratio?

Most student loan refinance companies have a maximum debt-to-income ratio of 30%.  Two of FitBUX’s lending partners will go up to a 40% maximum.

This is important to calculate before you begin refinancing your student loans.  If you are right up against those numbers you may want to manipulate the ratio so you can qualify.  Manipulating this ratio is highly complex and may not work for everyone so I’m not going to go into it in this guide.  If you want more information on this feel free to build your FitBUX Profile and schedule a call.

Are Your Federal Loans On An Income-Based Repayment Plan?

This is especially important if you have both Federal and private loans and you are only looking at refinancing your private student loans. Some student loan refinance companies will not use your minimum payment from your income-based repayment plan to calculate your debt-to-income ratio.

Instead, they use what your payment would be on a standard 10-year loan or a percentage of your overall loan balance.

This is important because those calculations may disqualify you from refinancing.

Did You Go To A For-Profit School?

Student loan refinance companies exclude many of these schools from their “eligible” list.

For example, if you received a Graduate Degree from the University of St. Augustine for Health Sciences you may not be able to use it on your application. You’d have to use your undergrad school to qualify which means you will receive a higher rate.

FitBUX Student Loan Refinance Give Away

Calculating How Much Refinancing Student Loans Really Saves You

When we surf the internet trying to find answers for refinancing student loans we are faced with two major problems:

  1. Ads are misleading (Note: This doesn’t mean they are illegal). For example, they state the average person saves $30,000.  However, when you read the fine print you find out this isn’t true.
  2. Most, not all but most, student loan refinance calculators are not meant to actually help you but added to websites for SEO purposes. SEO is search engine optimization, i.e. they help websites increase their rankings in Google searches.  This means more clicks to their site and they hope you click on something on their page because they will be paid.

To understand these calculations, be sure to check out our article titled the 3 Mistakes People Make While Student Loan Refinancing.

3 To Do’s After Your Student Loan Refinance Is Complete

Once you sign on the dotted line to complete your student loan refinance, you have a few more housekeeping items on your checklist.

1 – Make Sure Loans Are Paid Off

You will want to log into your old loan servicer and make sure your loans have a zero dollar balance, i.e. you don’t owe anything. Sometimes, the loan servicer miscalculates how much is owed and its common that you will still owe a few dollars to completely pay off the loan. Make sure you pay it. If you don’t you will be in default.

If you are only refinancing some of your loans, then this step is crucial. Federal loan servicers such as Great Lakes, Fed Loans, Navient, etc… Do not always apply the refinance money to the correct loans.  You want to make sure the high-interest rate loans you wanted to refinance were paid off.

You also want to make sure the balances are zero and the loan servicer didn’t classify the payments as “Paid Ahead”. Paid Ahead status saves you no money in the long run.

2 – Make Sure Your Old Loan Servicer Dropped Your Monthly Payment

This applies to those that are only refinancing some of their loans.

After you refinance your loans, they should have zero dollars owed on them. This means the required payment for those loans should be $0. Thus, your overall required payment at your old loan servicer should drop.  This is extremely important, especially if you have Great Lakes.

3 – You Can Refinance More Than Once

After you refinance, if your situation changes you can always refinance again. This could be beneficial if interest rates go down, you get married and can afford a higher monthly payment, etc…


So, the first steps in student loan refinancing is understanding what it is.  Then you must do your homework as to which student loan refinance company will be best for you.  Last, you’ll want to make sure your old loan servicer does what they should do when they receive the refinance money from your new lender.  If you want a quick step-by-step reference, then read the article titled How To Refinance Your Student Loans.

Also, if you want to learn more about money, be sure to check out FitBUX Articles and to learn more about student loan repayment check out these articles.

If you want more information about student loan refinancing I’d check out this article:

Myths About Student Loan Refinancing.

Article Written by: Joseph Reinke, CFA, Founder of FitBUX


Joseph Reinke, CFA

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About the Author

Joseph Reinke is a Chartered Financial Analyst (CFA) Charter Holder and founder of FitBUX which has helped over 14,000 young professionals on their journey to financial freedom. Joseph has been personally investing since he was 12 years old.

In addition, he has experience in student loans, mortgages, wealth management, investment banking, valuation, stock trading, and option trading. He has been on 100s of podcast and has been invited to 100s of universities to discuss financial planning with their soon to be graduates.

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