What is the essential question around refinancing your student loans? It’s probably this:
Is refinancing worth the hassle?
Let us answer your question with a question: how many other ways can you make $20,000 in one hour?
Does that number seem too good to be true? Well, it’s not. Most people who qualify for refinancing, either with or without a cosigner, save an average of $259 on their monthly payments and $19,231 over the life of their loans.
What’s the catch?
When it comes to student loan refinancing, there really is no downside. Sure, you’ll have to spend a little time going through the application process, but after that, you stand to save thousands of dollars.
When you refinance a mortgage or a car, you often have to pay a fee. However, most lenders don’t charge fees for student loan refinancing. That means your total amount owed will not increase, even while you take advantage of lower interest rates and lower monthly payments.
Let’s do some math
Even if you’re not a math person, you’re going to love these equations we’re about to bust out.
Say you have a $50,000 loan with a 6.5% interest rate.
- If you refinanced at 5.5%, you’d save $500 in interest in the first year
- If you refinanced at 4.5%, you’d save $1000 in the first year
If you had a $50,000 loan with a 25-year repayment period at 6.8% interest, you’d pay $350 each month—and over $54,000 in interest. Yes, that loan would cost you over six figures by the time you finished paying it off.
If you qualified to refinance that $50,000 loan at 4.0% for 15 years…
- You would pay about $20 more a month, BUT ...
- You’d save over $37,000 in interest
- AND pay the loan off 10 years earlier
The total cost of the new loan would be just under $67,000 instead of $100,000.
Another money-saving benefit
If you hold student loans that carry a variable interest rate, the amount of interest you pay is controlled by market rates.
Imagine a payment that jumps from $316 a month at 4.5% to $418 at 8% the next year. That’s an increase of $1,224 a year—just to pay interest. (Editor’s note: ouch!)
When you refinance, you’ll save more and secure a fixed interest rate that will remain the same for the entire repayment period.
Calculate your savings
Ready to investigate how much you could save?
Check out our Student Loan Refinancing Calculator to see how refinancing could help you.