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Should You Refinance Student Loans Before Rates Rise Again?

Andrew Zoeller
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student-loan-refinance-rates-low

Federal student loan
Payments Return December 31

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Federal student loan
Payments Return December 31

We've got you covered.

Get Purefy’s free 20-page Ultimate Guide with just one click.

Student loan refinance rates are shockingly low right now.

The lowest advertised interest rates from some lenders are below two percent in early 2022, an eye-popping figure that is making many student loan borrowers wonder if they should refinance before rates rise.

Federal student loan interest rates are currently on pause until August 31. But this pause doesn’t apply to “private” loans – student loans from companies like Sallie Mae, Wells Fargo, and Discover. It also doesn’t apply to people who’ve refinanced already with companies like SoFi, Commonbond, and Laurel Road.

If you have a private loan, now might be the perfect time to refinance. And if you’ve refinanced already, you might want to consider refinancing again. In this article, we’ll discuss why.

federal-vs-private-loans-refinancing

First, what is student loan refinancing?

When you refinance student loans, you take a new student loan out with a private lender in the amount of your current student debt. This lender — usually a bank, online lender, or credit union — then pays off your old loans.

You don’t have to refinance all of your loans if you don’t want to — some people refinance only a portion of their loans (usually those with the highest interest rates).

Did you know? Comparing your prequalified refinance rate options only takes 2 minutes.

If you’re interested in saving money, use our rate comparison engine to quickly see real-time rate offers from industry-leading lenders.

Takes 2 minutes • No impact on credit

The result is that your old student loans are combined into one, and you get a new, low interest rate and get to choose a new repayment term (usually between 5 and 20 years).

Put simply, a lower interest rate will save you money — we’ll go over some examples of different strategies you can use in this article.

why-refinance-student-loans

Why have student loan refinance rates dropped?

Student loan refinance rates are very low right now. The short answer to why is that market rates — which are set by the Federal Reserve, or “Fed”— dropped substantially in 2020, and have held at that level into 2021. In 2022, the Fed enacted the first of what are suspected to be several interest rate hikes during the year.  

Have you ever thought about where the money comes from, when a financial institution offers you a loan? It might come from things like savings accounts and CDs, or even from another financial institution that is lending them the money.

This money comes with a cost to the financial institution, in the form of the interest that they pay to whoever they got the money from. This is called the “cost of funds” and is one of a few factors that determines your interest rate.

This ties in closely with the market rates set by the Federal Reserve.

To make a long story short, when the Fed lowers rates, banks and other financial institutions can get money more cheaply — which is good news for prospective borrowers, who get lower rates due to the lower cost of funds.

The bad news? Super low rates don’t last forever. While they could stay at this level for some period of time, many experts predict that interest rates will rise as the economy “heats up.”

Student loan refinance rates are currently at all-time lows - but that won't last for long.

Similar to mortgage refinance rates, student loan refinance rates are now at dramatic lows. Don’t wait to see if you qualify for a major drop in interest.

Takes 2 minutes • No impact on credit

So in short, if you could benefit from refinancing, now might be the time to see if you qualify.

Why are low student loan refinance rates a big deal?

Student loan rates can vary wildly depending on what type of loan you have and your personal situation when the loan was taken out.

The bottom line is that refinancing to a lower interest rate after you graduate could save you a serious chunk of money, or even ease up your monthly budget.

And the lower the rate, the greater the savings.

The 4 Best Companies to Refinance Student Loans

Our Top-Rated Picks for 2022 Offer Low Rates and No Fees

efli-lender
No Maximum Loan Amount

Fixed Rate

4.29% – 7.29% APR 4

Variable Rate

2.48% – 7.98% APR 4
98% of surveyed customers would recommend SoFi to a friend

Fixed Rate

3.99% – 8.24% APR 3

Variable Rate

2.49% – 8.24% APR 3
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Precision Pricing — Pick Your Monthly Payment

Fixed Rate

3.74% – 8.49% APR 2

Variable Rate

2.49% – 7.99% APR 2
Loans Available in All States but Maine and Oregon

Fixed Rate

3.94% – 8.48% APR 5

Variable Rate

Not Offered

For example, say you had $70,000 in student loans with a weighted average interest rate of 6%. Here are a few examples of how student loan refinancing can be used to accomplish different goals.

