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How Does Refinancing Student Loans Work – There are several situations that may make it worthwhile to refinance student loans, such as if you want to save money for the long term or don’t qualify for loan forgiveness.
Our goal is to give you the tools and confidence you need to improve your finances. While we receive compensation from our partner lenders, who we will always identify, all opinions are our own. By refinancing your mortgage, the total cost of financing over the life of the loan can be higher.
How Does Refinancing Student Loans Work
There are several possible end goals when it comes to refinancing your student loans. For example, maybe you want to get a lower interest rate, lower your monthly payments, or pay off your loans quickly.
What You Should Know About Student Loan Interest Rates
If your monthly student loan payments are too high for you to afford, you may consider refinancing your student loans to extend your repayment period. This can reduce your payments and reduce pressure on your budget.
Additionally, consolidating your student loans with refinancing will leave you with just one loan and payment, which can make your repayments easier to manage.
But keep in mind that choosing a longer repayment term means you’ll pay more interest over time.
Tip: It’s usually a good idea to choose the shortest repayment term you can afford to save as much interest as possible. If you choose a shorter term, you can also get a better interest rate.
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If you’re wondering how competitive your loan is, the loan tool below can help. Just enter your APR, credit score, monthly payment, and balance (estimates are fine) to see how your loan is doing.
Your student loan interest rate is one of the biggest factors in determining how much you will actually pay for your loan. If you have a particularly high interest rate, you could end up paying thousands of dollars in interest.
Depending on your credit, you may be able to lower your student loan interest rate by refinancing. This can save you a significant amount in interest costs – plus it can potentially help you pay off your loans faster.
For example: If you had a $25,000 loan with a 7% interest rate and a 10-year repayment term, you would pay $9,833 in interest over the life of the loan.
Can You Refinance Federal Student Loans?
But if you refinance into a 5% loan with a 10-year term, you’ll save $3,013 in total interest costs.
Use the student loan refinancing calculator below to see how much you could save by refinancing your student loans.
If you refinance your student loan at % interest, you can save paying an additional $ monthly and your loan at . The total cost of the new loan will be $ .
The average time to repay a student loan is 10 years – although this can vary depending on your credit status and type of degree. If you want to pay off your student loans early, refinancing can be a good option.
How Will Refinancing Affect Student Loan Forgiveness?
Depending on your credit, you may be eligible for a lower interest rate, which can lower how much you pay in interest and help you repay the loan faster.
Or you can opt for a shorter repayment period. While this will usually increase your monthly payments, it can also give you a better interest rate while reducing your repayment period.
Tip: While it’s possible to pay off your loans sooner without refinancing, it’s usually much more cost-effective to refinance your loans for a shorter term or lower interest rate.
If you’re wondering how long it will take to pay off your student loans, enter your current loan information into the student loan repayment calculator below to find out. Use the slider to see how an increase in payments can change your payout date.
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If you increase your payments by $ monthly on your $ loan at %, you will pay $ per month and pay off your loan by January 2021.
One of the big benefits of federal student loans is the ability to qualify for student forgiveness programs, such as:
Unfortunately, while most federal student loans can generally at least qualify for forgiveness through an IDR program, private student loan forgiveness does not exist.
However, there are other options that can help you manage and pay off private student loans more easily – like refinancing.
Cash Out Vs. Rate And Term Mortgage Refinancing Loans
If you can qualify for a lower rate or better terms by refinancing your private student loans, it’s probably worth it.
While refinancing is a good idea in some cases, here are some situations where refinancing might not be worth it:
Tip: If you want to consolidate your federal student loans and federal vs. When considering private student loan consolidation, keep in mind that consolidating your loans with a federal direct loan consolidation allows you to maintain your federal benefits and protections.
You could also extend the repayment term to 30 years to lower your monthly payments – although this means you’ll pay more interest over time.
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Due to the COVID-19 pandemic, payments and interest accruals on federal student loans were suspended through the CARES Act until May 1, 2022.
If you’re thinking about refinancing your federal student loans, it’s probably best to wait until this forbearance period ends so you don’t lose access to this forbearance period.
However, private student loans are not eligible for these federal student loan repayment options—which means it may be a good idea to refinance if it will save you money or help you pay off your loans faster.
Tip: While private loans do not qualify for the CARES Act, many private lenders are offering various forms of assistance to borrowers affected by the pandemic, such as payment deferrals or forbearance.
Can I Refinance Student Loans During My Grace Period?
If you are struggling with your loan payments due to COVID-19, be sure to contact your lender to see what private student loan repayment options are available to you.
If refinancing seems like a good fit for your situation, be sure to compare as many student loan refinancing companies as possible to find the right loan for you. Consider not only the interest rate, but also the repayment terms and any fees charged by the lender.
It’s easy to compare lenders – you can see your advance rates from our partner lenders in the table below in two minutes.
Lender ratings are evaluated by our editors with the help of our credit team. Lenders’ evaluation criteria includes 78 data points covering interest rates, loan terms, eligibility transparency, repayment options, fees, discounts, customer service, co-signer options and more. Read our full methodology.
Credit Score Needed To Refinance Student Loans
All APRs reflect automatic payment and loyalty discounts where available | 1 Citizen notifications | 2College Ave disclosure | 5EDvestinU Information | 3 ELFI Details | 4Invested Information | 7ISL Education Loan Information
Dori Zinn is a student loan institution and contributes to Her work has appeared in the Huffington Post, Bankate, Inc, Quartz and more. Consolidating your student loans can save you time and money. Find out how to combine and the pros and cons of each route.
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Together, they borrowed $1.5 trillion to get their diplomas, and it wasn’t easy to pay it back. About one in ten default on their student loans, and while the average repayment period varies depending on the amount owed, it’s safe to say it will take at least 10 years and could take as long as 30 years.
Is Now A Good Time To Refinance Student Loans?
Members of the Class of 2019 who took out student loans owe an average of $31,172 and their payments are almost $400 a month. This is a large and unwelcome discharge, so it is important to know how to minimize the damage.
If the money you borrowed was all federal loans, you may find easier repayment options by applying for a direct consolidation loan.
If some or all of your student loans were from private lenders, you’ll need to use a refinancing plan to achieve similar results.
Consolidation is a way to make student loan repayment more manageable and potentially less expensive. You consolidate all your student loans, take out one big consolidation loan and use it to pay off all the others. You leave one payment to one lender each month.
Debt Consolidation Myths: Refinancing Consolidated Student Loans
A typical student borrower receives money from federal loan programs each semester of school. It often comes from different lenders, so it’s not unusual to owe money to 8-10 separate lenders when you graduate. If you continue to borrow for graduate school, add 4-6 more lenders.
Each of these student loans has its own maturity date, interest rate and payment amount. Keeping up with that kind of plan is tricky and part of the reason so many have failed. This is also why student loan consolidation is such an attractive solution.
Federal loans can be consolidated in the Direct Consolidation Loan program. You consolidate all of your federal student loans into one loan that has a fixed interest rate. That rate is obtained by averaging the interest rates
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