A Beginner’s Guide: What is Student Loan Refinancing?
Many student loan borrowers either want lower monthly payments or a quicker path to being debt-free but figuring out where to start can feel overwhelming. One option you may have heard about is student loan refinancing. When used wisely, refinancing may help you save money, simplify repayment or both.
This guide will walk you through the basics of refinancing in clear, practical terms so you can decide if it makes sense for you.
What Does It Mean to Refinance a Student Loan?
Refinancing is the process of taking out a new private loan to replace one or more of your eligible federal and/or private qualified higher education loans.
A new lender pays off your old loans in full, and you repay the new loan, ideally with a lower interest rate or a repayment plan that better fits your budget.
It’s also a way to restructure your debt. For example, if you choose a 10-year repayment instead of a 5-year, your monthly payment goes down, but you’ll pay more in interest over time. On the flip side, a shorter term means higher monthly payments but less interest overall.
To be eligible, your loans must have been used solely for qualified higher education expenses for you, your spouse or your dependent.
Qualified higher education expenses can vary by lender but are typically amounts paid for tuition, fees, books, supplies and other related expenses for an eligible student that are required for enrollment or attendance at an eligible educational institution.
If the loan was used for unrelated expenses, like buying a car or insurance, it won’t qualify as an education loan and therefore can’t be refinanced as part of an Education Loan Refinancing program. Keeping this in mind helps you understand which loans are eligible before you begin the process of refinancing your student loans.
How Is Refinancing Different From Consolidation?
It’s easy to mix up consolidation and refinancing since both involve replacing your existing loans with a new one. The difference comes down to how your new interest rate is calculated.
Refinancing gives you a brand-new private loan with terms based on your credit score, income and financial situation, meaning your rate could be lower than what you’re paying now.
Consolidation, on the other hand, combines multiple federal loans into a single new federal loan. Your new interest rate is the weighted average of your old loans’ rates (rounded to the nearest one-eighth of one percent).
Why Do Borrowers Refinance?
People choose refinancing for different reasons, but some of the most common are:
Lowering interest rates. Even a small reduction can make a big difference. For example, refinancing a $50,000 loan from 7% to 5% could save more than $5,000 in interest—without extending the repayment term.
Simplifying repayment. Instead of keeping up with multiple payments, refinancing can allow you to have just one monthly payment.
Choosing flexible terms. Refinance loans allow you to choose a new term such as 5, 10 or 15 years to pay off the loan. A shorter loan helps you pay off debt faster, while a longer term reduces your monthly payment.
Combining loans. Refinancing allows you to merge federal and private student loans into a single new loan, giving you one easy monthly payment and the potential to secure a lower interest rate.
Who Should Consider Refinancing?
Refinancing isn’t for everyone, but it can be a strong option if you:
Have good credit and a steady income
Hold private loans with high interest rates
Are a parent with a Parent PLUS Loan, which often carries higher rates
Are a graduate who isn’t depending on Public Service Loan Forgiveness (PSLF), Income-Driven Repayment (IDR), or other federal loan forgiveness programs
Before you apply, take this mini self-test:
Am I financially stable?
Do I want lower payments or a quicker payoff?
Am I willing to give up certain loan repayment or forgiveness options on my federal loans?
If you can answer “yes” to most of these, refinancing may be worth considering.
How to Refinance in 4 Simple Steps
Check your credit and finances. A strong credit score and a steady income usually qualify you for the best rates.
Compare lenders and rates. Look closely at fixed versus variable rates, repayment terms and borrower benefits.
Check your interest rate eligibility. This step uses a soft credit check to preview the interest rates you may be eligible to receive, and it won’t affect your credit score.
Submit your full application. Once you’ve submitted your documentation and are approved, your new lender pays off your old loans, and you begin repaying the refinanced loans in a single loan payment.
Visit HESC’s Refinance Loan webpage to learn more, compare interest rates and terms or start your application.
Final Thoughts
Refinancing replaces your current loans with a new private loan, ideally with better terms. For the right borrower, it can be a powerful way to reduce costs, simplify repayment or reach financial goals faster.
But refinancing isn’t for everyone. The best decision depends on your personal situation––your income, credit score and whether you want to keep repayment and forgiveness options on your federal loans.
Ready to see if refinancing could work for you? Explore HESC’s refinance options designed for Texas residents and prequalify today. We’re here to help you find the repayment path that fits your life.