This Is Why Student Loan Refinance Rates Are Insanely Low Right Now

Why-Student-Loan-Refinance-Rates-Are-Insanely-Low

Student loan refinance rates are shockingly low right now.

The lowest advertised interest rates from some lenders have dipped below two percent, an eye-popping figure that is making many student loan borrowers wonder whether it might be time to refinance.

When you refinance student loans, you take a new student loan out with a private lender in the amount of your current student debt (or a lesser amount, if you don’t want to refinance everything). This lender — usually a bank, online lender, or credit union — then pays off your current loans.

The primary benefit of refinancing is that qualified borrowers can consolidate their student loans into one new loan, which comes with a new repayment term and — you guessed it — a new, low interest rate.

Why have student loan refinance rates dropped?

The short answer to why refinance rates have lowered recently is that market rates — which are set by the Federal Reserve, or —Fed”— have dropped.

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 out to whoever they got the money from. This is called the —cost of funds” and is a component of 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.

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.

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For example, if you had $25,000 in student loans with a weighted average interest rate of 5.5%, 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 5.50% 4.50%
Repayment Term 10 years 10 years
Monthly Payment $271 $259
Total Interest $7,558 $6,092

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 $12 a month and $1,466 over the life of the loan.

$12 may not seem like a huge amount, but think about it — that is like getting Netflix or Hulu+ for free for the next decade.

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

  Original Student Loan Refinanced Student Loan
Interest Rate 5.50% 4.50%
Repayment Term 10 years 10 years
Monthly Payment $271 $259
Total Interest $7,558 $6,092

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 $3,611.

It does come at a cost: you will need to pay an extra $73 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.

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

  Original Student Loan Refinanced Student Loan
Interest Rate 5.50% 4.25%
Repayment Term 10 years 7 years
Monthly Payment $271 $345
Total Interest $7,558 $3,947

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 $77 a month.

It does come at a cost though; you’ll pay $2,445 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.

So refinance rates are low. How to I find the best deal for me?

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 5 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 loan advisors, or even schedule a free student loan refinance consultation.

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