Learn how student loan refinancing can save you money!
Just a 1% different in your loan rate can save you $25 a month and over $6,000 in interest on your student loan. That’s the power of student loan refinancing.
In this video, I’ll not only show you how student loan refinancing works but walk you through the process to refinance. We’ll look at real examples of how much you can save and how to lower your monthly payments.
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Is Refinancing the Solution to the Student Loan Crisis?
Americans owe almost $1.6 trillion in student loans, averaging over $37,000 for everyone with a loan and payments just under $400 a month. Is it any wonder that we’re seeing home ownership plunge lower?
How can anyone afford to get out ahead, or just keep their head above water, with this kind of debt?
The interest rate on undergraduate federal student loans ballooned to over 5% last year from under 3.5% in 2012 and rates for graduate programs or Parent PLUS loans are even higher. Rarely has it been so expensive to pay for your education.
Of course, there are federal repayment plans to help manage your payments. We talked about the different repayment options in a prior video, but those interest rates are still a killer. Even if you can reduce your monthly loan payment on an income-based plan, you’re still racking up that unpaid interest which is actually growing your debt.
That’s why I wanted to do one last student loan video, this time on refinancing your loans to lower your interest rate. It’s part of a partnership with Splash Financial, a three video series on paying for college from the different student loan repayment options we talked about in our last video to how to refinance your student loans.
Splash Financial is a leading, tech-driven student loan refinance company that works with you to consolidate all your loans into one monthly payment. You may be able to get lower rates on your loans to put your payments within your budget and the process to check your rates takes less than three minutes.
What is Student Loan Refinancing?
Refinancing student loans is just taking out one loan to pay off all your other student debt. Most often, this is done by someone with higher-rate federal loans refinancing with a private lender to lower their monthly payments and save on interest. You can also refinance private loans though, so getting one loan to consolidate multiple federal and private loans.
It’s really all about that interest rate and making your monthly payment manageable.
For example, let’s say you’re fresh out of graduate school but have piled up $45,000 in student loans over the last six years. You’re now staring down that $404 a month payment on a 7% loan rate and wondering how you’re going to pay for it every single month for the next 15 years.
If you were to refinance on a 4.91% rate, that’s the current rate on a 15-year refinance from Splash, you would not only lower your monthly payment to $353 a month but also save over $9,100 in interest over the 15 years. You would have paid almost $28,000 in interest plus the loan amount on that original loan. Understand these rates are as of 5/1/2019 so check to make sure where rates are when you see this.
Check your refinance rate here – instant approval and won't affect your credit.
Even if you were only able to lower your rate by 1% on that $45,000 in debt, you’d still lower your monthly payment by $25 and save over $6,000 on interest payments.
Pros and Cons of Refinancing Student Loans
Now we’ll cover the process for refinancing your student loans but it’s actually pretty simple. First though, I want to go over a few more reasons why you might consider refinancing and then a few why you might not want to refinance student loans.
So we’ve already seen how refinancing can help you manage a lower monthly payment and save on interest. It can also just make everything easier to manage by combining multiple private and federal loans into one monthly payment.
That means less chance you just forget to make a payment and get hit by late fees.
Just from personal experience, customer service is much better on my refinanced loans versus the federal loan servicers. I’ve worked for the government as an economist and can tell you, customer service isn’t always their shining advantage. Those private loan servicers have trained customer service to help keep you on your payments and make that loan payoff as smooth as possible.
Now, refinancing your loans isn’t all roses and there are a few reasons you might not want to do it.
Refinancing your student loans will lose those income-based repayment options we talked about in the prior video. For this reason, some people choose to refinance their private loans but keep their federal loans or only refinance some of their federal loans.
If you’re working as a teacher or in the public sector, you might be eligible for loan forgiveness which isn’t available on private loans.
Also, if you have bad credit or expect to make less money in the future, you might not qualify for refinancing or might want some of those payment plans under federal loans.
A lot of this is going to depend on the interest rate you can get on a refinanced loan. Even if you think you might need that income-based repayment or might be able to get some of your federal loans forgiven, it still might not be a bad idea to refinance some of your loans if you can get a lower interest rate.
That might mean refinancing your private loans and a portion of your federal student loans to help manage your payments while working towards loan forgiveness.
How to Refinance Student Loans
It all starts with checking your interest rate on refinancing so let’s look at that process and how to get started. Checking your rate takes less than a few minutes and doesn’t affect your credit score. It’s like getting pre-approved for a loan and you won’t even need your social security number.
You start with some basic information like your name, address and school information. You can qualify to refinance with a bachelor’s degree but might qualify for rate discounts if you have a graduate degree.
Next you’ll enter your income and housing information like whether you own or rent and your monthly housing costs, then you’ll enter in the amount of student loans you want to refinance. Click check my rate and that’s it. Splash is going to instantly show you the refinancing options they can offer on fixed and variable rates. You’ll be able to see different monthly payments on each and how much you’ll save compared to your current student loans.
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All of this takes less than a few minutes and is completely free to check your rate. Rates start as low as 3.75% with five to 15-year repayment options. Splash Financial can refinance loans from $7,500 all the way up to $300,000 and rate discounts are available for those with graduate degrees.
In fact, Splash currently offers a $300 cash bonus for anyone refinancing $30,000 or more in student loans with the link I’ll include in the video description below.
If you do decide to refinance, there’s no origination fee and never a prepayment penalty. You can pay off your loans as fast as you like and save even more on interest.
There are some basic requirements to qualify for a refinance loan. Borrowers need a 700 FICO score or higher but you can qualify with a 670 credit score if you have a cosigner with FICO above 720. Getting a cosigner not only helps to qualify for the loan but also can get you a better rate. Borrowers also need to be US citizens but they are trying to open it up to others in the future.
If you do decide to take one of these refinancing offers, the application process is just as easy. You’ll first enter your employment information and provide an identification. If you’re using a cosigner, you’ll also enter their information.
You’ll then enter a little more detail about your housing information and costs, including how long you’ve lived at your current address. Finally, you’ll enter your current student loan information. This will include which of your loans you want to refinance, the amount and rate on each as well as the current servicer information.
Getting started and checking your rate takes less than three minutes on Splash Financial. Seeing those loan options on a student loan refinance won’t affect your credit, could lower your monthly payment and help you save on interest.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.