Goal: Refinance to a lower rate for balanced savings

  Original Student Loan Refinanced Student Loan
Interest Rate 6.0% 4.5%
Repayment Term 10 years 10 years
Monthly Payment $777 $725
Total Interest $23,257 $17,056

This example perfectly demonstrates the power of lowering your interest rate by refinancing student loans. Simply by refinancing and keeping the same repayment term, you’ll save $52 a month and save $6,201 in interest charges over the life of the loan.

student-loan-refinance-lower-rate

Goal: Refinance to a shorter term to pay off your student loans fast

  Original Student Loan Refinanced Student Loan
Interest Rate 6.0% 4.5%
Repayment Term 10 years 7 years
Monthly Payment $777 $973
Total Interest $23,257 $11,733

No one likes being in debt, and in this example, we can see how refinancing to a shorter term will help pay off your loans three years ahead of schedule and save a whopping $11,524 in interest charges.

It does come at a cost: you will need to pay an extra $196 a month. But think about all you could do without those three extra years of student loan payments – you could accelerate your retirement savings, travel more, or even help offset the cost of having kids.

student-loan-refinance-shorter-term

Goal: Refinance to a longer term to lower your monthly payment

  Original Student Loan Refinanced Student Loan
Interest Rate 6.0% 4.5%
Repayment Term 10 years 15 years
Monthly Payment $777 $536
Total Interest $23,257 $26,389

Expenses coming at you hard? Refinancing to a longer term can help ease up your monthly budget. If you refinanced to a 15-year term in this example, you would save $242 a month that you could put toward other priorities.

It does come at a cost though; you’ll pay $3,132 more over time in total.

That said, if your income increases over time and you can afford a larger monthly payment, you are free to make additional prepayments and pay off the student loan ahead of schedule as your budget allows.

student-loan-refinance-longer-term

So refinance rates are low. How do I find the best deal and lock in my rate?

Lenders determine your student loan refinance rate by weighing several different factors, which might include your credit history, your income, your debt load, and even the type of degree of degree you have.

In general, you will need excellent credit and meet other criteria to qualify for the eye-popping rates that lenders publicly advertise.

That said, if you don’t have perfect credit, that doesn’t mean you still can’t get a great, low rate.

The only way to be sure that you are getting the best deal on your student loan refinance is to compare rates from multiple lenders.

Purefy made this process easy with our rate comparison tool.

Instead of filling out cumbersome loan applications from several different lenders, you can fill out one simple form to compare rates from the best refinance lenders in the industry — with no credit check required.

And if you have any questions during the process, you can reach out to our award-winning team of Student Loan Advisors, or even schedule a free student loan refinance consultation.

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Student Loan Refinancing

Refinancing from 2.48% APR

Check your rate in 2 minutes

with no impact on your credit score.

ELFI Rate Disclosure

4 ELFI Rate Disclosure:

Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 09-01-2022. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

SoFi Rate Disclosure

3 SoFi Rate Disclosure:

Fixed rates range from 3.99% APR to 8.24% APR with a 0.25% autopay discount. Variable rates from 2.24% APR to 7.99% APR with a 0.25% autopay discount. Unless required to be lower to comply with applicable law, Variable Interest rates on 5-, 7-, and 10-year terms are capped at 8.95% APR; 15- and 20-year terms are capped at 9.95% APR. Your actual rate will be within the range of rates listed above and will depend on the term you select, evaluation of your creditworthiness, income, presence of a co-signer and a variety of other factors. Lowest rates reserved for the most creditworthy borrowers. For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. This benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit lowers your interest rate but does not change the amount of your monthly payment. This benefit is suspended during periods of deferment and forbearance. Autopay is not required to receive a loan from SoFi.

Earnest Rate Disclosure

2 Earnest Rate Disclosure:

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.99% APR to 8.74% APR (excludes 0.25% Auto Pay discount). Variable rates range from 2.74% APR to 8.24% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.

ISL Rate Disclosure

5 Iowa Student Loan Rate Disclosure:

Fixed Rate Loan Terms: 5 years/60 monthly payments, 7 years/84 monthly payments, 10 years/120 monthly payments, 15 years/180 monthly payments, or 20 years/240 monthly payments. Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. This rate is expressed as an APR. Fixed APRs range from 3.94% to 8.48% APR [low to high range with 0.25% auto-debit rate reduction]. Rates are subject to change without notice. Fixed rates will not change during the term. Since there are no fees associated with this loan offer, the APR is the same percentage as the actual interest rate of the loan including a 0.25% auto-debit rate reduction. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. All estimates are based on information provided by you and are for informational purposes only, accuracy is not guaranteed and may not reflect actual rates or savings and do not constitute an offer of credit. Your actual rate, payment and savings may be different based on credit history, actual interest rate, loan amount, and term, including your cosigner [if applicable]. If applying with a cosigner, we use the higher credit score between the borrower and the cosigner for approval purposes. All loans are subject to credit approval.

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