Top 7 Myths About Refinancing Education Loans You Shouldn’t Believe

In most cases, superstitions and myths are harmless remnants of days gone by. Myths about refinancing education loans though — these are actively making you poorer. Too many people view the word “refinancing” as a bad word, something evil, a mark of shame to be avoided. 

Part of us thinks that this narrative is propagated on purpose, to stop people refinancing their education loans. Because, refinancing your education loan can bring in a host of benefits. 

This stigma keeps too many borrowers stuck paying more than they need to. Some say it’s only for high earners. Others think it’s packed with hidden penalties. 

Wrong. 

The truth? 

Done right, refinancing can cut interest rates, shrink monthly payments, and make debt far more manageable. 

This isn’t about guesswork or gut feelings—it’s about facts.

Let’s break down the loan refinance myths vs. facts and get to the truth. 

And we’d like to show you what, and how. So let’s get right into it.

Let’s begin with an explanation of education loan refinancing.

What is education loan refinancing?

You got into your dream college in the USA but the cost there is exorbitant. It’s somewhere in the range of 70,000 dollars for an 18-month course.  You pay 10,000 USD out of pocket as margin money. 

ALso Read: What Is Margin Money for Education Loan And Why It Matters?.

So, you take an education loan for 60,000 USD to cover the cost. This amounts to about 51 lakh rupees at the time of writing. And the loan is at an 11% interest rate.  At 11%, your monthly repayment will be 90,000 INR for 7 years. 

However, six months in, there’s a change in your financial situation. 

Say you get a job in the co-op period of your degree. Or that the central bank lowers interest rates. Whatever the case may be, you now qualify for a lower interest rate.

However, the loan provider had given you a fixed-rate contract, so nothing can be done, you assume. 

This is where education loan refinancing comes in. 

A third-party loan provider will pay off your education loan in full, on the spot. Then, instead of paying your EMIs to the education loan provider, you’ll now be paying the third party.

Now, if the third party were to, say, offer you an 8% interest rate, things would improve significantly. Six months have passed, as we said, which is ₹90,000 x 6 months = ₹5.4 lakh. The remaining outstanding amount on the loan would be about ₹45 lakh.

The refinancing company clears this amount, and now you have to pay them back ₹45 lakh. At 8% interest, your monthly payment drops to ₹70,200 instead of ₹90,000 as before.

That’s an instant saving of ₹20,000 every month, every single month, for the next six and something years. Yet, very few people even realize this is an option.

So, in our next section, let’s cover the 7 most common myths about refinancing (in our experience).

Myth #1: Refinancing Is Only for Those with High-Income Jobs

This is one of the most damaging myths about education loan refinancing out there.

Too many borrowers assume that unless they’re raking in a six-figure salary, refinancing isn’t an option. 

That’s just downright false.

Lenders will look at multiple factors, not just income, when deciding to give you a refinancing loan. 

Maybe you got a high paying job during/after your degree. Maybe your credit score improved. Maybe it’s been two years of on-time repayments. All of these matter just as much. 

Some lenders even offer refinancing options tailored for fresh graduates and early-career professionals.

The reality is that you don’t need to be earning a fortune to access better loan terms. Lower interest rates, smaller monthly payments, and improved repayment flexibility aren’t exclusive to high earners. If refinancing makes financial sense, it’s worth exploring—regardless of income.

Believing this myth keeps borrowers stuck with bad loan terms when better options exist. The key is knowing where to look and who to trust. 

Now for some more refinancing myths busted. 

Myth #2: Switching Lenders Is a Complex and Risky Process

A lot of students also have misconceptions about switching lenders, and the process therein.

People imagine switching lenders as a nightmare—endless paperwork, hidden fees, and a process so confusing it’s not worth the effort. That’s one of the biggest education loan refinancing myths. 

Maybe 15 years ago it would have been hard. Back and forth with offices and paper forms, and self-attested passport photos and bank statements. 

Today, maybe five or six online forms — at worst. 

The reality of student loan refinancing is that it’s designed to be simple. Compare lenders, pick the best rate, fill out an application, upload a few documents, and boom—you’re done. Some lenders even handle closing out your old loan for you. No chaos, no endless back-and-forth.

Risk? Only if you don’t do your research. Choose a reliable lender, understand the terms, and switching can be quick, painless, and financially smart. 

