Refinancing Student Loans: Should You Save Money or Lower Your Bill?

Kat Tretina

If you have a significant amount of student loan debt, you know how insurmountable it can feel. Student loan refinancing can be a smart way to manage your repayment, but how do you decide between lowering your monthly payments or saving money over the life of your loan?

Here is a quick guide on what options to choose based on your goals.

If you want to save as much money as possible

If you’re considering student loan refinancing, you likely have a large student loan balance. Our research for 2020 student loan and refinancing statistics found that the average balance for borrowers refinancing their loans was $63,880.

If you had that much debt, assuming an interest rate of 6% and a 10-year repayment term, you’d pay $21,224 in interest charges by the time you paid off your loan.

If you’re like most people, you can think of much better ways to use that money. Approximately $20,000 can help you travel the world, buy a new car, pay for a wedding, or even serve as a down payment on a house.

If you’re wondering how to lower your interest rate as much as you can so you can save money, refinancing can help. Refinancing lenders typically reserve the best student loan refinance rates for borrowers with excellent credit who opt for shorter loan terms.

When shopping for a loan, choose a term of five years to save the most money. With a short term, some refinancing lenders are offering fixed interest rates as low as 2.55%. If you qualified for that rate with a $63,880 loan balance, you’d pay just $4,227 in interest charges — saving you a whopping $16,997.

 Loan at 6% InterestRefinanced Loan at 2.55% Interest
Loan Term10 Years5 Years
Monthly Payment$709$1,135
Total Interest$21,224$4,227
Total Repaid$85,104$68,107
Total Savings: $16,997

If you want to lower your monthly payments

If you can’t afford your payments or simply want more breathing room in your expenses so you can pursue other goals, you can refinance your loans and reduce your monthly payment.

For example, if you had the same balance listed above and a 6% interest rate with a 10-year term, your minimum monthly payment would be $709 per month — a huge chunk out of your budget each month. With such a high payment, you may have to make some sacrifices or may even reduce your retirement contributions just to make ends meet.

To get a lower payment, you can select a longer loan term. Some lenders offer terms of 15 or even 20 years, giving you a significantly smaller monthly payment.

If you qualified for a 20-year loan at 6% interest, your monthly payments would drop to $458, freeing up $252 each month for other expenses.

Keep in mind that you’ll pay more in interest charges with a longer loan term than if you stuck with a 10-year repayment plan. However, that downside can be worth it to get a more affordable payment when you’re establishing your career. Later on, you can make extra payments when you can afford it if you want to pay off your loans early and cut down on interest charges.

The 4 Best Companies to Refinance Student Loans

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

No Maximum Loan Amount

Fixed Rate

4.83% – 7.64% APR 4

Variable Rate

3.99% – 7.24% APR 4
98% of surveyed customers would recommend SoFi to a friend

Fixed Rate

4.49% – 8.99% APR 3

Variable Rate

5.09% – 8.99% APR 3
Precision Pricing — Pick Your Monthly Payment

Fixed Rate

4.47% – 8.99% APR 2

Variable Rate

4.14% – 8.94% APR 2
Loans Available in All States but Maine and Oregon

Fixed Rate

6.94% – 11.58% APR 5

Variable Rate

Not Offered

When you want a more balanced approach

If you’re wondering how to save money without substantially increasing your monthly payments, there is a solution: you can choose a hybrid approach to refinancing your loans.

If you opt for a shorter loan term — but longer than five years — you can qualify for a lower interest rate and pay less in interest charges over time. But with a term of seven or eight years, the monthly payment won’t significantly increase.

For example, let’s say you qualified for an eight-year loan at 4% interest. Your monthly payment would increase from $709 to $779 — a difference of just $70. But with the lower interest rate and shorter loan term, you’d save $10,353 in interest charges and get out of debt two years sooner.

 Loan at 6% InterestRefinanced Loan at 4% Interest
Loan Term10 Years8 Years
Monthly Payment$709$779
Total Interest$21,224$10,870
Total Repaid$85,104$74,750
Total Savings: $10,354

Refinancing your student loans

If you decide that student loan refinancing is right for you, spend some time thinking about your financial goals and current budget. If you want to get rid of your debt as quickly as possible and reduce interest charges, choosing a shorter loan term is best for you. By contrast, a longer loan term makes more sense if you want to lower your monthly payment.

Whichever you choose, make sure you compare offers from multiple refinancing lenders before selecting a lender. While you can research companies on your own manually, Purefy’s Compare Rates tool makes it easier. Just fill out one simple form, and Purefy will list rate quotes and loan terms from top lenders — and it doesn’t affect your credit score.

You Might Also Like
purefy recommends

Student Loan Refinancing

Refinancing from 3.99% 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 01/01/2023. 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 5.09% 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 4.72% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 4.39% APR to 9.19% 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.

Advertiser Disclosure:


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 6.94% to 11.58% 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.

Want To Find Out When Student Loan Refinance Rates Drop?

Join our email list to get instantly notified when rates change.

I am a(Required)