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Money Monday - When to Refinance Your Student Loans

With college grads carrying around 1.3 trillion dollars in student loan debt, there's no shame to be had in feeling glum about your student loans. The average debt someone that graduated from the class of 2016 is lugging around is $37,000 in student loans. A 15 year repayment plan at the average interest rate will set you back $386 a month in payments. That adds a total of $32,545 in interest to your loan. That's right. The already inflated cost of college just doubled thanks to interest. 


Does the Math Make Sense to Refinance?

With the average student loan interest rate hovering around 9.66%, it should be easy to justify refinancing. Rates in most refi programs right now range from 3.25 - 7%. One or two percent might now sound like much, but it makes a significant impact over time. For example, if you are able to refinance at 5.25%, you'll be able to go down to a 10 year loan with a $396 monthly payment. You'll be paying $10 more a month, but you'll also pay your loan off 5 years faster. Total interest would be $10,637, saving you over $20,000 in interest. 

On the flip side, if you are having a hard time making the high monthly payment, you could spread the loan out over 20 years at a 6.25% interest rate. That would make your new monthly payment around $280. You'll be adding $100 to your monthly budget. Your interest over the life of the loan will be $27,906, which is still a savings of around $4,500 over the life of the loan.


The Math Adds Up, but What Else Should You Think About?

  • Any reputable student loan refinance program should be able to refinance your loans without charging you a fee, so be on the lookout for origination fees.
  • If your current student loans are with the federal government, refinancing will remove some of your repayment options. For example, you'll lose access to the income based repayment programs. The company you refinance with will provide some disclosures about this, but think through it before you get to that step.
  • Check around for rates. There are a number of big players in the student loan refinancing space. Most will pre-qualify you for a rate before you apply. The pre-qualification process is a soft credit inquiry, so it won't impact your credit score.
  • Don't forget that you can deduct up to $2,500 of student interest paid each year from your income on taxes.


So, What's Next?

If it seems like the right time for you to look at refinancing, here are our three favorite companies that allow you to check your new rates before you apply. Save your credit score while trying to save pennies!


1) SoFi 

  • Average lifetime savings - $22,359
  • Fixed rates as low as 3.25% variable rates as low as 2.75% with auto pay
  • Loan terms: 5, 7, 10, 15 and 20 year
  • No application or origination fees and no prepayment penalties
  • Auto pay discount of 0.25%
  • Check Your Rate


2) Earnest

  • Average lifetime savings - $21,810
  • Fixed rates as low as 3.25%. Variable as low as 2.57% APR with auto pay.
  • Loan terms 5,7,10, 15, and 20 year
  • No application or origination fees.
  • Auto pay discount
  • Check Your Rate


3) Laurel Road

  • Average lifetime savings over $20,000
  • Fixed rates as low as 3.5%. Variable as low as 2.99% APR with auto pay.
  • Loan terms 5,7,10, 15, and 20 year
  • No application or origination fees.
  • Auto pay discount
  • Check Your Rate


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