Refinancing student loans can potentially save borrowers $5,000 while fixed rates are low
Student loan debt is a financial burden that weighs heavily on millions of American borrowers. For some, it may be possible to ease this pressure by refinancing while interest rates are still close to historic lows.
Student loan refinancing involves taking out a new loan with better terms to pay off your current loan. It may be possible to pay off your student loans faster, lower your monthly payments, and save money over time by refinancing at a lower interest rate.
The average student loan interest rate among all existing borrowers is 5.8%, according to Education Data Initiative. By comparison, the average 10-year fixed-rate student loan rate was 3.65% for qualified borrowers who refinanced during the week of January 24, 2022, according to credible data.
With current student loan rates, some borrowers may be able to save over $5,000 in total interest costs through refinancing. Keep reading to learn more about how to calculate your potential savings and visit Credible to compare student loan refinance rates for free.
HERE’S WHY REFINANCING VARIABLE RATE STUDENT LOANS CAN BE A SMART SOLUTION
Student loan refinancing can save some borrowers $5,000
Student loan refinance rates are currently much more favorable than what most borrowers are currently paying. Since private student lenders are prohibited from charging refinance fees and prepayment penalties, your interest rate is the total cost of borrowing you can expect to pay.
Assuming a student loan balance of $40,000, borrowers can save over $5,000 in total interest payments by refinancing a private student loan at the above interest rates. They can also reduce their monthly student loan payments by $42.
That being said, student loan refinancing is not for everyone. Refinancing your federal loans into a private loan makes you ineligible for certain protections, such as unemployment deferment, COVID-19 emergency forbearance, income-based repayment (IDR) plans, and federal programs student loan cancellation such as public service loan cancellation (PSLF).
If you have private student loan debt that doesn’t qualify for the benefits above — or if you don’t plan to use those federal protections — then it may be worth consolidating your student loans as rates rise. interest are close to the lowest levels. You can use Credible’s student loan refinance calculator to determine your potential savings and determine if this debt repayment option is right for you.
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Borrowers with good credit can save even more
Since student loan refinance rates vary depending on the borrower’s credit score, those with excellent credit can save the most money by refinancing. On the other hand, borrowers with fair credit will see higher interest rates, which translates to fewer savings opportunities over time.
Well-qualified borrowers with credit scores of 780 or higher qualified for an average rate of 3.44%, which translates to nearly $5,500 in total savings over the life of the loan. Even borrowers with fair credit scores between 640 and 679, who have seen average fixed rates of 4.77%, still have the potential to save nearly $2,500 in total interest costs.
To get the lowest possible rates and maximize your potential savings, you might consider refinancing your student loans with a co-signer who has excellent credit. A creditworthy co-signer can be a trusted friend or relative who agrees to assume equal responsibility for the repayment of the loan to help you meet a lender’s eligibility criteria.
However, refinancing student loans with a co-signer comes with risks. If you fail to pay off your student loan debt, your co-signer’s credit rating will also take a hit. Additionally, a lender can sue both parties to recover the costs of the loan in case of default.
You can learn more about student loan refinancing by contacting a knowledgeable loan officer at Credible. This way you can decide if refinancing is the student loan repayment plan for your financial situation.
HERE’S WHO QUALIFIED FOR THE STUDENT LOAN FORGIVENESS UNDER BIDEN
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