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Does Refinancing Student Loans Save Money?

Student loan refinancing can save you money, but the amount depends on your credit, income and financial health.
Aug. 21, 2019
Loans, Student Loans
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Generally, the more you owe on student loans, the more money you can save by refinancing.

Student loan refinancing will save you money if you qualify for a lower interest rate and either keep the same term length or get a shorter one. A lower rate can give you lower monthly student loan payments, a shorter repayment period or both.

» MORE: Calculate how much refinancing could save you

Get personalized student loan savings estimates

To estimate savings and decide whether you should refinance, you’ll need real rates based on your own financial profile. You are likely to get different rates at every lender you visit because each has its own underwriting standards; those determine who is offered a loan and at what interest rate.

Here’s how to compare offers from multiple lenders:

1. Get rate estimates. Visit the websites of several top student loan refinance lenders to get a sense of the interest rate you can expect from each lender. Some lenders offer pre-qualification, which means they’ll do a soft credit pull to estimate the interest rate you’ll qualify for. Soft credit pulls do not hurt your credit.

For lenders that don’t offer pre-qualification, you’ll need to apply before you can see personalized interest rates. Applications trigger a hard credit pull, which slightly hurts your credit. If you apply for multiple refinance loans within a short time period, the credit bureaus typically count it as a single hard pull, which preserves your credit score.

2. Compare the APRs that various lenders offer. Once you have several estimates or offers, compare rates apples-to-apples by looking at the annual percentage rates. APRs represent the true borrowing cost, including any fees that apply.

3. Consider other loan features too. Getting the lowest possible rate will ensure you save the most money. Additionally, pay attention to loans’ repayment options and terms. Choose the term length that your loans currently have — or a shorter one — to ensure you save money both monthly and long-term.

Listen: SmartMoney podcast on student loan refi

How much could you save?

Student loan refinance lenders advertise that you could save “thousands,” which isn’t necessarily an empty promise. They typically determine this number by comparing the average amount of interest a subset of their customers would pay with and without refinancing.

For instance, say the average customer owes $100,000 in student loans with an 8% interest rate. On a 10-year repayment plan, that borrower would pay almost $46,000 in interest throughout the life of the loan. If the same customer gets a 5% interest rate after refinancing and keeps a 10-year loan term, he or she would save about $18,000 by lowering their total interest payments to about $27,000.

The rate you get depends on your credit score, income and financial health. That’s why you shop: to get real numbers.

Of course, you may owe much less or much more, and the rate you get depends on your credit score, income and financial health. That’s why you shop: to get real numbers.

Estimate your refinancing savings

Readers also ask

You can refinance both federal and private student loans. The federal government doesn’t offer student loan refinancing, but you can refinance federal loans through private lenders. To qualify, you typically need good credit, positive credit history and enough income to afford debt payments and expenses.

» MORE: Can you refinance student loans?

You should refinance your student loans if you would save money, you can qualify and your finances are stable. To qualify for the lowest rates — and the biggest savings — you’ll need an excellent credit score, clean credit history and enough income to support your debts and expenses.

If you have federal loans and are struggling to make consistent payments, refinancing is not for you. Instead, consider federal student loan consolidation or an income-driven repayment plan.

» MORE: Should I refinance my student loans?

You can refinance student loans as often as you’d like. If you’ve already refinanced and your credit has recently improved, consider refinancing again to lock in a lower rate. There are no application or origination fees, so refinancing won’t cost you anything.

» MORE: How often can I refinance student loans?


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