4 Refinancing Lenders With Flexible Repayment Terms (And How It Can Help)

Kat Tretina

When you take out federal student loans and enter repayment, the loan servicer immediately places you into a 10-year Standard Repayment Plan. It doesn’t take into consideration if you can afford your payments or if you want to accelerate your repayment; the 10-year plan is simply the default.

Likewise, if you took out private student loans to supplement your college tuition, you may have a repayment term that no longer fits with your monthly budget or financial goals.

One of the core benefits of student loan refinancing is the ability to choose your own repayment term. When you refinance federal or private student loans, you can choose a repayment term and interest rate type that works best for your post-graduate income.

If you’re thinking about refinancing your education debt, here are some things to keep in mind before selecting a new lender and choosing a fresh loan term.

Benefits of student loan refinancing

If you decide to refinance your student loans, you apply for a loan from a private lender for the amount of your outstanding debt and use it to pay off the current loans. Going forward, you have just one loan from that lender, with completely different terms than you had with old loans. You’ll have a new interest rate, repayment term, and minimum monthly payments.

Unlike federal student loans — where you’re assigned a default loan term and a fixed interest rate — refinancing lenders give you more control. When you refinance your debt, you can pick your own loan repayment term — some lenders even have terms ranging from five to 20 years.

While federal loans only have fixed interest rates, most refinancing lenders offer fixed and variable-rate loans. Unlike fixed-rate loans — which stay the same for the life of the loan — variable-rate loans often start off with a very low interest rate, but fluctuate over time. Some people opt for a variable-rate loan when they want to aggressively pay off their debt so they can take advantage of the lower initial rate.

3 reasons to refinance student loans

Being able to choose your own loan term can help you manage your student loans in three major ways:

1. You’ll save money on interest charges with a shorter loan term

If you have student loan debt, the lender charges you interest. Over time, the interest accrues, causing you to pay back thousands more than you originally borrowed.

With a shorter loan term, you have a bigger monthly payment. But interest has less time to accrue, so you’ll actually save money over the length of the loan. If you’re wondering how to quickly pay off student loans, refinancing can be a smart strategy.

For example, let’s say you had $30,000 in student loan debt at 5% interest. With a 10-year repayment term, your monthly payment would be $318. By the end of your repayment, you’d pay a total of $38,184.

Interest charges would add $8,184 to your loan’s cost.

But let’s say you refinanced your loans, and for the sake of this example, your interest rate stayed at 5% (although refinancing can often provide you with a much lower rate, too).

If you opted for a five-year repayment term, your monthly payment would increase to $566 per month. However, you’d repay just $33,968 by the end of your repayment term.

Refinancing to a shorter loan term would allow you to save $4,215.

 Original LoanRefinanced Loan
Loan Term10 Years5 Years
Loan Amount$30,000$30,000
Interest Rate5%5%
Minimum Payment$318$566
Total Interest$8,184$3,968
Total Repaid$38,184$33,968

2. You can get a lower interest rate with a shorter loan term

If you do opt for a shorter loan term, you can typically qualify for a lower interest rate than if you chose a longer loan term. In general, the shorter the loan term, the lower the interest rate you can get. With a lower rate, your savings could be even more significant.

If you had the same loan as the above example and refinanced your loans and qualified for a five-year loan at just 3.75% interest, your monthly payment would drop to $549. At the end of your repayment term, you’d repay a total of just $32,947.

Compared to the original 10-year loan, refinancing and opting for a shorter loan term would allow you to save $5,237.

 Original LoanRefinanced Loan
Loan Term10 Years5 Years
Loan Amount$30,000$30,000
Interest Rate5%4.75%
Minimum Payment$318$549
Total Interest$8,184$2,947
Total Repaid$38,184$32,947

3. You can lower your monthly payment with a longer loan term

What if you can’t afford your current student loan payments? Student loan refinancing can help you with that, too.

When you refinance your education debt, you can choose a longer loan term. You’ll pay more in interest over time, but a longer loan term will give you a much more affordable monthly payment. When your career is just starting out and money is right, refinancing can give you some much-needed relief.

For example, if you refinanced $30,000 in student loans, you could qualify for a 20-year loan term with a 5.5% interest rate. Your monthly payment would drop to $245 per month — freeing up $73 each month — and you’d repay a total of $44,123 over the course of your loan repayment.

Remember, you can offset the added cost by making extra payments when you can afford it. You can refinance your debt and opt for a longer loan term to reduce your payments now when you’re on a tight budget. As your salary increases and your finances improve, you can increase your payments and pay off your debt early to cut down on interest charges.

 Original LoanRefinanced Loan
Loan Term10 years15 years
Loan Amount$30,000$30,000
Interest Rate5%5.5%
Minimum Payment$318$245
Total Interest$8,184$14,124
Total Repaid$38,184$44,124

Student loan refinancing lenders with flexible loan terms

If you’re looking for a refinancing lender that offers flexible loan terms, you have several options:

  • CollegeAve: With CollegeAve, loan terms range from five to 20 years (in one year increments), and there are no prepayment penalties.
  • Earnest: Earnest offers loan terms from five to 20 years. It offers a skip-a-payment option, giving you one month of forbearance, and you may be able to qualify for longer forbearance periods in cases of financial hardship.
  • ISL Education Lending: If you apply for student loan refinancing with ISL Education Lending, you can choose a loan term of five, seven, 10, 15, or 20 years, so you can customize a loan term that works for you.
  • PenFed: PenFed offers loan terms of five, 8, 12, or 15 years. It also has unique spousal refinancing loans, which let you consolidate your loans together with your spouse’s education debt.

Use Purefy’s Compare Rates tool to check your refinancing offers all in one place with one simple form — without affecting your credit score. You’ll see new rate and term options from a variety of top lenders, so you can easily choose the best option for your needs.

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