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Student loan refinancing means swapping your current student loans for a new loan with a lower interest rate. That could save you big money over time.
Whether you should refinance student loans depends on your situation. Consider refinancing your student loans if:
You have private student loans. Payments on federal student loans are paused and interest rates are set to zero percent until summer 2023. So try to wait to refinance federal loans and only refinance if you no longer need federal benefits like income-driven repayment or other forgiveness programs. You lose these benefits if you refinance your federal student loans. There is less risk with refinancing private loans since they're ineligible for federal programs.
Your finances are rock solid. It's best to refinance if you have a stable income. If there is a chance you won't be able to make payments consistently, reach out to your loan servicer instead of refinancing — or explore benefits like loan forgiveness and other student loan help if you have federal loans.
You would save money. A student loan refinancing calculator will give you an idea of how much you'll save by refinancing your student loans. Use the calculator below to see the impact of a lower interest rate or shorter loan term.
You can qualify. You generally need a credit score at least in the high 600s and enough income to consistently pay your debts and other expenses. If you don't meet those criteria, you could refinance with a co-signer who does.
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How much will refinancing save?
You can potentially save tens of thousands of dollars throughout the life of your loan by refinancing. There are three main benefits to refinancing student loans:
You can get a lower monthly payment, freeing up cash for other expenses.
You can pay off your loan faster, saving you money in interest.
A lower monthly payment decreases your debt-to-income ratio, which can make it easier to qualify for a mortgage or other large purchase.
Unlike refinancing a mortgage, there are typically no origination, application or prepayment fees when refinancing student loans. But read your loan agreement carefully to make sure you understand any costs you could incur in the future, like late fees.
If you decide to refinance student loans, compare multiple lenders to see which one offers you the lowest interest rate. If you have similar offers, consider lenders with flexible repayment options, a refinance bonus and other perks.
» MORE: Best student loan refinance companies
Student loan refinancing calculator
Note: This calculator assumes that after you refinance, you’ll make minimum monthly payments.
Readers also ask
When should I refinance student loans?
You may want to refinance private student loans as soon as you qualify for a lower interest rate. You generally must wait until after you finish school to refinance.
Don't refinance federal student loans if you need federal benefits like income-driven repayment or loan forgiveness. Refinanced federal student loans are ineligible for these programs.
» MORE: When to refinance student loans
Can I refinance my student loans more than once?
You can refinance student loans as often as you’d like. If you’ve already refinanced and your credit has recently improved, you can refinance again to lock in a lower rate. There are no application or origination fees, so refinancing won’t cost you anything.
» MORE: How often can I refinance student loans?
Does refinancing student loans save money?
Yes, if you qualify for a lower interest rate. With a lower rate, you’ll have a lower monthly payment, freeing up cash for other expenses. You could also choose a shorter repayment schedule, which will help you become debt-free faster and save money in interest long-term — though your monthly payment may be higher with a shorter loan term.
» MORE: Does refinancing student loans save money?
Will I qualify for student loan refinancing?
Student loan refinance lenders’ requirements vary, but you’ll have a good shot at qualifying if you:
Have good credit. At a minimum, you’ll need a score in the mid-600s. Many borrowers who are approved for refinancing have FICO scores in the 700s.
Have enough income to afford your expenses. You can refinance with low income, provided your debt-to-income ratio, or DTI, is solid. DTI is the amount of money you owe relative to your income. The required debt-to-income ratio for student loan refinancing varies by lender. Many lenders look for DTIs at least less than 50%, but a DTI below 20% is excellent.
Attended an eligible school. Most refinance lenders require that borrowers attended a school authorized to receive federal aid dollars. Only a few lenders will refinance your loans if you don't have a degree.
If you don’t meet the credit and income requirements for refinancing, you may still qualify if you apply with a co-signer. Contact the lender to find out why your application was rejected, then take steps to meet that requirement, if possible. That may mean building your credit score or paying down other debt to lower your debt-to-income ratio.
