Should you refinance your student loan?

If it’s been a while since you started student loan repayment, now may be a good time to consider refinancing your loans.

Chances are, your credit situation has improved since you graduated, and you may qualify for a lower interest rate or a shorter loan term. This will help you save overall on the total amount you’d be paying in interest over the life of your student loans.

Lower interest rates and shorter loan terms will save time and money

Consider a student loan balance of $100,000 with a current interest rate at 7%. Today, many lenders are offering 5- to 25-year fixed rate loans at slightly more than a 5% interest rate, to potential borrowers with decent credit scores of 720 or higher.

This 2% in interest savings, plus the option to shorten a loan term from 322 months to 120 months, will help a borrower save more than 15 years in loan payback time and more than $100,000 in interest costs! Not too shabby, right?

Consolidate your loans to simplify your payments

Besides saving cash, refinancing your student loans may make your life easier. Instead of paying a handful of lenders each month, you’ll only need to make a single payment to the lender of your choice.

Calculate your potential savings with a trusty calculator

You can calculate your potential refinance savings using this calculator.

Just keep in mind: To qualify for better, money-saving opportunities, you will likely need a good to excellent credit score ranging between 680 to 720+, respectively.

Lower credit scores may not result in better loan offers

If your credit score is lower than 680, this doesn’t mean you can’t refinance your loan, but you may find it difficult to obtain a better loan offer than your current loan. You should only refinance your student loan if you can save substantially in the cost (interest rate) and/or repayment time (loan term).

In cases where borrowers have insufficient credit history or low credit scores, a creditworthy cosigner may help to satisfy the eligibility requirements for better loan terms.

If you’re interested in shortening the amount of time you have left on your loan or cutting down your monthly payments, a loan refinance may be worth considering.

Consider any current and future lender benefits and features

You should also consider any current loan benefits and features, however, such as loan deferment and forgiveness options. A new loan with a different lender may not offer similar options.

To make sure refinancing is the right choice for you, read more about the pros and cons here.