Good question. We know this topic can be confusing and lots of the information out there can be daunting. So let’s break it down —
What does refinancing mean anyway?
Refinancing is just changing the terms of your student loans, usually in order to save money on the interest you pay. You typically refinance by moving your loans from one lender to another.
How does it work?
First, you begin your search online to look for lenders who may be offering a better interest rate than your current rate. A good, reputable place to start that Citizen One recommends is Student Loan Hero.
Then, you fill out an online application from a lender. You’ll put in some basic background information regarding your income, your current student loans, and your credit history.
After that, the lender will run a credit check to see if you qualify. At the end of that process, they will offer you some options for loan terms and interest rates and you pick what works best for you!
Once you accept a particular set of terms, your new lender will send checks or electronic transfers to your old lender to pay off those loans. And voila- you’ve now moved over your loans to a new lender with better terms!
But should I refinance my student loans?
Well… it depends. As of the writing of this blog post in September 2020, interest rates are are incredibly low, so it’s a good time to strongly consider it. Also, here’s a handy chart to help you figure out refinancing is a good idea for you…
|You should consider refinancing if…||You should not refinance if...|
|You just graduated undergrad or grad school||You are still a student|
|You have a job with proof of income||You have no income|
|Your credit score is 650 or above||You are on an income based repayment plan|
|All of your current loans are in good standing||You are planning on doing public service loan forgiveness|
|You want your loans gone fast while paying the least amount in interest over time||You have loans past due and/or in default|
|You want forbearance/deferment options if financial need arises|
How much can I save?
You can save a lot! How much exactly?
For example, if you have $20,000 in student loans at 6.8% interest due over 10 years and you were able to refinance those loans to a lower rate, say 4.25% interest over 10 years with a new lender, you would save the following –
|Original Loan||New Loan||Savings|
|Monthly Payment||$230 / month||$205 / month||+$25/month|
|Term||10 yrs||10 yrs||–|
So, as you can you see, you would save $3034 dollars in interest AND decrease your monthly payment! Not a bad deal. Want to run your own numbers? Check out this student loan refinancing calculator.
To summarize, if you have a decent credit score, a steady income and plan to make monthly payments, you want to and are able to get rid of your loans in a timely manner, then refinancing is a no brainer! Do it! You can literally save $1000s by refinancing.
Also, don’t refinance without getting a bonus check – most lenders will do it. We at Moneyland recommend Earnest and have good experiences with them. So, if you decide to refinance with them, please use our referral link and get a $200 bonus for yourself!