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Don’t assume you have to live with the interest rates on your student loans

Recent statistics show that more than 44 million Americans carry $1.5 trillion in student loan debt — an average of $32,731 each. Unpaid loans can put life plans on hold or even cause emotional stress. Unfortunately, many suffer unnecessarily. There are lots of companies out there that will refinance your student loan. This means you end up paying less. Let’s see how this works.

It’s a business

Companies give out loans because they make money on the interest payments. Just like in any other industry, the competition is fierce. How do some companies win business? They lower prices. For student loan lenders, this means lowering interest rates. And guess what? You have the right to shop around for a lower rate.

 People refinance all the time

The process of loan refinancing happens all the time. People refinance their car loans, mortgages, personal loans, and – you guessed it – student loans. Refinancing basically means changing the loan interest rate, the payment term, or both. In reality, it means taking out a new loan to pay off the old one. The details are up to you.

Multiple Options

If you’re like most borrowers, your student loan payment takes its toll month after month. When you refinance into a loan with the same repayment term, the lower interest rate can reduce your monthly payment and your overall repayment costs.

Many people choose this route. However, if you choose a loan with the same repayment term, it will take the same amount of time to pay off your loan.

Some borrowers prefer to wipe out their debt as quickly as possible. These borrowers may choose to refinance into a loan with a shorter repayment term — say five years, instead of 10 or 20. If you go this route, your monthly payment may not change much — it may even go up. . But all other things being equal, the shorter the loan term, the lower the interest rate offered by most the end, your loan is paid off faster, and you pay less total interest..

If you’re most concerned about lowering your monthly payment, you might refinance into a loan with a longer repayment term. With this strategy, you may not get as big an interest rate reduction, and you’ll take longer to repay your loan. So you may rack up additional interest charges for the convenience of lowering your monthly payment.

Go to the marketplace

If you want to replace your old loan with a new one, it pays to shop around. No two lenders are exactly alike, and they differ in terms of rates, loan terms, loan details, and eligibility. It might seem like a lot to digest, but it’s actually a good thing. No two lenders are alike, and borrowers differ in their needs too. When you have multiple lenders to choose from, this increases your chances of finding the right fit.

An online lender marketplace can streamline the search process. You just answer a few questions about yourself, and you can see personalized rates that you’re prequalified for. The best part is that lenders compete for your business. So you might get an even better deal than if you just checked rates with one lender.

What about loan consolidation?

Some people confuse refinancing with loan consolidation. A federal Direct Consolidation Loan lets you combine your government student loans.. This makes things more convenient since you end up dealing with only one loan servicer and one monthly payment. Remember, a federal Direct Consolidation Loan does not lower your interest rate..

However, any student loan – federal or private – can be refinanced with a private lender potentially much better rate. Keep in mind that if you refinance federal student loans with a private lender, you’ll lose access to borrower benefits like access to income-driven repayment and the potential to qualify for loan forgiveness.

How much can I save?

A borrower with $56,000 in student loan debt can save more than $18,000 if they’re able to refinance into a loan with a shorter repayment term and reduce their interest rate by 1.7 percentage points. Not too shabby! But this is typical of the results that users of one popular lender marketplace are seeing.