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Should You Refinance Student Loans? Calculate Your Savings

Loans, Student Loans

You should refinance if you can answer “yes” to all three of the following questions.

  • Are you eligible? Refinancing is for people who are financially stable. You — or a co-signer — generally need a credit score at least in the high 600s and enough income to consistently pay your debts and other expenses.
  • Are your finances stable? If you refinance, your federal loans won’t be eligible for income-driven repayment and loan forgiveness.
  • Would you save money? Your new loan’s interest rate should be less than that of your current debt. Use the calculator below to compare.

Student loan refinance calculator

Note: This calculator assumes that after you refinance, you’ll make minimum monthly payments.

Should I refinance my student loans?

If you have excellent credit and a stable job, you can probably save money by refinancing existing federal or private student loans. Many lenders offer fixed rates as low as 3%. If you are struggling financially or have less than good credit, refinancing isn’t for you. But you may have other options to manage your federal loan payments.

Student loan refinancing is popular among professionals who have large student debt and big income potential — doctors, dentists, pharmacists, lawyers and MBA graduates. But it’s not a one-size-fits-all solution for everyone in those careers. A public interest lawyer, for instance, may be better off pursuing Public Service Loan Forgiveness.

It’s also not exclusively available to high-earning professionals. A teacher or entrepreneur, for example, might want to refinance if they’re not pursuing PSLF, and they’d likely qualify if they had good credit and enough income to afford their expenses and debts.

Student loan refinance lenders’ requirements vary, but you’ll have a good shot a qualifying if you:

  • Have good credit. At a minimum, you’ll need a score in the mid-600s, but many borrowers who are approved for refinancing have FICO scores in the 700s.
  • Have enough income to afford your expenses. Lenders consider your total income and your debt-to-income ratio, which is the amount of money you owe relative to your income.
  • Attended an eligible school. Most refinance lenders require that borrowers attended a Title IV-accredited school. Many, but not all, require borrowers to have earned a degree.

If you don’t meet the credit and income requirements for refinancing, you may still qualify if you apply with a co-signer who does.

If you have federal student loans and want to pursue a federal loan forgiveness program such as Public Service Loan Forgiveness, refinancing is not for you — you’ll lose access to the program if you refinance.

If you have federal loans and are struggling to make consistent payments, refinancing is also not for you. Instead, consider federal student loan consolidation or an income-driven repayment plan, if you’re not on one already. These options won’t save you money in the long term, but they can lower your monthly student loan payment and free up cash for other expenses.

If you have private student loans, you have nothing to lose by refinancing because private loans aren’t eligible for federal loan programs.

You can potentially save tens of thousands of dollars throughout the life of your loan by refinancing. There are three main benefits to refinancing student loans:

  • You can get a lower monthly payment, freeing up cash for other expenses.
  • You can pay off your loan faster, saving you money in interest.
  • A lower monthly payment decreases your debt-to-income ratio, which can make it easier to qualify for a mortgage.

If you decide to refinance, compare multiple lenders to see who offers you the best rate. If you have similar offers, give greater weight to lenders who offer the most flexibility with payments and the longest possible forbearance options.

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