Did you know that you can refinance your federal loans, score a lower interest rate, and pay off your debt faster than you could under the Standard Repayment Plan? Really.
If you're wondering how to pull that off, the good news is that it's not hard. All you need to do is refinance with a private lender. Here's what you need to know.
The U.S. Department of Education distributes its loans through a number of loan servicers, and FedLoan Servicing is the largest one. If they’re your loan servicer, that means they collect and manage your payments. But you don’t have to stick with them.
When you refinance your student loans, you replace multiple different loans with a single loan through a new (private) lender. You get a new interest rate—hopefully a lower one. You also set new payback terms.
People refinance different types of loans—like mortgages—all the time to land a lower interest rate. And it works the same with student loans. The average borrower who refinances lowers their payment by about $253 per month, or saves tens of thousands over the length of their loan on average.
Honestly? A lower interest rate. That's a pretty big deal (see the numbers in paragraph above).
There are other benefits for refinancing too. You can adjust the terms on your loan—either take longer to pay it off, which reduces your monthly payment, or shorten the term and pay less interest over the long haul.
You can also replace multiple loans with a single loan, so you aren’t making payments to many different lenders or servicers. It’s much easier to manage a single loan.
The federal loan disappears, and you replace it with a private loan.
There is one drawback to this ... if you're someone who is planning on using some of the benefits that come with federal loans. You'll lose access to federal perks like income-driven repayment and the Public Service Loan Forgiveness program.
The benefit, though, is the chance to score a lower interest rate.
Here's the deal: The federal government charges the same interest rate to everyone, depending on the type of loan and when you took it out. That means your rate isn’t based on your credit score.
If you have a good score, you could qualify for rates much lower under a private lender.
How much lower? The rate for federal Direct Subsidized and Unsubsidized Loans taken out after July 1, 2018 is 5.05%. Many private lenders offer low-end interest rates at less than half that. This could save you tens of thousands over the life of your loan.
Refinancing is the only way you can reduce the interest rate on a federal student loan. The federal equivalent of refinancing—consolidation—generally won’t get you a lower interest rate. Instead, the government determines your interest by taking the weighted average of all your loan interest rates, rounded up to the nearest eighth of a percent.
Curious about consolidation? Calculate your new rate using this handy online calculator.
Great question. Here are a few things to take into account.
You don’t have to go through the whole application process to get a ballpark idea. You can use our calculator here to find out how much you can save. (It only takes 10 seconds to find out. Seriously.)
If you’re getting similar offers from different lenders, consider what else makes them stand out.
For example, several of our highly vetted partner lenders have benefits that go beyond their low interest rate. They are:
Check out online reviews or do a search for the company in Twitter hashtags. See what people praise—and what they complain about.
No lender has a perfect set of online reviews, but see if customer comments are predominantly positive or negative. It's a good way to get a sense of what it’s like to work with this lender.
Refinancing your FedLoan Servicing student loan is a great way to save on interest—and reset the terms of your loan. Click here to find out if you’re Refi Ready.
Earnest empowers people with the financial captial they need to live better lives.
Using technology, data, and design to build affordable products, Earnest's lending products are built for a new generation seeking to reach life's milestones. The company understands every applicant's unique financial story to offer the lowest possible rates and radically flexible loan options for living life.
Click here to apply with Earnest and to see how much you can save.
Many ELFI customers save hundreds per month month and thousands over the length of the loan term.
Education Loan Finance is designed to assist borrowers through consolidating outstanding education loans into one single loan that effectively lowers your costs of education and/or makes repayment very simple. Education Loan Finance - backed by the strength of SouthEast Bank - combines the benefits of traditional education loan refinancing with the superior products, service, and support found in the private market.
Check out their low rates today to see how much you can save.
Attractive Bonus and Referral Programs:
Works with 275+ not-for-profit community lenders for higher approval chances
LendKey operates student loan programs for over 275 not-for-profit and community lenders across the country. By partnering with these lenders, LendKey is able to give consumers direct access to the best rates available from the most borrower friendly institutions. As the servicer of all loans obtained through its platform, you can rest easy knowing your personal information will be safe and that the best customer service team will be ready to answer your questions from application until your final payment.
Operates in all 50 states; 2nd largest student loan refinancing lender
Laurel Road is a national online lender with customers in all 50 states, the District of Columbia, and Puerto Rico. Many of our non-bank competitors are not able to lend in all 50 states.Laurel Road has grown to be the second largest player in the student loan refinancing space in large part because of our reputation as the go-to low rate provider.
For every loan they fund, they contribute to the education of a child in need
CommonBond was founded in 2011 by three MBA graduates from the University of Pennsylvania’s Wharton School who wanted to help their peers escape from high-interest student loan debt. Its original focus was on grad students, but it has since expanded to cover undergrads as well.
Of all the companies we reviewed, CommonBond has some of the best customer service. The company prides itself on being easy to reach by email, phone, or live chat. It offers networking events, expert panels, insider newsletters, and even has a program help borrowers who lose their jobs to find new ones. CommonBond also makes you feel good about choosing to refinance with them by donating money to an education nonprofit for each loan they write.
Get a personalized review of your refinancing options with CommonBond today.
Offers unemployment protection and career/coaching/networking
SoFi, which stands for “Social Finance,” was created by a group of Stanford business students who found themselves with a mountain of debt after graduation. They set out to change the student loan industry and help borrowers like themselves to get lower interest rates. SoFi has some of the lowest interest rates and, unlike the other lenders we reviewed, it has no maximum amount you can finance. However, Nevada residents can’t currently refinance with SoFi. Minimum loan balances are higher in Arizona, Massachusetts and Pennsylvania due to state laws. Additional state restrictions may apply.
Special offers for medical resident and fellow refinance products
Splash Financial is a leader in student loan refinancing with new rates as low as 3.25% fixed APR which can save you tens of thousands of dollars over the life of your loans. No application or origination fees and no prepayment penalties. Splash Financial is in all 50 states and is intensely focused on customer service. Splash Financial is also one of the few companies that offers a great medical resident and fellow refinance product. You can check your rate with Splash in just minutes.
Click here to see more of Splash's offerings and to see how you can save money.