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How Does Refinancing Student Loans Save You Money?

Kathryn Morstad

Maybe money is tight, or you want to start saving for your first mortgage — but a quick financial review points out that your student loan debt may be holding you back. Don’t worry, you are not alone — 44.7 million Americans are also juggling student debt and exploring repayment options.

With imposing interest rates, people with multiple student loans find themselves at a disadvantage when starting to repay them. By exploring student loan refinancing, many people are taking back control of their futures by defining or customizing their overall loan structure.

What is student loan refinancing?

With student loan refinancing, you can consolidate one or more of your existing student loans into a brand-new loan with lower interest and more favorable repayment terms. Refinancing is done through a private lender — like a bank or credit union, rather than the government —  and will allow you to refinance both federal and private loans into one loan with a new due date and payment amount.

Once you have completed the application process and been approved, the new lender pays off all existing loans. The lender then replaces them with a comprehensive new loan that more fully meets your needs through customized repayment terms and a fresh interest rate. And if you qualify for a lower rate, you can save a lot of money.

Does student loan refinancing save you money?

Refinancing your student loan debt will save you money over the life of your loan through a lower interest rate, or on your monthly bills through lower payments, depending on your preference. Consider these key takeaways:

  • Lower interest rate — With good credit and strong income, you may be eligible for a lower interest rate, which could reduce your monthly payment. In addition, it would also save you money on interest costs over the life of your loan.
  • More flexible payment options — The standard repayment term for federal student loans and most private loans is 10 years. When refinancing a student loan, you will have greater flexibility. A private lender will give you more latitude in choosing the payment plan that best suits your needs and allows you more control over your monthly payment. You can select a shorter repayment term to get rid of debt faster while saving even more on total interest accrued. Or, you can pick a longer term to lower your payment each month and save on your bills. The choice is yours.
  • Improve your debt-to-income ratio — With a lower interest rate comes a reduced monthly payment. This automatically lowers your debt-to-income ratio. When the time comes to talk with mortgage lenders, trust that this will be a crucial factor. If you are in hope of buying a home in the future, a lower debt-to-income ratio will improve your position when qualifying for a mortgage.

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Fixed Rate

4.48% – 7.29% APR 4

Variable Rate

3.53% – 7.24% APR 4
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Fixed Rate

4.49% – 8.99% APR 3

Variable Rate

4.49% – 8.99% APR 3
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Fixed Rate

4.39% – 8.99% APR 2

Variable Rate

3.99% – 8.29% APR 2
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Fixed Rate

3.94% – 8.48% APR 5

Variable Rate

Not Offered

Why are student loan refinance rates so low right now?

When you ask how to get a lower student loan interest rate, an important factor is where the current central bank prime rate sits. Eight times per year, the Federal Reserve meets to discuss and potentially change the prime rate. This rate moves up or down in percentage increments based on inflation expectations and economic headwinds.

Recently, the Federal Reserve lowered the market rates to historic lows. This encourages lenders to loan money at a lower interest rate, and that in turn benefits potential borrowers with better offers.

Keep in mind, while there has been a lot of discussion of student loan forgiveness in Congress and on the presidential campaign trail, major change is unlikely in the near term as the country processes the current economic downturn. A better bet would be to refinance to begin saving money.

How do I qualify for the best student loan refinance rates?

By using Purefy’s Compare Rates Tool, the challenging work is done for you. You don’t need to research and check a variety of different companies and their rate offers by yourself. Instead, from our selection of quality, vetted lenders you will receive real, prequalified rates based on your financial and borrower information — all in one place.

If for some reason you are unable to qualify on your own, you may want to consider finding a creditworthy cosigner that will allow you to enjoy lower interest rates. Remember that this will affect your cosigner’s financial freedom by increasing their debt load for credit reporting. Additionally, if you make late payments or have trouble repaying the loan, this will adversely affect your cosigner.

During the refinance process, your credit health will be reviewed when getting approved. However, checking and comparing your rates has no impact on your credit whatsoever. Your rate, if you qualify, will be based on your credit score and some additional factors including:

  • Gross Income
  • Employment history
  • Degree and school
  • Debt-to-income ratio
  • Repayment history
  • Negative public records

Is it a good idea to refinance student loans?

If you have one or more federal or private loans with higher interest and want to consolidate them into one loan with more favorable terms, refinancing may be a terrific opportunity.

Whether you are looking to lower your monthly loan payments, pay off the debt early, or streamline numerous loans into one simple payment, refinancing through a private student loan company can help you achieve success.

With Purefy’s recommended lenders, there are no fees or costs for creating a new refinanced student loan. And should your circumstances change and you want to pay off the loan early, there are no fees or penalties for prepayment of the loan.

However, before you decide if refinancing is right for you, please consider these potential drawbacks:

  • Federal loan benefits will no longer be available — Loan forgiveness, forbearance and deferment options, and income-driven repayment plans, will no longer be available. Since a student loan refinance provides you with a new private loan, those federal features will be gone.
  • Not everyone qualifies — To be eligible for student loan refinancing with low interest rates, you should have a favorable credit history and a good income source. Without that, you can try using a creditworthy cosigner, but even that is no guarantee you’ll get a low rate.
  • Potential impact to cosigners — As mentioned before, using a cosigner will make them responsible for making payments if you can’t. Additionally, their credit report will show the debt as theirs, which can make it difficult to get approved for credit in the future and can damage their credit score if you miss a payment or can’t repay the loan.

As you consider how to get a lower student loan interest rate and save more money, remember that refinancing will allow you to consolidate loans and define more desirable terms, such as lower monthly payments or extended payment terms. Without a doubt, student loan refinancing may be the perfect solution as you step into your future.

Compare rates today to see the best options for saving money.

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Student Loan Refinancing

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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 12/01/2022. 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 4.49% APR to 8.99% APR with a 0.25% autopay discount. Variable rates from 4.49% APR to 8.99% 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 4.64% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 4.24% APR to 8.54% 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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