If you have student loans, you’ve no doubt heard someone mention refinancing student loans as an option. You may have even heard that it will save you a bunch of money.
But, how much can you actually save? How does refinancing actually save you that money?
In this post, we’ll break down how you can save money on your student loans by refinancing. Then we’ll address what it means for you as a borrower.
Average savings by refinancing student loans
There are many sites and lenders operating online–and they’re quick to tell you how much borrowers save by refinancing their loans. Many of them have relatively easy and fast forms you can fill out (without necessarily committing anything) to show you just how much you can save.
Here are some examples:
Marketplace allows borrowers to quickly see and compare rate offers from multiple lenders
Marketplace connects borrowers with not-for-profit credit unions and community banks
How you save money
When you refinance your student loans, there are three main ways to save money:
1. Lower interest rate
Want to save a bunch of money on your loans? Try lowering your interest. Knocking a few percentage points off of your loans can end up saving you thousands of dollars. Interest accrues quickly and will add up before you know it.
2. Better terms
Take a 10-year student loan repayment at 5% interest with a balance of $20,000 and knock it down to an 8-year loan. You’ve just saved almost $1,200 in interest. By qualifying for better (shorter) repayment term, you can save a ton on interest payments. Though you end up paying more every month, you ultimately pay off your loans faster. Of course, only do this if you are financially comfortable doing so.
3. Lower interest AND better terms
If you want it all–and you should–then you can combine lower interest with a better repayment term to get even more savings. Not everyone’s loans will be in a position to get the benefits of both, but it can make a huge difference.
If you’re thinking short term–like, reducing your monthly payment on student loans–then you can also often refinance your loans over a longer term, meaning you make more payments, but you pay less each month. Many private lenders offer refinancing for up to 20 or 25 years. Though you’ll be repaying for longer, you take some of the burden off your shoulders each month.
How much you can save
Of course, the “average” savings doesn’t mean much unless you fit the description.
Your savings will depend on how much outstanding debt you have, your current interest rate and repayment terms, and what offers you receive from new lenders.
You’ll receive an estimate pretty easily by getting a quick rate check. The only thing you’ll need to know is your approximate total loan balance.
You don’t need to make a huge commitment to see how much you could save by refinancing your student loans.
Many sites offer you quick, free rate estimates: