Survey Explores the Financial Impact of Private Student Loan Refinancing

Private student loans can give borrowers a way to bridge the financing gap when federal aid doesn’t cover the full cost of college, but high amounts of student loan debt can make it difficult for young graduates to achieve their other financial goals. As a way to pay down stubborn college debt, many borrowers choose to refinance their student loans for better terms.

Student loan refinancing is a tool that borrowers can use to lower their interest rate, get out of debt faster or consolidate multiple payments into a single loan. But does refinancing private student loans actually improve a borrower’s finances?

To answer this question, U.S. News ran a nationwide survey of 1,240 respondents between Oct. 12 and 13, 2022, through PureSpectrum. Only borrowers who have refinanced private student loans answered questions.

We asked respondents a series of questions to find out why they refinanced their private student loans, how they prepared for student loan refinancing, how they chose a lender, if they experienced financial benefits and what regrets they had. Here’s what we found:

Dig deeper into the data in the sections below to see how borrowers approach student loan refinancing – and how doing so impacts their debt repayment strategy.

Private student loan refinancing can help borrowers repay debt on different terms to achieve one or more goals. When asked to identify their top reasons for refinancing, nearly half of respondents (46.9%) wanted to pay off their debt faster. Refinancing to a shorter-term student loan can translate to meaningful savings on interest charges over the life of the loan, although it can often result in higher monthly payments in the short term.

The second-most-popular reason borrowers refinanced was to reduce their monthly student loan payments, cited by 39.8% of respondents. While it’s possible for borrowers to refinance to a longer-term loan to lower their monthly payments, extending the debt repayment period can cost more money in the long run – unless the borrower is able to lock in a much lower interest rate. Fortunately, about a third (35.1%) of borrowers refinanced with the goal of lowering their interest rate.

More than a quarter of borrowers (26.5%) refinanced in order to consolidate multiple loans into one. This can combine two or more student loans into a single monthly payment and interest rate, which can streamline the debt repayment process.

Other goals included switching from a variable interest rate to a fixed rate (19.5%) and removing a co-signer from the loan (16.3%).

More than two-thirds of private student loan borrowers (67.3%) say that refinancing has helped improve their financial situation. Out of that group, 34% were able to pay down other debts, 27% improved their savings, 18.9% saved more for retirement and 15.7% increased their other investments.

Still, this positive sentiment isn’t shared by all student loan borrowers. More than a third of borrowers (36.9%) regret refinancing their private student loans.

The most common complaint among those who experienced regret is that their new interest rate was higher than expected (29.9%). Many of these borrowers also report that it’s taking longer to repay their student loans (27.3%) or that their new monthly payments are too high (21.7%).

A small percentage (15.6%) of borrowers who regret refinancing their private loans say that they’re unhappy with their new lender. This highlights the importance of reading consumer reviews and searching for complaints through the Better Business Bureau and the Consumer Financial Protection Bureau before choosing a lender.

Private student loan borrowers who refinanced have successfully paid down their debt. Fewer borrowers have higher loan balances than they did before they refinanced, and more borrowers have smaller loan balances after refinancing.

More than a third (34.9%) now carry a balance below $5,000, compared with the 20.1% who borrowed that amount to begin with. Similarly, the proportion of borrowers with loan balances of $20,000 or above fell from 14.8% initially to 11.7% after refinancing.

When refinancing private student loans, it can pay off to compare offers across several lenders. Getting prequalified with a soft credit check lets a borrower see an estimated interest rate and loan eligibility without a negative credit score impact.

The majority of private student loan borrowers (62.5%) shopped around with multiple lenders to compare interest rates. About half of those who compared lenders (49.6%) prequalified through three lenders, while 30% evaluated two lenders. A fifth (20.4%) shopped with four or more lenders.

Even though many of them shopped around to compare offers, most borrowers (57.6%) refinanced through their initial private student loan lender.

Moreover, 62% of borrowers took steps to improve their credit score before refinancing their private student loans. Since a higher credit score can result in lower interest rates, this is a smart strategy to lower overall borrowing costs. Of those who took action, they did the following things:

Another way to lock in a lower rate is to enlist the help of a creditworthy co-signer, such as a trusted friend or relative. The majority of borrowers used a co-signer, with a quarter (24.6%) of respondents refinancing their private student loan debt with a spouse. A similar percentage (23.5%) tapped another family member such as a parent or sibling.

About one in six (17.1%) refinanced with a creditworthy co-signer who wasn’t a spouse or family member. Meanwhile, 34.9% didn’t refinance with a co-signer.