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.
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. See if you can qualify for a student loan refinance bonus as well.
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
» MORE: Can you refinance student loans?
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.