The main thing to look out for would be reviews of your new lender, and their rating (anything below B should be a red flag).

Also Read: Education loan repayment tips that actually work

Myth #3: Refinancing Is Not Beneficial for Students with Existing Loans

We don’t even get where this one comes from, yet it’s so prevalent. Why wouldn’t students with existing loans benefit from better interest rates and repayment terms? Yet, this education loan refinancing myth keeps borrowers stuck with bad deals.

Refinancing isn’t just for new loans—it’s one of the best ways to improve old ones. 

If a student loan has a high-interest rate, long tenure, or inflexible terms, refinancing can help. Lower rates mean smaller monthly payments. Shorter terms mean getting debt-free faster. More flexible repayment options mean less financial stress.

Some think refinancing erases repayment progress. It doesn’t. It simply moves the loan to a lender offering better conditions. The debt stays the same, but the cost of repaying it drops.

Believing this myth stops students from saving money. And for what? Keeping an outdated loan? That makes no sense. If you even suspect you’re eligible for student loan refinance, go for it.

Myth #4: You Can’t Refinance if You Have a Low Credit Score

This is one of the most prevalent false beliefs about refinancing. 

Credit score matters, but having a low one doesn’t mean you’re locked out of refinancing. This is yet another education loan refinancing myth that stops borrowers from improving their loan terms.

Many lenders consider other factors—income stability, employment history, and existing repayment behavior. Some even offer refinancing options specifically designed for students and early-career professionals who may not have a long credit history.

A lower credit score might mean a slightly higher interest rate, but that doesn’t make refinancing pointless. If the new rate is still better than what you’re currently paying, it’s worth considering.

Another option? Apply with a co-signer. A parent or trusted guarantor with a strong credit profile can help secure lower rates and better terms.

Bottom line: A low credit score isn’t a dead end.

It just means putting in a little more effort to find the right lenders and options. And if that sounds overwhelming, GradRight is here to help.

How GradRight Makes Refinancing Easier

Find the right lenders—We connect you with all relevant lenders offering refinancing products that match your needs.

Transparent cost breakdown—We help you understand hidden processing fees that may not be obvious from loan documentation.

Hassle-free process—We assist you in dealing with your Indian loan provider (bank or NBFC) to get the necessary documents for refinancing.

100% free advisory service—No hidden costs, no commissions, just expert guidance to help you make the right decision.

With GradRight, you eliminate the risk and guesswork from refinancing and get the best possible loan terms.

📞 +91 92402 09000

📧 grad@gradright.com

With that said, let’s move on to some more education loan refinancing myths.

Myth #5: Refinancing Loans Comes with Hidden Penalties

The industry is not a charity, that’s for sure, but loan refinancers are not your local loan sharks. This is a well-established industry, not some back-alley operation. Yet, education loan refinancing myths make borrowers think they’ll be hit with surprise fees the moment they refinance.

Most reputable lenders are upfront about costs. 

Some charge processing fees, but many don’t. 

Prepayment penalties? 

Uncommon. 

Hidden charges? 

Not if you read the terms properly.

Refinancing isn’t a trap—it’s a business. 

Lenders compete for borrowers by offering better rates and terms. The real risk isn’t hidden fees, but ignoring a refinancing opportunity and sticking with an expensive loan out of fear.

Do your research, pick a trusted lender, and read the fine print. No surprises, no gotchas—just a smarter way to manage debt.

Also Read: 10 FAQs About Student Loans for Studying Abroad: Answered By Experts

Myth #6: Refinancing Doesn’t Apply to International Students

Why wouldn’t it apply to international students? 

They statistically carry the highest student loan debt, which means higher returns for lenders. 

Yet, this education loan refinancing myth persists.

Many lenders actively offer refinancing solutions for international students, especially those with strong academic backgrounds, steady income, or a reliable co-signer. Some lenders, especially smaller firms even specialize in refinancing for non-citizens. 

They know that international students will have higher tuition fees, higher loan balances, and higher interest rates. Thus, the most upside for these companies lies with you, the international student. 

Companies will probably be lining up to give you refinanced education loans.

Yes, requirements might be stricter—some lenders ask for visa status verification or proof of future income—but refinancing is absolutely possible. In fact, it can be one of the best ways for international students to reduce interest rates and ease repayment.

