It is not fun to pay off student loans. In case you have a few or many student loans which require high monthly payments, what can help you alleviate this burden? Student loan refinancing is a perfect answer to this question. It allows you to combine both your private and federal student loans into a single student loan that will cost you less.
How much can you save with its help? Use student loan refinance calculator to estimate how much you could save and compare the interest rates of your new loan and existing debt.
Check if you are ready for the student loan refinance by answering these three questions:
- Am I eligible? Only financially stable people can allow themselves to refinance. You (or your co-signer) should have a credit score over 650 and your income should be enough to pay debts and other expenses all the time.
- Are my finances stable? When refinancing, your federal loans will not be eligible for loan forgiveness and income-driven payment.
- Should I save money? The interest rate of your new loan should be lower than of your current debts.
For Whom Is Student Loan Refinancing a Good Option?
People who refinance student loans are mostly professionals with big student debt and large income potential – dentists, doctors, nurses, MBA graduates, lawyers, and pharmacists. However, refinancing is not one-size-fits-all-option for all the professions listed above. For example, a public listed lawyer should better choose Public Service Loan Forgiveness.
Refinancing student loan is available not exclusively for professionals that earn a lot. For example, an entrepreneur or a teacher can qualify in case they are not pursuing PSLF, their credit is good and income is high enough to afford their debts and expenses.
Is It Worth to Refinance?
Refinancing can save you a huge sum throughout the loan’s life. Read the list of three main benefits of student loan refinancing:
- It is possible to lower monthly payments and use your money for other expenses.
- One can repay a loan much faster and save money in interest. Use the calculator above to estimate.
- When your monthly payment decreases, it lowers your debt-to-income ratio. It will simplify your way to getting a mortgage.
In case you decide to refinance, compare different lenders to check which one will propose you the best interest rate. If the offers are quite similar, choose lenders that propose you the most flexibility with payments and the longest forbearance options.
Should You Better Try PSLF Instead?
In case you have federal student loans and would like to pursue PSLF, refinancing is not the best choice for you. If you refinance, you lose access to the program.
If you are struggling to make consistent monthly payments for federal student loans, refinancing is not the best option for you as well. You should better try some other options. They won’t help you save in a long-term, but will lower your monthly repayments and let you spend money on other expenses.
In case you have private student loans, refinancing does not put you to risk because private loans are not eligible for PSLF.
Over the life of a loan, you can save $23,457
How Much Can You Save With Student Loan Refinancing?
Imagine that your student debt is worth $100,000 and its average interest rate is 7%. With a standard repayment period of 10 years, you would pay $1,169 a month and $39,330 in interest.
If you find best refinance rates, the interest rate would be 3% and your monthly payment will decrease to $966. It will help you save $196 per month for a period of 10 years.
Over this period, student loan refinancing will decline your costs to $15,873. Over the life of a loan, you will save $23,457.
How to Select an Interest Rate and a Loan Term?
In addition to interest savings and lower repayment, you are more flexible in picking a loan term. The majority of lenders offer 7, 10, 15 or 20-year terms of repayment. If you choose a shorter period of loan repayment (from 5 to 7 years), your monthly payments will be lower (be sure to know what happens when you miss your student loan payment), but the interest costs will be higher.
In case you choose a longer term (such as 20 years), your monthly payments will be lower, but interest costs relatively higher.
As distinct from federal student loans, that carry only a fixed interest rate, refinance student loan option gives you freedom in choosing variable or fixed interest rate.
The Best Student Loan Refinancing Companies
Below you can find 8 best-known companies that refinance student loan debts. Their average amount and rate reductions vary because some of them prefer borrowers with higher debt loads.
The Best Student Loan Refinancing Companies are Education Loan Finance, College Ave Student Loans, LendKey, SoFi, Splash Financial, CitizensOne, Laurel Road, and CommonBond. Each of them is worth visiting its web page and checking out the rates and terms of student loan refinancing programs.