Refinancing your private student loans through a new lender is the best way to reduce your student loan burden. We will break down everything you need to know about refinancing so that you can confidently answer the question, should I refinance student loans?
What is Private Refinancing?
Under private refinancing, you secure a new loan to pay off your current loan(s). When refinancing is worth it, this new loan comes with a lower fixed interest rate that saves you money over the life of the loan. Refinancing also lets you change your loan term, which will save you even more on interest and get you out of debt faster. Not to mention, securing a fixed rate keeps your monthly payments predictable for the duration of the term.
Refinance Rates are Competitive
If you are trying to determine if you should refinance your student loans, one of the main things to consider is the interest rates. For a competitive interest rate on your private loans or on your private and federal loans combined, turn to private refinancing. Most private lenders offer fixed interest rates as low as 3%. That is much lower than the current federal consolidation rates of 4% to 7%. It is also likely much lower than your current weighted average interest rate.
Keep in mind that not everyone is offered the same interest rate under refinancing. Refinance companies look at your credit score, employment history, repayment history, and current income when you apply. The higher your credit score and the more money you earn, the better chances you have securing the lowest advertised rates. Adding a cosigner to your refinance loan is another way to get a more competitive rate.
Finding a Good Refinance Rate
When it comes to student loan refinancing, a good rate is relative. For some, a good rate may be 6.5%, but for others, 6.5% is not worth it. The goal is to secure an interest rate that is lower than your single loan’s interest rate or your group of loans’ weighted average interest rate.
Understanding Weighted Average Interest Rate
If you have more than one loan, you need to calculate your weighted average interest rate. This involves more than just averaging your loans’ interest rates. It takes into account the amount of each loan for the most accurate depiction of your debt. Use our weighted average interest rate calculator to help. You will need your current loan amounts and interest rates to use the calculator.
Where to Refinance
Once you know your current loan total and weighted average interest rate, you are ready to find a refinance lender. Some of our top picks are CommonBond, LendKey, and SoFi. Many banks and credit unions also offer refinancing services. Look into a few places to see what offers you get. Most companies run a soft credit pull, which will not affect your credit score. That means that you have nothing to lose by simply getting a quote. Plus, you will get your quote within a few minutes.
How to Make Sure You Get a Good Deal
Your refinance quotes will show you the new loan term and the new interest rate. Use our refinance calculator to see how much money refinancing will save you compared to what you pay now. Just plug in those numbers and your current student loan balance, student loan term, and weighted average interest rate (or just average interest rate if you are only refinancing one loan).
If you see savings in the green column, then that refinance deal will save you money. If it saves you money, it is nearly always worth it.
How Much Money Can Refinancing Really Save Me?
Depending on how much you owe, refinancing could save you thousands of dollars. If it will save you that much, then the answer to the question, “should I refinance student loans” is yes.
Read through the examples below to see just how refinancing saves people money.
|Refinancing Example #1|
|Like most graduates, Shannon owes $37,000 in student loan debt. She has a mix of federal and private loans with a weighted average interest rate of 7%. Shannon currently has a 15-year loan term. Her credit score is good and she makes good money. If she refinances with a 5% interest rate and keeps her 15-year loan term, she will save over $7,000 in interest. Plus, she will pay $40 less each month.|
|Refinancing Example #2|
|Robert owes $26,000 with a weighted average interest rate of 6.5%. His current loan term is 15 years, but he is planning to pay it off in 10. He has a decent credit score, but it is not stellar. If he refinances to a 10-year term and secures a 6% interest rate (just a ½ percent decrease), he will save $6,129 in interest. Best of all, he will be debt-free five years sooner.|
Do I Have to Refinance All of My Loans?
All federal and private student loans are eligible for private refinancing, but you do not have to refinance everything together. Some people choose to refinance only their private loans. With their federal student loans, they opt for federal consolidation. This is especially important to know if your loans have different interest rates. It might make sense to refinance student loans that have the highest rates but keep the ones with the lowest rates.
The Differences between Federal Consolidation and Private Refinancing
Federal consolidation is similar to private refinancing in that it lumps your loans together into one larger loan. However, only federal loans are eligible for federal consolidation. Plus, the interest rates on consolidated federal loans are not competitive. The interest rate is just your current loans’ weighted average interest rate rounded up to 1/8th of a percentage.
Compared to private refinancing, the big downsides to federal consolidation are that your loan term is not shortened and your weighted average interest rate gets a little higher.
Federal consolidation does save you money in other ways. It makes your loans eligible for federal student loan repayment programs and student loan forgiveness programs. The different programs result in reduced monthly payments, forgiveness after a set number of years, and assistance paying off interest.
If Refinancing My Federal Student Loans Right For Me?
Before refinancing your federal loans, consider your financial stability. Private refinancing means giving up loan forgiveness options, including disability discharge, and giving up income-driven repayment plans. This means you cannot lower monthly payments down the road or apply for loan forgiveness if you become totally and permanently disabled.
If you have a stable job, steady income, and good health, then you have nothing to worry about. Refinancing will only save you money and get you out of debt faster.
Should I Refinance Student Loans?
Private refinancing is the way to go if it saves you money and you can afford the new monthly payments. If it does not save you money, then stick with your current loans. You can always look into refinancing again after paying down more of your loan balance or improving your credit score.
Compare the Best Student Loan Refinance Rates
Here are our top student loan refinance picks for 2019
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.