International students actually have more options, since they can access refinancing in both their home country and their study destination. Believing this myth means missing out on better loan terms. And that’s just unnecessary financial pain.

And now for the last in our list of education loan refinancing myths.

Myth #7: Refinancing Means Losing All Existing Loan Benefits

For Indian students, this education loan refinancing myth often stops them from even considering refinancing. 

They assume switching lenders means losing moratorium periods, tax benefits under Section 80E, or flexible repayment options. 

Not true.

Refinancing doesn’t automatically strip away benefits—it depends on the lender and the new loan terms. Many lenders still offer grace periods for students still in school, and tax deductions on interest paid remain applicable as long as the loan is for higher education.

What refinancing does do is replace a costly loan with a better one. 

Lower interest rates, better repayment structures, and fewer financial headaches. And for Indian students with loans from NBFCs or private lenders charging high rates, refinancing with a bank or international lender can significantly cut costs.

Yes, check the fine print. But assuming refinancing always means losing benefits? That’s just bad financial advice. And now that we’ve gotten the most common education loan refinancing myths debunked, recap them with a quick table.

Refinancing education loans: myths vs. facts

#	Myth	Reality
1	Refinancing is only for high-income earners	Lenders consider multiple factors—job stability, credit score, and repayment history—not just income. Even early-career professionals can refinance.
2	Switching lenders is complicated and risky	Refinancing is a straightforward process. Compare offers, apply, upload documents, and you’re done. No hidden traps if you choose a reputable lender.
3	Students with existing loans don’t benefit from refinancing	Refinancing helps improve existing loans by lowering interest rates, reducing repayment burdens, and offering better terms.
4	You can’t refinance with a low credit score	Many lenders offer refinancing even with a lower credit score. Co-signers or strong financial history can help secure better terms.
5	Refinancing comes with hidden penalties	Trusted lenders disclose all fees upfront. Prepayment penalties are rare, and reading the loan terms ensures no surprises.
6	Refinancing isn’t for international students	Many lenders specialize in refinancing for international students. They even have more options by accessing lenders in both their home and study country.
7	Refinancing means losing existing loan benefits	Not always. Many lenders still offer moratorium periods and tax benefits. Refinancing simply replaces a bad loan with a better one.

With that done, let’s learn how GradRight can help you in the education loan refinance game.

GradRight’s role in busting refinancing myths

Now that you’ve learnt the truth about loan refinance, we’re sure you realize that a lot of professionals end up overpaying on their loans. 

And that too only because they didn’t consider loan refinance.

However, knowing if refinancing is the right path for you to follow, depends on several factors. 

Your credit score, income, income potential, and even choice of program and university will affect this. 

You’ll also need to carefully look at the terms and conditions that come with both your old loan and the refinanced loan. 

In our Indian banking system, you might get caught up with paperwork and poor digital infrastructure, and obscure policies. This is where we at GradRight come in. You no longer have to spend weeks combing through a list of lenders, wondering which ones are legit, and which ones are a scam. 

No more looking through interest rates with a calculator and notepad, trying to find the best rates.

With us, you will be put in touch with a refinancing expert directly, and be guided through each step of the process. Most foreign education loans will have interest rates above 11% to 12%. Once you’ve used GradRight, your loan can come down to just 7%. In other words, you could be paying 40% less in interest. 

The amazing bit? 

GradRight charges you nothing for the service. 

Ever.

So then, if you’re still paying a high interest rate, contact GradRight today, to see if refinancing is the right decision for you. Personalised advice, no commitments, and no charge.

Conclusion

Refinancing isn’t some financial trick—it’s a legitimate way to reduce debt burden, lower interest rates, and improve repayment terms. 

Yet, education loan refinancing myths keep too many borrowers from making smart decisions. 

Whether it’s fear of losing benefits, assuming it’s only for high earners, or thinking international students can’t refinance, these myths do more harm than good.

The reality? 

If refinancing gets you a better deal, it’s worth considering. 

The key is researching lenders, comparing terms, and making an informed choice.

Don’t let outdated ideas keep you stuck with a loan that costs more than it should.

And with that, we come to the end of this article on education loan refinancing myths. 

Refinancing truths, brought to you by GradRight. 

We hope you found it useful, and we’ll see you in the next one.

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