Deciphering Student Loan Refinance Rates

Deciphering Student Loan Refinance Rates

BIG Ideas:

  • Refinancing student loans could help you lower your monthly payment, reduce the interest you pay over the term of your loan.
  • To qualify for a refinance student loan with a private lender, you’ll need stable income and a good credit score, or to have a co-signer.
  • When comparing student loan refinance rates from different lenders, look at the Annual Percentage Rate (APR), which represents the total cost of borrowing, including fees. 

When it comes to borrowing, interest rates matter a lot. So, if you’ve borrowed to finance the high cost of college, the rates on your loans can impact your monthly budget and your financial plans and goals long after school ends.

That’s why many student loan borrowers refinance their loans to reduce the interest they pay. Refinancing involves replacing higher-interest existing federal and/or private student loans with a new loan, usually from a private lender.

Understanding the Pros and Cons of Refinancing

If current interest rates are lower than the rates you have on your student loans, you may be a good candidate for refinancing. Refinancing offers a variety of benefits. It could help you:

  • Reduce your interest rate to lower your monthly payment and the amount of interest you pay over the life of your loan.
  • Consolidate multiple loans into a single loan with one payment.
  • Turn an adjustable-rate loan into a fixed-rate loan to make budgeting easier.
  •  Remove a co-signer on a loan.
  • Change the terms of your loan to make your monthly payments more manageable. Just keep in mind that if you extend your repayment term, you’ll pay more in interest over the term of your loan.

There is one big drawback to refinancing student loans. When you replace federal loans with private loans, you will give up federal benefits, including Income-Driven Repayment and loan forgiveness. So, if you plan to take advantage of these benefits, refinancing with a private loan might not be for you.

The Qualifications For a Private Refinance Loan

When you refinance with a private student loan, you must meet certain qualification guidelines, which can vary from lender to lender. In general, you must have:

  • Stable income.
  • A good credit score. Better scores usually mean better rates.
  • A low debt-to-income ratio (calculation used by lenders to compare your monthly debt payments to your monthly gross income).

If you don’t meet the qualifications, you could consider having a co-signer for your student loan refinance.

How to Compare Student Loan Refinance Rates

Student loan rates and terms can vary significantly from lender to lender, so be sure to shop around private lenders, including banks, credit unions, and non-profits like Brazos.

Here are some tips for refinancing student loans:

  • Compare more than just student loan refinance rates. Lenders also vary in repayment terms, fees, and qualification requirements.
  • When comparing student loan rates, look at Annual Percentage Rates (APRs), which represent the total cost of borrowing, including interest rate and fees. This will allow you to compare apples to apples when shopping multiple lenders.
  • Use prequalification calculators to help you determine refinance student loan rates and terms without impacting your credit score.
  • Read the fine print to see if there are prepayment penalties if you want to pay your loan back early.

Brazos is Here to Help You Refinance and Save

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 offer competitive rates that can help you lower your monthly payments and reduce interest fees. Contact us to learn more.