Refinancing Your Loans: Student vs. Personal

What is refinancing?

Refinancing means taking out a new loan to pay off one or more existing loans. In the student loan context, refinancing typically involves a private lender paying off your current student loans—federal, private, or both—and issuing a new private loan with a new interest rate and repayment term. The same concept applies to personal loans: you can refinance an existing personal loan with a new loan that may offer a lower rate or better terms.

A key point is that refinancing is not the same as federal student loan consolidation. A Direct Consolidation Loan combines multiple federal loans into one federal loan, but it does not lower your interest rate. Refinancing creates a new private loan, and your new rate will be based on your creditworthiness and market conditions.

The main reason borrowers refinance is to secure a lower interest rate, which can reduce monthly payments and total interest over the life of the loan. Refinancing can also simplify repayment by combining multiple loans into one monthly payment.

• Refinancing a student loan replaces existing loans with a new private loan, which may offer a lower rate.
• Consolidation of federal loans is a separate option that does not reduce your rate.
• Personal loan refinancing works similarly, but the new loan is unsecured and not tied to education expenses.

Sources: Consumer Financial Protection Bureau (CFPB), Sallie Mae, ELFI, Iowa Student Loan, Citizens Bank

Refinancing student loans

When you refinance student loans, you can combine federal and private loans into a single private loan. This can simplify repayment and potentially lower your interest rate, especially if your credit score has improved since you first borrowed. Student loan refinance loans often offer longer repayment terms—up to 15–20 years—which can lower your monthly payment.

However, refinancing federal loans into a private loan means you lose federal benefits, including income-driven repayment plans, forbearance, and loan forgiveness programs like Public Service Loan Forgiveness. Before refinancing federal loans, weigh these protections against the potential interest savings.

Qualifying for a student loan refinance typically requires a credit score at least in the mid-600s, a steady income, and possibly a cosigner if you don't meet credit standards.

• Can combine multiple loans into one private loan.
• May offer a lower interest rate and lower monthly payment.
• Losing federal benefits is a major trade-off.
• Private student loan refinancing is available for both federal and private loans.

Sources: Consumer Financial Protection Bureau (CFPB), Savingforcollege.com, Sallie Mae, Iowa Student Loan, NerdWallet, Citizens Bank

Refinancing personal loans

Refinancing a personal loan means replacing your current loan with a new one, often to secure a lower interest rate or better terms. Personal loans are unsecured and can be used for a variety of purposes, from debt consolidation to home improvements. Unlike student loans, there is no requirement that the loan be used for education-related expenses.

Personal loan interest rates are generally higher than student loan refinance rates because personal loans have broader use, shorter terms, and risk-based pricing that varies more by credit score. As of late 2025, the average APR on a typical 24-month personal loan at commercial banks was about 11.65%, though rates can range from 8% to 15% or more depending on your credit profile.

When refinancing a personal loan, you'll apply with a lender, undergo a credit check, and if approved, the new lender pays off your old loan. The new loan will have its own repayment schedule, typically ranging from 2 to 7 years.

• Personal loans are unsecured and flexible in use.
• Rates are often higher than student loan refinance rates.
• Shorter repayment terms usually mean higher monthly payments but less total interest.

Sources: Earnest, Broadview Federal Credit Union

Pros and cons of refinancing

Refinancing can be a powerful tool, but it's not right for everyone. Below, we break down the main advantages and disadvantages of refinancing student loans and personal loans.

• Student loan refinancing pros: lower interest rate, simplified payment, possible cosigner release. Cons: loss of federal benefits, potential for longer terms that increase total interest.
• Personal loan refinancing pros: potentially lower rate, flexible use, fixed repayment. Cons: rates can be higher than student loans, no federal protections, harder to qualify with lower credit.

Sources: Earnest, Broadview Federal Credit Union, Equifax

Steps to refinance

Refinancing involves a straightforward process, but it requires careful comparison shopping. Here are the typical steps.

1. Check your credit score and report to understand where you stand.
2. Research multiple lenders and compare prequalification offers, which usually use a soft credit pull.
3. Choose the best offer based on interest rate, fees, repayment terms, and customer service.
4. Complete the full application, which will involve a hard credit inquiry.
5. Provide required documents, such as proof of income and loan statements.
6. Once approved, the new lender will pay off your old loans, and you'll start making payments on the new loan.

Sources: Bankrate, Iowa Student Loan

How to decide: student vs. personal loan refinance

Choosing between refinancing a student loan and a personal loan depends on your specific situation. If you have federal student loans, consider the value of federal benefits before refinancing. For private student loans, refinancing may be more straightforward if you can qualify for a lower rate.

For personal loans, refinancing makes sense if you can secure a meaningfully lower interest rate or change your repayment term to better fit your budget. Because personal loans have higher rates on average, the potential savings may be less than with student loan refinancing, but it can still be worthwhile.

Use a loan calculator to estimate monthly payments and total interest under different scenarios. Lenders often provide calculators, or you can create your own using basic formulas. Always compare offers from multiple lenders to ensure you're getting the best deal.

• Consider whether you're willing to lose federal loan benefits.
• Evaluate your credit score and income against lender requirements.
• Compare rates, fees, and repayment terms from multiple lenders.