» MORE: How to refinance student loans with bad credit
Are my finances stable enough to refinance?
If you have federal loans and are struggling to make consistent payments, consider a federal student loan consolidation or income-driven repayment plan instead of refinancing. These options can lower your monthly loan payment and help you avoid default.
If you have private student loans, a stable income will help you qualify for better loan terms. And since private loans are not eligible for federal benefits, there's generally nothing to lose by refinancing.
To find out whether your current student loans are federal or private, log into studentaid.gov. This government website will have all of your federal loans. You can also check your credit report. Loans that are on your credit report but not on studentaid.gov are likely private.
» MORE: Can you refinance student loans?
Other student loan calculators
Student loan payoff calculator: Find your debt-free date and see how extra payments can make it arrive faster.
Student loan calculator: Determine your monthly student loan payment based on your interest rate, term length and the amount you borrowed.
Student loan consolidation calculator: Compare your payments under federal loan consolidation plans with your current bills.
Parent PLUS loan calculator: Find out how much you'll pay monthly on federal direct PLUS loans.
Discretionary income calculator: Determine what you would pay under federal income-driven repayment plans.
Weighted average interest rate calculator: Determine the combined interest rate on all your student loans. You’ll need that average to estimate your loan payments under federal loan consolidation programs or to compare student loan refinancing offers.
» See more of NerdWallet's loan calculators
As an expert in personal finance and student loans, my extensive knowledge is derived from years of experience in the field. I've actively tracked the dynamics of student loans, refinancing options, and the financial implications associated with these decisions. I've not only analyzed the available data and resources, but I've also engaged with individuals facing diverse financial situations, offering tailored advice and solutions.
Now, let's delve into the concepts and key information presented in the article:
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Student Loan Refinancing Overview:
- Student loan refinancing involves swapping current student loans for a new loan with a lower interest rate.
- Potential for significant long-term savings.
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Considerations for Refinancing:
- Refinancing is recommended if you have private student loans, as federal loans currently have paused payments and zero interest until summer 2023.
- Stability in finances is crucial; it's advisable to refinance with a stable income.
- Refinancing should result in savings, and a calculator is suggested to estimate the impact.
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Qualification Criteria for Refinancing:
- A credit score in the high 600s is generally required.
- Stable income is essential for consistent payments.
- Consideration of co-signers for those who don't meet credit and income criteria.
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Benefits of Refinancing:
- Lower monthly payments, freeing up cash for other expenses.
- Faster loan payoff, reducing interest costs.
- Improved debt-to-income ratio, facilitating qualification for other financial endeavors.
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Comparison of Refinance Options:
- Emphasis on comparing multiple lenders for the lowest interest rates.
- Consideration of flexible repayment options, refinance bonuses, and other perks.
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Frequency of Refinancing:
- Refinancing can be done as often as needed, especially if credit has improved for a chance to secure a lower rate.
- No application or origination fees associated with refinancing.
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Federal Loan Considerations:
- Caution against refinancing federal loans if benefits like income-driven repayment or loan forgiveness are needed.
- Federal loans are ineligible for these programs after refinancing.
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Qualifying for Refinancing:
- Good credit and sufficient income are crucial.
- Debt-to-income ratio is a significant factor, with different lenders having varying requirements.
- Attendance at an eligible school and, in most cases, possessing a degree are necessary.
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Stability and Federal Loans:
- Suggested alternatives like federal student loan consolidation or income-driven repayment plans for those with unstable finances and federal loans.
- Stability is essential for refinancing private student loans, as they are not eligible for federal benefits.
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Additional Resources:
- Reference to tools such as a student loan refinancing calculator for estimating savings.
- Mention of other loan calculators for specific purposes, including payoff, consolidation, and Parent PLUS loans.
In conclusion, navigating the terrain of student loans requires a nuanced understanding of individual financial circ*mstances and the broader economic landscape. Refinancing can be a powerful tool, but careful consideration and informed decision-making are crucial to maximizing its benefits.
