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Do You Refinance Student Loans If You Only Save 1%?

Kat Tretina

Anyone with student loan debt knows how costly interest charges can be.

Even federal student loans can have sky-high interest rates. For example, as of 2020, Grad PLUS Loans have an interest rate of 7.08% — which can cause thousands in interest charges to accrue on your loan.

Student loan refinancing can be an effective method for paying off your debt faster while saving money. But not everyone can qualify for a dramatic interest rate reduction.

However — if you’re eligible for a rate reduction of just 1%, should you refinance student loans? For most people, the answer is a profound yes.

Here’s why refinancing your debt makes financial sense with a 1% lower interest rate offer.

If you only save 1%, is it a good idea to refinance student loans?

With refinancing, you take out a loan from a private lender for the amount of your existing debt. If you have federal and private loans, they are combined together so you have just one loan, one loan servicer, and one simple monthly payment.

When you refinance your federal or private student loans, the lender will review your credit and income to determine whether or not to approve you for a loan. They’ll also use this information to decide which new interest rates to offer you, based on the current rates.

Depending on your creditworthiness, you may only qualify for a modest rate reduction rather than the lender’s lowest advertised rates.

If your rate decreases by just one percentage point, student loan refinancing can still be a smart, effective strategy for managing your debt for several reasons:

1. Refinancing your student loans takes just a few minutes

Unlike applying for other financial products like a home mortgage, applying for a refinancing loan is a quick and easy process. In most cases, you can finish your student loan refinancing application in as little as 15 minutes, so it doesn’t take much time to get big results.

To speed up the process, use Purefy’s Compare Rates tool to get rate quotes from multiple top lenders — all in one place — without affecting your credit score. Once you find your best rate option and a loan that works for you, you can move forward with the loan application.

When you’re ready to apply, the lender will ask for basic information about yourself. Be prepared to enter your name, address, Social Security number, employer name, income, current student loan balance, and lender information.

Make sure you have some documentation on hand, such as a government-issued ID, a recent pay stub or tax return, and a loan statement from your lender.

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2. Student loan refinancing doesn’t cost you anything

If you don’t have a significant decrease in interest rate, is refinancing student loans worth it?

The answer is still yes.

That’s because there is no cost to refinancing your student loans. With Purefy’s partner lenders, there are no application fees, origination fees, or prepayment penalties, so you won’t pay anything to refinance your debt.

The only time you’ll pay a fee is if you miss a payment and get charged a late fee. If you always make your payments on time — a great reason to sign up for automatic payments — you won’t pay any extra fees.

3. You’ll still save money

Lowering your interest rate by a single percentage point may not sound like a big deal. But when it comes to student loan refinance interest rates, 1% can make a real impact on your overall savings.

To put that rate in perspective, let’s say you had $35,000 in student loans at 7% interest and a 10-year repayment term. With a $406 minimum monthly payment, you’d repay a total of $48,766 over the length of your loan. You’d pay $13,766 in interest charges alone.

If you refinanced your loans and qualified for a 10-year loan at 6% interest, your monthly payment would drop to $389. But over your repayment term, you’d pay just $46,629.

By taking 15 minutes to refinance your loans, you’d save $2,137. Not bad, right?

 Original LoanRefinanced Loan
Loan Amount$35,000$35,000
Loan Term10 Years10 Years
Interest Rate7%6%
Minimum Monthly Payment$406$389
Total Interest$13,766$11,629
Total Repaid$48,766$46,629

4. You could lower your monthly payment

Sometimes you may only get a small rate reduction because you opt for a longer loan term. While you could get a lower rate with a shorter term, selecting a longer term can be a smart idea if your budget is tight.

With a longer loan term — some lenders offer loan terms of 12, 15, or even 20 years — you could dramatically lower your monthly payment, making it much more affordable.

With a longer loan term, you’ll pay more in interest over time. But you’ll have more cash flow right now, which can be helpful as you start your career.

As you get more established and make more money, you can make extra payments or even pay off your debt early. None of Purefy’s partner lenders have prepayment penalties, so there’s no downside to paying off your debt ahead of schedule.

Should you refinance student loans?

If you only qualify for a modest rate reduction, you may be wondering: should you refinance student loans? Except in certain circumstances, refinancing can be a smart way to manage your debt even if you only lower your interest rate by one percent.

Need more help to make a decision? Schedule a free student loan refinance consultation with Purefy’s award-winning team. Whether you don’t know where to start or want step-by-step guidance on your options, your personal student loan expert can help you navigate through the refinancing process and make a decision that’s right for you.

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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 11-21-2022. 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 4.24% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 3.49% 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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