Your student loan refi questions: answered

Four friends in a café talking over coffee
July 12, 2018 | Katie Pins

You’ve got student loans. You don’t want to have student loans. So, what do you do? One of your options for making payments easier is to refinance your loan. You could consolidate for a better rate and pay off your loan quicker. When you combine several high interest student loans into a single low interest rate, you can save on interest and simplify your payments. How do you know if you should refinance? We’ve provided some tips below.

What is a refinanced loan?

A refinanced loan is a new loan with a new rate and new term that’s used to consolidate and pay off your existing student loans. Many lenders allow you to refinance both federal and private loans.

Depending on the rates and terms of your existing loans, a refinance may lower your payments and lower the amount of interest you pay over the life of the new loan.

If you have multiple loans, especially with different lenders, you may find it easier to make one payment instead of many.

Is a student loan refi right for me?

If you answer yes to one or more of these statements, then refinancing your loans may be the right choice for you.

You have multiple years left on your loans. The longer you have until they're paid off, the more you may be able to save if you lower your interest rate. Let’s do some math. You have a student loan balance of $45,000 with an average interest rate of 6.80 percent. There are 15 years left on the loan. If you refinance $45,000 at a new rate of 5.50 percent for 15 years, you could save $5,719 in interest. If you decide to focus your efforts on paying off your loan, you could increase your monthly payments. If you pay off your loan at the same rate (5.50 percent) in 10 years, you could save $13,298 in interest.

You have more than one loan. A student loan refinance will enable you to consolidate several student loans, with multiple interest rates, into one easy-to-manage, affordable loan. If your current payment process is clumsy and confusing, a refinanced loan can cut down the clutter. Some lenders allow you to consolidate both federal and private student loans. Simplifying the loan process can be a priceless experience because you only need to pay one loan. Once your loan is finalized, the lender will arrange for your other loans to be paid off.

You have high interest rates and your credit has improved. Oftentimes your credit isn’t very established when you initially take your loan out. This means your credit score may have been lower, meaning higher loan rates. When you refinance your federal and private student loans, you could end up with an interest rate that's lower than your current rates. Lowering your rate, even a little bit, can help you pay off your loan quicker and free up some money.

Your monthly payments are too high. A refinanced loan can lower your monthly payments, especially if you have the option of choosing your term and rates. There are two types of rates: fixed and variable. But which is better? The short answer: it depends on how comfortable you are with change. If you prefer an interest rate and monthly payment that won’t change over the life of the loan, then a fixed interest rate might be your best choice. If the lowest possible starting rate is important to you—and you can live with ups and downs in the rate based on the underlying index, a variable rate may be best. You cannot control the rate on the loan so you may get a very low rate or your rate could increase.

How can I help my chances of getting a great rate?

There are a few factors you need to consider before you refinance. First, you need to have a good credit score because your rate is often dependent on your credit score. You can work on boosting your credit score. Be diligent about your payments, know how your credit score is calculated and make it a habit to monitor your score.

Second, your current loans need to be in “good standing” to get a great low rate. Continue to make your monthly payments. This will show that you are not a risky investment for lenders and they will be more likely to want to finance your loan.

Third, refinance after you’ve been steadily employed. A lender will even look at how long you’ve been with your current employer. Give yourself at least six months at your current job before a loan refi. Speaking of employment, a lender will give better rates to people with a healthy debt-to-income ratio. The more you can show that you are in control of your debts, the better.


Your life does not need to be put on pause because you have student loans. Refinancing could definitely make your life a little easier. As you pay off your loan, know that you can still buy a home with student loan debt and think of clever ways to save so that you can pay off your loan a bit quicker.

Katie Pins is a marketer fascinated with finance. Whether the topic is about the psychology of money, investment strategies or simply how to spend better, Katie enjoys diving in and sharing all the details with family, friends and Money Mentor readers. Money management needs to be simplified and Katie hopes she accomplishes that for our readers. The saying goes, "Knowledge is Power", and she hopes you feel empowered after reading Money Mentor.

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