How to Refinance Private Student Loans

Private student loans are often offered to students who need extra financing for higher education--like law school. Private student loans should not be confused with federal loans, like Stafford and Perkins loans. Instead, private student loans are offered by traditional lenders such as banks and finance companies. While it's more difficult to refinance private student loans than federal loans, it is still possible. However, you must take extra caution as you're wading into the for-profit loan market.

Instructions

1

Obtain a free copy of your credit report from AnnualCreditReport.com, the only free site authorized by the three major credit reporting agencies. You should also pay for a copy of your FICO score--a three-digit number between 300 and 850 that represents your creditworthiness. Private student lenders will look very carefully at your prior credit performance on student loans.

2

Assess your chances of receiving a refinance. FICO scores below 600 are poor and scores over 720 are excellent. If you have a poor credit score and poor payment history on your existing student loans, you should attempt to clean up your credit before applying for a refinance--especially a private lender refinance.

3

Research private student loan lenders. While there are large banks, like CitiFinancial and Bank of America, that offer student loans, do not discount local financial institutions, too. Your credit union or local bank may offer more competitive student loan offers.

4

Research all potential lenders. The Federal Trade Commission recommends that you "check out the track record of particular private student lenders with your state attorney general, your local consumer protection agency, and the Better Business Bureau."

5

Reach out to resources available for help. This includes: the financial aid department at your school (or former school), the Department of Education and your personal accountant or attorney. Referrals are often the best way to start new financing.

6

Collect all of your income documents, your credit report and copies of all private student loans. Apply to at least two, but no more than five, lenders. Excessive inquiries (more than six in six months) may negatively affect your credit.

7

Ask your current lender for a reduction in interest rate, if affordability is your top concern. They may be willing to do it rather than lose you to another lender.

8

Compare student loan offers. While federal student loans often come with the lowest interest rates and most favorable fees, your private loan refinance offers should not come with excessively high interest rates or fees. For peace of mind, opt for a fixed rate loan over a variable interest loan.

9

Compare the average student loan interest rates at several lenders. For example, if Sallie Mae--a leading student loan lender--offers an annual interest rate of 9.11 percent on a $10,000 private student loan, your loan offers should be in the same ballpark. If they are much higher, consider waiting or choose another lender.