May 11, 2020

Should You Refinance Student Loans During the Coronavirus Pandemic?

Should You Refinance Student Loans During the Coronavirus Pandemic?


Although the U.S. government has temporarily suspended federal student loan payments, some debt, like private student loans, isn’t covered by the halt. But even if you still need to make payments on some of your student debt, there is a silver lining: Interest rates are low, offering the possibility to save big by refinancing your student loans.

On the other hand, some industry leaders say lenders might soon tighten refinancing requirements to reduce risk during these uncertain times. While borrowers with excellent credit wouldn’t need to worry, those whose credit is less strong might struggle to get the best rates.

Here’s the good news — and the bad news — about refinancing student loans during the coronavirus pandemic.

Low rates could lead to major savings

By refinancing your student loans, you could lower your interest rate and save big on your debt. Lenders are offering particularly low rates in the current climate. A glance at the Student Loan Hero marketplace showed variable rates as low as 1.95%, as of May 7, 2020.

Amid the falling rates, Christian Widhalm, chief revenue officer at financial lender network LendKey Technologies, said that he’s seen an increase in student loan refinancing applications.

“The recent drop in rates has spurred substantial interest for borrowers across all asset classes to refinance their loans, and student refinance is no exception,” Widhalm told Student Loan Hero.

“During the previous two months [March and April], LendKey experienced nearly an 80% increase in conditionally approved student refinance applications versus January/February. Borrowers are actively taking advantage of historically low rates to better their financial positions,” he said.

Splash Financial CEO Steve Muszynski agreed, adding that many borrowers who have already refinanced their student loans are doing so again for even better rates.

“A trend we have noticed is that, with our rates being at historic lows, a lot more people are refinancing their loans for a second or even third time in order to maximize their savings,” Muszynski said in an interview with Student Loan Hero.

Refinancing criteria might get tighter

The increased interest in student loan refinancing, combined with the overall economic crisis from the COVID-19 outbreak, has led some refinancing lenders to tighten their refinancing criteria. In other words, it might be tougher to get the best rates unless you have excellent credit.

“Given the market uncertainty, it is likely that many lenders’ approval criteria prioritizes the applicants with the best credit — giving them a very strong refinancing offer, while providing slightly higher rates to people who don’t have quite as strong credit,” said Muszynski.

“While we wouldn’t anticipate approval rates to change dramatically, it is likely that those with lower income and slightly lower credit may get a rate that is higher than they would have pre-COVID,” he continued.

Widhalm, too, expects lenders to review their underwriting policies to mitigate risk.

“This would include the tightening of certain riskier borrower segments more likely to default on their loans,” he said. “This would also likely include additional verifications on income and employment of applicants.”

So, depending on your industry and job, a refinancing lender might ask for more information than they did before the pandemic.

“Inherently, this will result in borrowers likely needing stronger credit or income than in previous economic conditions,” Widhalm added.

On the other hand, he doesn’t expect to see a significant drop in refinancing approval rates, as many student borrowers who seek refinancing do have relatively strong credit.

If you’re not sure if you’d qualify, it could be worth checking your rates with a few online lenders. This prequalification check lets you know what to expect without dinging your credit. And if you don’t meet criteria, you could try applying with a cosigner or take steps to build your credit and apply again in the future.

Weighing the pros and cons of refinancing federal loans

Although refinancing rates are low right now, there are special factors to consider if you’re thinking of refinancing federal loans, as opposed to private ones. This is especially true now, since the government has paused interest and payments on all federally-held student loans until Sept. 30, 2020.

If you refinance federal loans with a private lender, your loans will no longer be eligible for federal programs and protections, including the repayment moratorium. So be sure you understand both the pros and cons of refinancing before making changes to your federal loans.

“LendKey strongly encourages borrowers to closely examine the benefits provided by the federal program and to make an informed decision when refinancing federal debt into a private loan, as some of the federal benefits will be lost once refinanced,” Widhalm said.

If your student loans are already private, however, this wouldn’t be a factor. Still, it’s worth doing some research on what’s involved with refinancing and how much you might be able to save.

Interested in refinancing student loans?

Here are the top 5 lenders of 2020!


Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.



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