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Is It Worth It to Refinance Student Loans?


Blog Author ProfilePeppyWallet Editorial Team
Posted on August 17, 2019
PeppyWallet aims to help you make the best financial decisions when it's time to make them. In order to help maintain our platform and services, some or all of the products featured in this post are from our Product Partners. Our opinions however, are our own, and featuring specific products does not influence our analysis.
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Editorial Note: This content is neither commissioned nor provided by any financial institution. Any analyses, reviews, opinions, or recommendations that are expressed in this article are those of the author's alone, and may not have been approved, endorsed or reviewed by the financial institution(s) mentioned in this post.

With record low interest rates, many student loans borrowers could benefit by refinancing their high private rate debt or even fixed rate federal student loans with a cheaper private alternative. Here's why refinancing your student loans could be worth it:

No fees

Simply put, there are no fees to refinance your student loans, unlike other personal credit products. On top of this, if your income improves after refinancing and you want to start making lump-sum payments, there wouldn't be any prepayment penalties if you decide to pay your student loans earlier than the maturity date.

Interest rates have declined substantially

Student loan interest rates move in tandem with the Federal Reserve's decision to cut or raise interest rates, although not directly.

While the Fed doesn't directly impact the rates set for federal student loans, federal rates should move in the same direction as the federal funds rate over time, so both private and federal student loan rates should be coming down in the near-term future with the recent Fed rate hike.

With some student loan refinance lenders having dropped variable interest rates to as low as 2.27%, student loan refinancing rates are virtually at near-term lows, and refinancing your student loan now could potentially save you thousands of dollars in interest.

More favorable loan terms

On top of being able to save big from reduced interest over the term of your loan by refinancing your private student loan, in some situations, it could also make sense to refinance your federal student loans. Generally, the new loan you replace your previous loan or group of loans with will allow you to now pay just a single monthly payment, therefore reducing headaches and hassles and streamlining your student loan repayment process.

You can also change from a fixed rate to a variable rate and even stretch out the term of the loan, further reducing your monthly loan payments. For example, if you have a loan balance of $20,000 with a 5% interest rate, your monthly payments going from a 12-year term to an 18-year term decrease from $185 to $141.

New and favorable loan terms can help you save money big time, especially if this is the first time you refinance your student loans since origination, and help you pay off your student debt faster.

Quick and simple applications

Many types of businesses over the past decade have moved from a traditional brick-and-mortar approach to interacting with a customer or client to exclusively serving customers online. Student loan refinance lenders are no exception, and are pretty reliant on technology. This means that your application can be smooth with preliminary quotes usually taking less than 3 minutes, and with almost all lenders only making a soft pull on your credit.

Even if you end up submitting multiple loan refinancing applications in a short period of time, credit bureaus usually bundle up all the soft pulls on your credit score and count it as a single hard pull. You most likely won't be reapplying to refinance your student loans again any time soon, so it could make sense to take on a hard pull to your credit score just this one time, especially if you are satisfied with the preapproved rate and terms.

Improvement in financial situation

Finally, if you've seen a solid or perhaps even 180-degree improvement in your financial situation since you took out your original student loans, you could be in the perfect spot to refinance. The rate at which you can refinance with a private lender is determined through a complex financial formula, which takes into account your credit score and a low or improved debt-to-income ratio.

If you are a borrower who may not necessarily qualify to refinance their student loans on their own, you could also consider taking on a co-signer who has a higher credit score and lower DTI to increase the chances you get approved to refinance.

What next?

It could certainly be worth it to refinance your student loans, especially if interest rates are low, as they are now, compared to other points in the market cycle.

Make sure you do your due diligence and research before deciding to refinance, and certainly shop around with multiple lenders before making a commitment. Even if you feel as if you have a low enough interest rate, if the numbers work out and you can refinance your student loans and save money in the process, it would make sense to go through with an official application to a lender since there are no origination or refinancing fees.

Keep track of your student loans via the free PeppyWallet student loan dashboard without having to sign up or make an account. The student loan dashboard can help you quantify how much your total monthly payment is, determine your overall weighted average interest rate on your loans as well as spot unique refinancing opportunities.



Here are some of the best refinance lenders


Lender
Variable APR
Earnest
2.14-6.79%1
CommonBond
2.41-7.95%2
LendKey
2.24-6.67%3

1Important Disclosures for Earnest

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.45% APR (with Auto Pay) to 7.49% APR (with Auto Pay). Variable rate loan rates range from 2.14% APR (with Auto Pay) to 6.79% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 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% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of September 5, 2019, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/15/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on our student loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.

2Important Disclosures for CommonBond

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.37% effective July 10, 2019.

3Important Disclosures for LendKey

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any education institution.


The team members at PeppyWallet pride themselves in finding and suggesting services and products that they believe are of high quality and have the potential to positively change a student loan borrower's financial circumstances. We may earn an advertising fee or sales commission when we recommend various services and products to you, which is how we maintain our site and education platform. Be sure to read the fine print to help you understand your product's or service's terms and conditions. PeppyWallet is not an investment advisor or lender, and is not involved in the investment or loan approval process, and does not make investment related or credit decisions. Any terms and rates which are listed on our website are our latest estimates but are subject to change at any time, and we cannot guarantee that they are up-to-date.