Interest Rates are Dropping. Should I Refinance Student Loans Now?

Refinance Student Loans

BIG Ideas: 

  • Rates on student loans have dropped thanks to the Federal Reserve’s interest rate cut.
  • Now could be a good time to refinance your student loans to lower your monthly payments and save money on interest over the life of your loan.
  • Before you decide to refinance, understand the types of loans you have and whether you want access to federal loan benefits. 

Good [financial] news! After more than 4.5 years, the Federal Reserve has lowered the federal funds rate by ½ a percentage point. That’s a fancy way of saying that interest rates on credit cards, mortgages, and other consumer loans have decreased, including those on student loans. YES!!!

It also brings up an excellent question … Is now a good time to refinance those student loans with a private loan? 

Well, before you take any steps toward refinancing higher-interest loans to a private loan, there are some important things you should know. Let’s take a look:

How Lower Interest Rates Impact Your Student Loans

There’s a good reason people consider student loan refinancing – it can help you save a ton of money over the life of your loan. The amount you’ll save depends on your current interest rate, the amount you owe, and the term of your loan.

Let’s say, for example, you have a $20,000 student loan balance with an average interest rate of 7% that you must pay back in 10 years. At the end of that 10-year term, you will pay an estimated $7,866 in interest. If, however, you refinance that student loan at a lower rate of 5.30%, you could save $2,056.

Ready to see how much you could save on your loans? Take inventory of all your student loans, then use our handy calculator to get an idea of your savings.

Why Now May Be a Good Time to Refinance

Interest rates may continue to drop as many experts predict. Or they may stay the same or even go higher. Unless you have a crystal ball, you won’t know for sure. But if you determine that you can save with the current rates, refinancing now could be a smart move. It can help you save money on interest over the life of your loan and lower your monthly payments if you keep the same loan term. That means more money in your pocket. Win!

And if rates drop after you refinance, don’t worry. At Brazos, you can always refinance again – with no fees.

Other Benefits of Student Loan Refinancing

There are more perks that come with refinancing, including:

  • Consolidating your loans. You can make paying your loans easier when you refinance multiple student loans into one private loan with a single monthly payment.
  •  Paying off loans sooner. Dreaming of a day when you don’t owe student loans? Well, you can refinance your loans to a shorter term to make that day come sooner. You’ll save money on interest, too.
  • Releasing a co-signer. If you qualify for the refinance loan on your own, you can remove co-signers, like your parents or Aunt Edna, helping you build financial independence and strengthen your credit.
  • Choosing the repayment and rate option that works for you. With Brazos, you can pick a loan term from 5-20 years to fit your financial and life goals. For example, if you want to lower your monthly payments to get relief in your monthly budget, you could refinance to a longer term. Just remember that the longer your term, the longer it will take to pay off your loan.

You can also choose a fixed or variable rate of interest. With a fixed rate, you’ll get predictable monthly payments that won’t change over the term of your loan – even if rates go higher. A variable rate, however, may give you a lower rate that can save you money. It will, however, increase your monthly payments, if rates rise.

Understand the Types of Loans You Have Before Refinancing

While refinancing may help you lower your rate and save money, it does come with drawbacks especially if you currently have federal student loans. That’s because federal loan benefits like income-drive repayment plans and loan forgiveness programs won’t be available if you refinance to a private loan with a private lender.

Consider All The Facts Before Your Student Loan Refinance

To sum it up, refinancing your student loans with a private loan can be a great way to free up room in your budget and save money on interest. But before you move ahead with refinancing make sure you:

  • Understand the types of loans you have – federal vs. private loans.
  • Don’t plan to take advantage of income-driven repayment and loan forgiveness programs, available with federal loans.
  • Know the amount you owe, the term of your loan, and the interest rates, including whether they are fixed or variable.
  • Determine how much you can save each month and over the life of the loan. Again, let our calculator help you do the math.
  • Have a good history of paying back your loans on time.

If after considering all that, you decide you do want to move forward with student loan refinancing, check out our top tips. 

Brazos is Ready to Help You Move Forward With Your Refinancing Plans

For more than 40 years, Brazos Higher Education has been helping make education more affordable for students and parents. As a Texas non-profit, we can offer you great rates to help you save money and work toward the strong financial future you’ve worked so hard to create. Contact us today!