Refinancing Your Student Loan

Refinancing Your Student Loan

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated January 4, 2023

If you’re struggling to pay down your student loan, refinancing might help.

The goal of refinancing is to secure a lower rate or better terms to make your loan more affordable. With less to pay, you can pay off your student loan a lot faster or make your payments easier to manage. But student loan refinancing might not always make sense, depending on your outstanding balance, how far along you are in your loan term and the exact type of student loan you have.

Let’s go into more detail about refinancing student loans to help you decide if it’s right for you.

Can You Refinance Your Private Student Loans?

Private student loans are loans that are obtained through banks or private lenders and typically come with higher interest rates compared to government student loans.

Private student loans can be refinanced much like any other type of loan. With student loan refinancing, you’ll take out a new loan to replace your existing loan, ideally at a lower interest rate and extended term to reduce your monthly payments. 

In order to secure a lower rate and more favourable terms through a student loan refinance, you’ll need to meet specific financial and credit requirements. If your financial and credit profiles have improved since you initially applied for your student loan, you may be able to score a lower rate and better terms.  

Can You Refinance Your Government Student Loans?

In general, the government does not offer student loan refinancing for provincial or federal government-backed loans. However, they do offer debt relief services for those who can’t afford their student loans. You could also use an unsecured loan such as a personal loan or a home equity loan to refinance your government-backed student loan.

Tip – If you’re struggling to pay off your government-backed student loan and are thinking about bankruptcy, consider refinancing it with a personal loan. While government-backed student loans are not eligible for bankruptcy (unless you’ve been out of school for at least 7 years, private student loans are eligible. 

Ways You Can Refinance Your Private Student Loans

There are various loan types available that you can use to refinance your student loan (private or government-backed), including the following:

Personal Loans 

You can use the funds from a personal loan to cover just about any expense, including your outstanding student loan debt. These types of loans are installment loans, which means you’ll make regular payments over a certain period of time until the entire outstanding balance is repaid. 

Personal loans can be secured or unsecured, depending on whether or not you use collateral to back the loan. Secured personal loans are less risky for lenders. That means you may be more likely to get approved for a higher loan amount and a lower interest rate than an unsecured personal loan. 

Depending on the amount and terms you qualify for, it may or may not make much financial sense to refinance your student loan with a personal loan. 

Guarantor Loans

If your credit profile doesn’t meet the lender’s requirements to get approved for a loan, you may add a guarantor to the loan contract to increase your odds of approval. A guarantor loan involves a good-credit individual signing the loan contract. The guarantor promises to make regular loan payments in the event that the prime borrower defaults on the loan. 

Not only will this help boost your odds of loan approval, it can also help lower your interest rate and qualify you for a larger loan amount. 

Home Equity Loan

If you own a home, you may have enough equity accumulated to secure a home equity loan or home equity line of credit (HELOC). With this type of loan, you borrow against the equity in your home, and your home collateralizes the loan. Since this loan is secured with a valuable asset, it’s less risky for the lender, so you may be able to snag a lower rate. 

Plus, you may be eligible to take out a larger loan amount based on how much equity you’ve managed to build up. But if you fail to keep up with repayments, you risk losing your home. 

Can You Refinance Your Student Loans With Bad Credit?

While having good credit gives you the best odds of getting approved for a loan, you may still be able to access financing with bad credit. If your credit score is a little low, you may be eligible for a bad credit loan to refinance your private student loan debt. 

These loans are easier to qualify for, but they are also more expensive than conventional loans. As such, be mindful of the higher rates you may be charged before applying to refinance your student loan.

Can You Consolidate Your Private Student Loans?

You may be able to consolidate multiple loans to simplify your finances. Consolidating your student loan involves taking out one loan to pay off several different debts. This way, you’re left with just one loan instead of many, making loan management much easier. 

Ideally, the new consolidation loan you take out will come with a lower rate compared to the loans you’re using the funds to pay off. This can help you save a lot of money in the long run. You may also be able to negotiate better terms on your consolidated loan to make loan repayment better fit your budget. 

Don’t confuse ‘consolidation’ with ‘refinancing’, as they are slightly different, though refinancing loans are often used to consolidate debt.  

Can You Consolidate Government Student Loans?

Your ability to consolidate your government student loans is based on which province or territory you live in. More specifically, if you have both federal and provincial student loans, they’ll automatically be consolidated, through the Integrated Student Loans program, if you live in the following provinces:

  • Saskatchewan
  • Ontario
  • New Brunswick
  • Newfoundland and Labrador

In the provinces listed above, you can apply for federal and provincial student loans using the same application. These loans will be consolidated after you graduate, meaning you’ll only have one payment to make, instead of two.

