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Should I refinance my student loans? If you’re asking this question, you’re probably wondering what the benefits of student loan refinancing are. To clear things up, we’ve made a list of the six main perks of refinancing your student loans.
- Get a lower interest rate
- Choose better repayment terms
- Change your monthly payments
- Combine several loans into one
- Switch to a new loan servicer
- Earn a welcome bonus of up to $200
1. Get a lower interest rate
When you refinance, you replace your old student loans with a new one from an online lender, bank, or credit union. This new loan hopefully has a better interest rate than you had before.
Let’s say you owe $40,000 in loans with an average interest rate of 6.5%. Over 10 years, you’d pay $14,503 in interest.
But if you can refinance and qualify for a 3.5% rate, you’d pay $7,465 over the same time period. Lowering your rate by 3 percentage points would save you over $7,000!
Of course, you need a good credit score and steady income to qualify for refinancing. But if you meet a lender’s requirements, or can apply with a cosigner who does, you could save big on interest.
2. Choose better repayment terms
When you borrow a refinanced student loan, you get to choose new repayment terms. Most lenders offer terms of 5, 7, 10, 15, or 20 years.
You could choose a short term if you’re able to pay a little more and get out of debt fast. Or you could choose a long term if you need some breathing room.
Also, remember that you can pay your loan back ahead of schedule without penalty. If you choose a 7-year term, for example, but want to get out of debt in five years, you can make extra payments whenever you want.
That said, you probably can’t lengthen your term unless you apply (and qualify) for refinancing a second time.
So choose wisely, and go with a term that helps you get closer to your debt payoff goals.
3. Adjust your monthly payments
Changing your repayment terms goes hand in hand with adjusting your monthly payments. If you go with a short term, your payment might increase.
Alternatively, you could choose a longer term of 10, 15, or 20 years to lower your monthly payments. Let’s go back to that example of the $40,000 loan at a 3.5% rate.
On a 10-year plan, you’d pay $396 per month. But if you choose a 20-year plan, those monthly payments go down to $232.
You’ll be in debt longer and pay more interest overall, but this lower payment might work better for your budget.
Refinancing gives you the opportunity to adjust monthly payments in a way that works for you.
4. Combine several loans into one
Although refinancing with a private lender is different than consolidating with the federal government (that’s called Direct Loan Consolidation), it does let you consolidate multiple loans into one.
If you refinance more than one loan, you’ll replace those loans with a new, single loan. In effect, you’ve combined your old loans into one new one.
This can really simplify repayment, since you’ll only have to make one payment to a single loan servicer each month, instead of having to track several payments with different due dates.
That said, you don’t have to refinance all your student loans — you can cherry-pick which ones would benefit the most.
5. Switch to a new lender and loan servicer
Finally, refinancing gives you the chance to switch to a new loan servicer. You might welcome a change if you’ve had problems with your old servicer.
All the lenders Student Loan Gal recommends have a good reputation for customer service. Plus, some offer extra perks to customers, such as networking events and career coaching.
If you’re eager to ditch your current lender, refinancing gives you the chance to do so. Head here to see our full list of the best banks for refinancing student loans.
6. Earn a welcome bonus of up to $200
While saving money on interest should be your first priority, you might enjoy one more extra perk of refinancing: earning a welcome bonus of up to $200.
Student Loan Gal’s recommended lenders LendKey, Earnest, and Credible both offer cash back gifts of $200 to qualifying borrowers who refinance.
Laurel Road offers $120, and SoFi and ELFI offer $100.
Although this gift might be a drop in the bucket compared to your student loan balance, it could be an easy way to make an extra payment on your loans (or to treat yourself for a job well done!).
Student loan refinancing has potential downsides, too
While refinancing student loans has a bunch of perks, it’s not for everyone. Before deciding your answer to “Should I refinance my student loans?” head to this guide to learn about the potential disadvantages of this process.
For a direct comparison of the pros and cons of refinancing, head here.
Want better rates? Here are the best banks to refinance student loans:
|Variable rates start at...||Fixed rates start at...||Repayment terms||Welcome bonus||Check your rates|
|4.54%||4.49%||5 - 20 years||$200||Visit LendKey|
|4.99%||4.47%||5 - 20 years||$200||Visit Earnest|
|4.22%||3.97%||5, 7, 10, 15, and 20 years||$120||Visit Laurel Road|
|4.53%||4.40%||5 - 20 years||$100 or $200, depending on the amount you refinance||Visit Credible|
|5.09%||4.74%||5, 7, 10, 15, and 20 years||$100||Visit SoFi|
|4.53%||4.83%||5, 7, 10, 15, and 20 years||$100||Visit ELFI|