What happens between applying to refinance a student loan and the old loan hitting zero?

Summary

A new lender approves you for a private loan, sends the money to your current lender, and the old loan is closed out; nothing about the old loan is rewritten. In between there is a soft rate check, a full application with a hard credit pull, and a payoff that can take a few weeks to post. You keep paying the old loan until its balance reads $0. Any federal loan you include leaves the federal student aid system for good.

The stages, in order

  1. Rate check. SoFi says it runs a soft credit pull to show the rates and terms you may qualify for, and that the soft pull does not affect your credit score. ELFI and Citizens describe the same step. Citizens says its rate quote is good for 30 days.
  2. Full application. Once you pick a product and continue, SoFi requests your full credit report, which it calls a hard pull that may affect your credit. Earnest puts the difference plainly: the instant number is a rate estimate, and the final rate comes when the application is approved.
  3. Disbursement and payoff. The new lender pays off the loans you listed. ELFI's FAQ says it can take two to three weeks for those loans to pay off and the funds to post. In another answer on the same page, it says the old lender typically takes 30 to 45 days to receive the payment and apply it.
  4. Zero balance. ELFI tells borrowers to keep paying their existing loans until each one shows a $0 balance at the current servicer.
  5. First payment on the new loan. ELFI's refinance loans have no grace period. Principal and interest payments start the month after the loan is disbursed, unless ELFI grants a deferment to line repayment up with the end of the grace period on federal loans being refinanced.

Why the old loan still bills you

From the old servicer's side, nothing has changed until the payoff money lands. A due date that falls inside that window of several weeks is still a due date, and a missed one is reported on the old loan. If the payoff and a regular payment both arrive, you have overpaid. ELFI applies anything overpaid to the old lender toward the principal of the new loan, and says a refund can take four to six weeks to come back and post.

For the first month or two, it helps to look at both accounts: the old one until it closes, and the new one to see which bank account the autopay pulls from.

What the refinance does to a federal loan

There is no federal refinance. StudentAid.gov's glossary says so directly, and the only way to refinance a federal loan is to let a private lender pay it off, at which point the balance leaves the federal system and its benefits stay behind. That choice belongs before step 1, and the article on refinancing federal loans lists what goes with it.

What lenders check at step 2 is covered in the article on refinance approval. To see how much a rate at the top of a lender's range adds in interest over the life of the loan, the calculator on this site runs the numbers.

Sources

Written by Kaz (pen name). Figures are copied from the sources' published pages on the dates shown. We have not used these products. Corrections: contact form.