In the following provinces and territories, only one type of loan is offered, either federal or provincial/territorial:

  • Quebec
  • Yukon
  • Northwest Territories
  • Nunavut

For all the other provinces, you may apply for both federal and provincial loans with one application. However, the loans won’t be automatically consolidated when you graduate, which means you’ll have to pay each one separately. These provinces include:

  • British Columbia
  • Alberta
  • Manitoba
  • Nova Scotia
  • Prince Edward Island

Benefits Of Refinancing Your Private Student Loan

There are several perks to refinancing your student loan, including the following:

  • Lower interest rates. If your credit score has increased since you first took out your private student loan, you may qualify for a lower interest rate on your new loan. This can save you a great deal of money in the long run.
  • Longer loan terms. If you refinance to extend your loan term, you’ll have more time to repay the loan. In turn, you can reduce your monthly payments, which will make payments easier to fit your budget.  
  • One loan payment. If you consolidate your student loans along with your other debts, you’ll then be left with only one loan payment to manage.

Drawbacks Of Refinancing Your Student Loan

While there are many advantages to refinancing your student loan, there are a handful of drawbacks to consider as well:

  • No financial assistance. The government offers financial assistance programs to those who qualify, including those with outstanding student loans who are having trouble managing their debt. If you refinance your government student loan to a loan with a private lender, you may no longer be eligible for these financial assistance programs.  
  • No tax breaks. Interest paid on private student loans is not tax-deductible, unlike government student loans. If you make the switch to a private lender through a refinance, you won’t be able to receive the 15% tax credit on the interest you pay on your government student loans.  
  • Higher interest rate. Depending on your creditworthiness, you may be unable to qualify for a lower interest rate. This is particularly true for government student loans. Most government-backed loans have the best rates and terms, so refinancing your government loan with a private loan may lead to higher interest rates. 

How Much Can You Save By Refinancing Your Student Loan?

The goal of refinancing is to save money in the long run. But the exact amount you can potentially save depends on many factors, including the interest rate and loan term on both your current loan and your refinanced loan.

Let’s illustrate how much you could possibly save based on an example:

Current LoanNew Loan
Loan Amount$30,0000$30,000
Interest Rate7%5%
Term15 years9 years
Monthly Payment~$270~$346
Total Interest Paid~$18,600~$7,368

In this example, you’re actually paying $76 more per month, but you’re saving $11,221 in interest over the loan term. 

If your immediate goal is to reduce your monthly payments, extending the loan term may help. Here’s an example of how much you could potentially save each month if all of the above figures remained the same, except you went from a 15-year term to a 20-year term:

Current LoanNew Loan
Monthly Payment~$270~$198
Total Interest Paid~$18,600~$17,520

In this example, you’re saving both in monthly payments and interest, even by extending the term.

How To Refinance Student Loans

If you’ve decided that refinancing your student loan makes financial sense, here are the steps to follow to get started:

Step 1: Get Pre-Qualified And Comparison Shop

Shop around with different lenders to see what types of interest rates and terms are available to you. To get the most accurate offers, consider getting pre-qualified first. 

Pre-qualification involves inputting a few pieces of information about yourself and your financial health. The lender may also conduct a “soft” credit check, which won’t have an effect on your credit score. 

Based on this information, you can see what each lender has to offer. See where you can get the lowest interest rate and most ideal terms to ensure your refinance is as affordable as possible.

Step 2: Submit An Application

Once you’ve chosen the lender to work with, fill out an application. You’ll need to provide more information and documentation at this stage, such as bank statements, pay stubs, and tax receipts. The lender will verify your identity and more closely assess your financial profile. They’ll also conduct a “hard” credit check to verify your creditworthiness, which will have a temporary effect on your score. 

Once you’re approved, go over the contract in detail. If you’re satisfied with the agreement, sign it, and you’ll receive your loan shortly after.

Step 3: Start Making Payments Towards Your New Loan

Verify that your old loan has been formally closed to make sure your debt isn’t still lingering. Continue making payments toward your old loan until the account is officially closed. Then, start making payments towards your new refinanced loan. 

Requirements For Student Loan Refinancing 

To qualify for a student loan refinance, you’ll need to meet the following criteria:

  • Have good to excellent credit (at least 650 or more)
  • Have a steady job
  • Earn a sufficient income

Student Loans Refinancing FAQs

When does it make sense to refinance my student loans?

Refinancing your student loans makes sense if the following apply to you:
  • You have a good credit score
  • You earn more than what you owe on your loans
  • You have a steady job
  • You have private student loans (not government loans) 

Should I refinance government-issued student loans?

This depends on what you’re currently paying in interest and if you can qualify for a lower rate with a private lender. Also, consider whether or not you can afford to lose the benefits that come with a government-issued student loan, such as repayment assistance and tax-deductible interest rates.

Can I refinance a student loan that’s been refinanced already?

Yes, you can refinance your student loans over and over again, but you probably won’t be able to get a decent interest rate after the first few time, unless your original rate was extremely high.

Final Thoughts

It can take years and even decades to pay off student loans. If you continue to drown in your student loan debt, look into refinancing. Depending on your situation, you may be able to secure a lower rate and better loan terms to help you whittle down your loan faster, or at least make your monthly payments more affordable. 

If you choose this route, be sure to do some thorough comparison shopping to find the best lender to work with. 

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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