Don’t Wait to Refinance These Student Loans
You may be able to save money by refinancing private student loans right now, if you can get a lower interest rate.
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As interest rates begin to fall, borrowers with private student loans have a powerful option to make their debt more manageable: refinancing.
Refinancing replaces your private student loan(s) with a new loan, typically at a lower interest rate. It’s not a useful tool for borrowers in dire straits, but can be a big help for those with good credit scores and stable incomes.
If you have private student loans, refinancing them as soon as you can get a lower interest rate or better repayment terms should be a no-brainer. Here’s why.
You can cut high interest rates
Depending on when you borrowed and your finances at the time, your private student loans could have interest rates of 6%, 7% or even 10% or more. Refinancing those high-interest private loans can save you money now and in the long run. As of September 2024, some lenders offer fixed private student loan refinance rates as low as 4.8%.
Let’s say you owe $20,000 at 11% interest, refinancing to 5% would lower your monthly payments by about $63 and your overall interest costs by $7,604, assuming a 10-year repayment plan.
Student loan refinance lenders typically want borrowers with a FICO credit score in at least the high 600s, as well as a monthly debt-to-income ratio below 50% — including your existing loans.
That’s just to qualify, not necessarily to get the lowest possible rate.
But even if you can’t get the lowest advertised rate, refinancing can still save you money.
If you recently graduated with $78,000 in private student loans at an average interest rate of 11%, your monthly payment would be over $1,000 a month across a 10-year repayment term.
Here’s what your monthly student loan payment might look like at lower interest rates, and how much you might save in interest overall:
APR | Payment | 10-year savings |
|---|---|---|
11% | $1,074 | $0 |
9% | $988 | $10,366 |
7% | $905 | $20,256 |
5% | $827 | $29,657 |
4% | $789 | $34,169 |
Most refinance lenders charge no upfront fees, so you can refi for more savings as often as your credit history and finances improve.
You won’t risk losing federal student loan benefits
Borrowers with federal student loans should think twice before refinancing.
The federal government offers borrower protections, like potential loan forgiveness and borrower defense for defrauded students. Federal student loan borrowers can also access flexible income-driven repayment plans to lower monthly bills.
If you refinance your federal loans with a private lender, you’ll permanently lose these benefits. But that risk doesn’t apply if you have private student loans, since you don’t have these protections to begin with.