How Much Can You Save By Refinancing Student Loans?

BIG Ideas:

• If you have high student loan balances and interest rates, refinancing could help you lower your monthly payments, save on total interest paid, and even pay off your loans sooner.
• Refinancing essentially involves replacing higher-interest federal and/or private student loans with a lower-interest loan, typically from a private lender like Brazos.
• If you refinance federal loans with a private loan, you won’t be eligible for some federal loan benefits, like loan forgiveness and income-driven repayment.

College is in (or almost in) the books. You wrote all those papers, pulled late-night cram sessions, and consumed more caffeine than you ever thought possible.

It was all worth it.

Your college experience will leave you with so much – newfound skills and knowledge, lifelong friendships and memories, and a shiny degree that will pave the way for a brighter future. It’s all good!

What’s not so good is that with the high cost of higher education, it’s likely that you’ll leave school with something else – student loan debt. Yes, that.

The good news is, you’re not alone. 20% of American adults with undergraduate degrees and 24% with postgraduate degrees have student loan debt.

But if you’re carrying high student loan balances or have loans with high interest rates, you may be saddled with expensive monthly payments that can put a strain on your budget and limit you from achieving other financial goals.

There may, however, be a way to get relief: student loan refinancing.

What is Student Loan Refinancing? And How Could It Help You?

When you refinance your student loan, you essentially replace your existing federal and/or private loans with a new loan, typically from a private lender. That loan may offer a lower interest rate that could help you:

• Lower your monthly payments.
• Reduce the overall amount of interest you must pay.
• Shorten the term of your loan to help you pay off your loans sooner. YES!

There are other benefits of student loan refinancing, too, including:

• The opportunity to swap out adjustable-rate loans for fixed-rate loans, which offer fixed, predictable monthly payments. You could also refinance to a variable-rate loan if you think interest rates will decrease.

• Simplifying your payments. With student loan refinancing, you’ll only have to make one payment to one lender.

• Removing a co-signer from your loan. If you have co-signers on your loan and qualify for a private loan on your own, you could remove the co-signer. That’s full-on adulting right there.

Determining If Student Loan Refinancing Will Work for You

Though it has its benefits, student loan refinancing doesn’t always make sense. The decision on whether it’s right for you depends on several factors, including:

• The interest rates you have on your current student loans.

• The interest rates on refinance loans. These can vary from lender to lender.

• Whether you want to take advantage of federal loan benefits, such as income-driven repayment or loan forgiveness, which would no longer be available if you refinance to a private loan.
• If you can qualify for a private student loan, which requires you to have a steady income and good credit, or a co-signer who meets those qualifications.

Once you have this information, you can determine how much refinancing could save you each month and overall by using our handy Refinance Calculator.

Other Factors to Consider Before You Consider Refinancing

You might love the thought of lowering your monthly payments and the overall interest you’ll have to pay on your loans, but there are some downsides to refinancing. One of the biggest is that refinancing federal loans with private loans will result in the loss of some important benefits, including:

• Income-Driven Repayment (IDR) plans limit your monthly payment based on your discretionary income.

• Loan forgiveness programs, including Public Service Loan Forgiveness (PSLF).

• Deferment and forbearance. Not all loan terms are the same. Options to postpone payments for financial hardship or special circumstances may differ between federal and private loans.

Steps To Take Before You Refinance

If you don’t expect to capitalize on these federal loan benefits and want to move forward with refinancing, here are some steps you can take now:

• Gather information on your existing debt. You can get your federal student loan rate and balances by logging in to the federal student aid website. To get your balance and rate on private student loans, you can review your statement.

• Shop around with private lenders. Remember that, unlike federal loans, private loans have rates and fees that can vary significantly from lender to lender.

• Review your monthly budget to determine what you can afford. For example, are you looking to lower your monthly payments? Or would you consider paying more each month to shorten the term of your loan to pay it off sooner?

• Check your credit. If you have a low credit score or don’t yet have a strong credit history, consider getting a co-signer.

As you can see, there are many positive benefits to refinancing student loans. The biggest is the opportunity to lower your monthly payments and save money. That could free up room in your budget for you to build your emergency savings or save for planned goals, like buying a car or getting an apartment.

Refinancing Student Loans doesn’t have to be a one-time decision, either. Many private lenders won’t charge you to refinance. So, if rates go down, you could refinance again to save money.

But before you make any decisions about student loan refinancing, make sure you understand all that it involves and have a good understanding of your goals and your monthly budget.

Brazos Can Help You Save Money on Your Student Loans

For more than 40 years, Brazos has helped make college costs more affordable for parents and students. As a Texas non-profit lender, we offer competitive rates on refinance student loans that can help you save and free up room in your budget. Contact us to learn more.