The 1 Thing You're Probably Not Doing That Could Save You Big Time on Your Student Loans

By Jen Williamson Updated on May 6, 2019

We’re not going to beat around the bush here. It’s refinancing.

We’re going to hit you with some numbers right off the bat, because we’re hardcore like that. (Don't worry. We'll do the math for you.)

Let’s imagine you’ve got $37,000 in student loans—about the average amount these days. You’re on a standard 10-year federal repayment plan with 6.8% interest. That means you’re paying, oh … about $425 per month.

You’ll pay about $14,000 total in interest, regardless of your credit score. You could do everything right for the next ten years, and get no interest reduction for good behavior.

Unless you refinance, that is.

Shaving even a small amount off your interest can make a big difference. A 1% interest reduction means saving $18 per month in your payments—and about $2,000 over the life of the loan. Most people save a lot more, though—to the tune of about $16,000.

But if refinancing is so great, why doesn’t everyone do it? Here are some reasons you may have kept your student loan where it is.

Reason #1: You don’t think the savings will be worth the math

When you owe $37,000 plus interest, what’s the point in saving a measly $20 per month?

But here’s the thing. The average amount you can save with your student loan isn’t $20 per month. It’s $259. 

Of the 94,000 people who refinanced their student loans last year, most saved an average of $16,183 over the life of their loans. 

And if you managed to graduate college, you absolutely have the skills to fill out an application for refinancing. It only takes about 15 minutes—even for the math-disinclined. If you go with a good lender, there are no origination fees or early repayment penalties, so you don’t have to worry so much about unwanted financial surprises.

Don’t feel like sorting through the fine print on a ton of lenders to sort out the good ones? No problem. We’ve done it for you. Check out our list of preferred lenders at the bottom of this page. 

Reason #2: This is just not on your radar

If you’re like…basically everyone, really … you’ve got a lot of stuff that’s more pressing.

Your boss needs that thing on her desk yesterday. Your kid’s got a fever and your car just caught fire and your student loan payment isn’t ideal, but at least it isn’t blowing up in your face right now. You don’t want to poke the bear on that one.

But would you spend 15 minutes to make one significant part of your life—the sending-a-giant-payment-to-your-student-lender-every-month part—significantly easier? Because that’s what we’re talking about here.

Of course, how much you could save personally depends on a lot of things—but with our Refi Ready tool, you can find out in about 10 seconds.

Just plug in the amount of your student loan payment and the balance—it’s totally okay to guess here—and we’ll tell you how much money you’re leaving on the table by not refinancing.

Then we’ll walk you through how to get the best possible deal in your circumstances.

Imagine Life Without a Student Loan Payment... Start Saving Now!

Reason #3: Student loans are supposed to take forever to pay off

This and other misconceptions can keep you from taking control of your student loan.

Like: Anyone offering a faster way to pay off those loans is probably too good to be true. Or why would you take out yet another loan to pay off all your other loans?

Okay, let’s tackle those one at a time. First, people refinance their homes all the time to get a better deal on their interest rates. That’s basically what we’re talking about here, only with your student loan.

And second, refinancing doesn’t mean you’re taking out yet another loan. What you’re actually doing is paying off your existing loans, then replacing them with a new loan with a better interest rate.

You end up with one loan instead of many—and a payment that can be lower by several hundred dollars a month, on average.

See also: Everything You Need to Know about Student Loan Refinancing

Reason #4: You’re afraid of losing federal benefits 

A lower interest rate sounds grand in theory, but you don’t want to give up a benefit that you might need someday. Like income-based repayment or the Public Student Loan Forgiveness program.

But here’s the question. Are you actually going to use those benefits? Is holding on to that possibility worth paying hundreds of dollars more every month—or over $16,000 or more over the life of your loan?

The Public Service Loan Forgiveness program has very strict parameters. It’s only available to people who work for qualifying employers in public service—and these wages are often (although not always) lower than you’d get in the private sector.

That’s why the program exists—to make these lower-paying public-service jobs more attractive. But you could be making more money—and paying your student loan off faster—working for a non-qualifying employer, depending on the wage discrepancy.

Plus, you have to work for your qualifying employer for 10 years. If you switch jobs, you risk losing that benefit.

And let’s take a look at income-driven repayment for a sec. Sure, it sounds like a good deal—you hit financial difficulties, you get your loan payment reduced to an affordable fraction of your disposable income.

But the thing is, your interest keeps ballooning when your payments go down that much. And there are plenty of horror stories about people who see their loans grow to unreasonable amounts under income-based repayment for just that reason.

See also: I Keep Paying, But It's Like Pouring Water Into a Bucket With No Bottom

Refinancing is a way to get a lower monthly payment by lowering your interest—so your loan doesn’t balloon when you pay less per month. In the long run, it can be a safer bet than income-based repayment.

You don’t have to accept your student loan situation as it is—there are better options out there. Check out Refi Ready to see how much better.

Published in: Refinance

About the Author
Jen Williamson

Jen Williamson is a freelance writer living in Brooklyn. She has written for a variety of industries, including software, education, business, and personal finance. Prior to that, she worked at an adult literacy nonprofit in Philadelphia, where she coached nontraditional students in passing the GED test and applying for college. When she isn’t writing or reading—which is rare—she can usually be found planning her next travel adventure, training for a marathon, or sneaking in somewhere she’s not supposed to be. Read more by Jen Williamson