Benefits of refinancing student loans
With student loan refinancing, you could:
- Save a decent amount of money
- Pay off your student debt faster
- Have one consolidated student loan
While most people refinance their student loans to save money, there are other benefits that come with refinancing your student loans, like having only one loan payment to manage each month, and possibly being able to get out of student debt sooner. However, refinancing doesn’t benefit everyone. If you have less than $10,000 in student loan debt and your student loan interest rates are already low, then it’s likely refinancing your student loans won’t save you much (or any) money.
Drawbacks of refinancing student loans
Because student loan refinancing pays off your federal and private loans and replaces them with a new private loan, refinancing will mean you’ll lose special benefits that come with federal student loans. If you have federal student loans and decide to refinance, you will be giving up:
- Federal loan deferment
- Federal loan forbearance
- Federal loan income-based repayment plan
- Federal student loan forgiveness programs
Deferment is a period of time when you don’t have to pay your loans, like when you’re in school or active in the military. You can request forbearance—a period of time when you don’t have to pay your loans—if you are having trouble making your loan payments due to something like a medical issue. Federal student loans also come with income-based repayment plans, which change your monthly loan payment based on what you can afford given your income and family size. Your federal student loans may be forgiven if you enter a career in the military, volunteer through programs like Peace Corps and AmeriCorps, or work in certain fields in high-need areas.
If you are currently using one of these options or if you think you might, and you have a decent amount of federal loans, you may want to reconsider refinancing your student loans. If you have mostly private student loans, and especially if you don’t see yourself benefiting from any of the special benefits that come with federal loans, then you have little to lose by refinancing. You just have to make sure it’s worth it.
What does it mean to refinance your student loans?
When you refinance your student loans, you are essentially replacing all of your existing private and federal loans with a new private student loan. Your new private student loan is used to pay off all of your old loans, leaving you with one manageable student loan that costs less to pay off than your old loans thanks to the lower interest rate.
While this may sound great, refinancing student loans is not for everyone. Consider what you would need to qualify and the pros and cons of refinancing your student loans before taking the plunge.
What you need to refinance your student loans
To qualify for student loan refinancing, most lenders require you to have at least $5,000 in student loan debt as well as a FICO score above 700 and a stable income. If your credit history isn’t that great or if your income is unstable, you can still refinance your loans if you have a co-signer with decent credit and a stable income.
Calculate if student loan refinancing is worth it for you
To find out how much you could save from refinancing your student loans, use this student loan refinancing calculator to see if it’s worth it for you. The higher the interest rates you have now, the more you could save by refinancing your student loans. Likewise, the lower the interest rate you can get on your new, refinanced student loan, the more you will save.
On the student loan refinance calculator, you can adjust the interest rate of the new loan to find the maximum interest rate you’d need to save money by refinancing. This will help you while you shop for the best lender to refinance with, and help you determine how much money you would save with the refinanced loan it offers. While there are a few student loan refinancing lenders that start with variable rates as low as 2%, many start with fixed rates around 3.5%. However, you’ll have to contact the lenders directly to see what interest rate they’d be willing to give you. Make sure to weigh the pros and cons of variable versus fixed interest rates before choosing.
And whether or not refinancing your student loans is for you, remember that there are more ways to start paying off debt.
Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: Any outbound links in this post will take you away from Simple.com, to external sites in the wilds of the internet; neither Simple nor our partner banks, The Bancorp Bank and BBVA Compass, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.