The pros and cons of refinancing student loans with your current bank

CommonBond is no longer offering new refinanced student loans but check out Select's Best Student Loan Refinance companies for other great ways to save.

The Laurel Road Student Loan is no longer available to new applicants. 

Student loan refinancing is a good option for borrowers looking to score a lower interest rate on their monthly payments.

The big question is, who do you turn to when you decide that refinancing is the next best step for your finances?

For many borrowers, using your local bank down the street that you've had a relationship with for years may feel like the most comfortable option, especially when dealing with what may be a large debt load.

Before making that choice, however, there are a handful of pros and cons student loan borrowers should know about when wanting to refinance with their current, local or big bank.

Select spoke with Dan Rooker, a senior advisor, CFP and certified student loan professional at Student Loan Planner, about what you should consider.

Your current bank is likely the place where you opened your first bank account. It may be a traditional, well-known big bank (think Chase, Wells Fargo, Bank of America) that offers all sorts of financial products, from checking and savings accounts to credit cards and mortgage loans. Or, it could be a smaller local bank or credit union that serves just one community.

But beyond a few banks, like PNC Bank and Citizens™, most brick-and-mortar banks don't offer student loan refinancing.

If yours does, Rooker says you can bet on some benefits such as more personalized customer service, lower fees on late payments and the potential to score flexible underwriting terms given your relationship. For example, you may be able to get a better loan term when meeting with someone face-to-face and discussing your goals.

The biggest con with refinancing student loans through your current bank is the interest rate they may offer you.

It is possible you will have a higher interest rate than you would with an online lender because your local bank has physical branches. These locations involve overhead costs that big banks often pass down to customers in the form of higher interest rates.

"However, if your current bank is an online lender, then they may be competitive with the online refinancing market when it comes to interest rate and loan terms," Rooker adds.

Online-only banks that offer student loan refinancing will not have physical locations where you can get in-person service, but the low-overhead costs mean they can typically offer you a lower interest rate, should you qualify. Since the biggest reason for refinancing is to get a lower interest rate on your student loans, it's worth going online to shop around for a lender.

To help guide you, Select analyzed and compared private student loan funding from national banks, credit unions and online lenders to rank your best options. We found that many of the best student loan refinance companies are indeed online. Here are our top picks:

• Best overall: SoFi Student Loan Refinancing
• Best for having a co-signer: CommonBond Student Loan Refinancing
• Best for fair credit score: Earnest Student Loan Refinancing
• Best for parent loan refinancing: ELFI Student Loan Refinancing
• Best for medical school loan refinancing: Laurel Road Student Loan Refinancing

We narrowed down the above choices because they offer low refinancing rates, flexible loan terms, no upfront origination fee for refinancing or early payoff penalties, financial hardship protection and options for co-signers if the direct borrower does not meet the income and/or credit requirements to refinance on their own. (Read more about our methodology below.)

To determine which student loan refinance companies are the best for borrowers, Select analyzed and compared private student loan funding from national banks, credit unions and online lenders. We narrowed down our ranking by only considering those that offer low student loan refinancing rates and prequalification tools that don't hurt your credit.

While the companies we chose in this article consistently rank as having some of the more competitive interest rates for refinancing, we also compared each company on the following features:

• Broad availability: All of the companies on our list refinance both federal and private student loans, and they each offer a variable and fixed interest rate to choose from.
• Flexible loan terms: Each company provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your student loan.
• No origination or signup fee: None of the companies on our list charge borrowers an upfront "origination fee" for refinancing your loan.
• No early payoff penalties: The companies on our list do not charge borrowers for paying off loans early.
• Streamlined application process: We made sure companies offered a fast online application process.
• Co-signer options: Each company on our list allows for a co-signer if the direct borrower does not qualify for refinancing on their own.
• Autopay discounts: All of the companies listed already calculate autopay discounts into their advertised rates.
• Private student loan protections: Though you lose federal student loan benefits when you refinance, each company on our list offers some type of their own financial hardship protection for borrowers.
• Loan sizes: The above companies refinance loans in an array of sizes, from $5,000 to $500,000. Each company advertises its respective loan sizes, and completing a preapproval process can give you an idea of what your interest rate and monthly payment would be.
• Credit requirements/eligibility: We took into consideration the minimum credit scores and income levels required if this information was available.
• Customer support: Every company on our list provides customer service available via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the student loan refinancing process.

After reviewing the above features, we sorted our recommendations by best for overall refinancing needs, having a co-signer, applying with a fair credit score, refinancing parent loans and medical school loans.

Note that the rates and fee structures for private student loan refinancing are not guaranteed forever; they are subject to change without notice and they often fluctuate in accordance with the Fed rate. Choosing a fixed-rate APR when you refinance will guarantee that your interest rate and monthly payment will remain consistent throughout the entire term of the loan.

Your refinanced rate depends on your credit score, income, debt-to-income (DTI) ratio, savings, payment history and overall financial health. To refinance your student loan(s), lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.