Refinancing student loans is a great option for almost everyone. You can usually get a lower payment and pay off your loans more quickly through refinancing.
Most federal student loans are set at 6.8% and some private loans are much higher. Many people can refinance at 3-4%.
If you can refinance at a much lower rate, you can get a lower payment or a shorter loan term. Sometimes you can have both!
Here is a quick example. Let’s say you have $100,000 in loans at 6.8% and you are paying over 20 years.
Monthly Payment – $763.34
Total Amount Paid – $183,201
Ok, now let’s see how it looks if you refinance at 4%. Same loan, $100,000 over 20 years.
Monthly Payment – $605.98
Total Amount Paid – 145,435
Wow! You would save over $150 a month and you would save almost $40,000 over the life of the loan. Seems like a no-brainer.
You could go another way, you could try to pay the loan off faster with about the same payment as before.
Let’s take the same $100,000 loan and pay it off over 15 years instead of 20. Five years is a long time, I’d sure like to get my loan paid off 5 years earlier. Refinance at 4% again, now over 15 years.
Monthly Payment – $739.69
Total Amount Paid – $133,000
Now you’re saving $24 every month and you’re saving $50,000 over the life of the loan all while paying it off 5 year sooner! Definitely a great deal.
You don’t have to have $100,000 in debt for refinancing to work for you. It works wether you have $5,000….$10,000….$20,000….or $200,000.
Student Loan Refinancing 