Refinancing your student loan debt can also help you pay off your debt sooner, saving you a significant amount of interest.
“Term” refers to the amount of time you have to pay off your student loan. Many federal student loans begin with 10-year terms, though they may be paid back over longer periods if they have been consolidated or if they’re above certain amounts.
Longer term loans help reduce monthly payments by dividing the amount owed into a larger number of payments. But the longer the term, the more time interest accrues on the unpaid amount, meaning you’ll typically pay more over the life of the loan.
Additionally, lenders typically charge higher interest rates for longer term loans because of the increased risk to them.
Because refinancing can lower the interest rate on your student loan debt, you may be able to afford a shorter loan term. By combining the lower rate with the shorter term, you can maximize the amount of savings you’ll realize through refinancing.
Shorter terms generally result in higher monthly payments, even when the interest rate is reduced, but will result in less interest paid over the life of the loan. The savings can be significant.
Take a look at the example below, which compares the total amount of interest paid for loans with different terms and interest rates.
How much can you save? Use our Refinance Calculator to compare your existing student loans to a Brazos Refinance Loan.