You don’t need to be stuck with the student loans and interest rates you have today. Currently, the federal funds rate (the rate set by the Federal Reserve that allows banks to lend to each other) is essentially 0% to help stimulate the economy, which means all other financial products have also adjusted down their interest rates to make borrowing available to more people. This means that you may be paying too much for your student loans.
Today’s blog will cover the pros and cons of refinancing, and then suggest some options for you to refinance. Please keep in mind that these may include affiliate links that help keep the lights on at Save My Cents.
Pros of refinancing your student loans
Lower interest rates – interest is the cost of you having a loan, and the lower that interest rate, the more quickly you can pay off your student loan.
Consider a $30,000 student loan, 10 year term with monthly payments, 6% interest. This loan would cost you $9,967 in interest. If your interest dropped to 3%, you’d pay half – $4,761.87 in interest. Think of what you could be doing with an extra $4,700 in your bank!
Simpler monthly payments – Do your student loans read something like this: Group A – loan 1, loan 2, loan 3. Group B – loan 4, loan 5, loan 6? If you’re taking out tens of thousands of loans, chances are, you might be paying off multiple little loans that are grouped into a larger loan that are then serviced by different student loan servicers. The mental load of keeping track of more minimum payments, bills, details, can be draining. Refinancing your loan could make your life simpler if you also consolidate your loans onto the same interest rate.
More motivation to pay them off – Refinancing a loan can sometimes bring a sense of newness to your debt free journey and motivate you to work even harder on paying them off.
Cons of refinancing your student loans
You lose valuable federal benefits – during the COVID-19 pandemic, the federal government suspended all federal student loan payments, interest, etc., for everyone who had eligible federal student loans in the U.S. Unfortunately, for those who had moved to private loans, these benefits would not be available. Federal loans can also be eligible for Public Student Loan Forgiveness as well as income-driven repayment programs. Private loans typically do not offer any of these programs.
Your loan term resets – and sometimes you might be paying more – Just because you get a lower interest rate, does not always means that you end up saving on interest rate. This is especially true if you refinance your loans, but end up lengthening the term, which is the total time you have to pay back your loans. If you have 4 years left on a loan, but you refinance for a 6 year term, sometimes the math won’t pencil out, which is why it is important to use an online calculator to double check the new loan terms you are being offered.
Refinancing options
There are many lenders out there who can help refinance your student loans. I strongly recommend that you shop around and don’t just go with one lender! Here are some options to consider.
Sofi – Sofi is a well-known online financial institution that offers banking, personal loans, and student loans. Sofi started out as primarily a refinancer of student loans – this is their specialty – and the company has helped refinanced over $30B worth of loans and comes well-recommended. You can consider clicking my referral link which would get you a $300 welcome bonus.
Juno – Juno uses the power of group negotiations to get you lower interests on your loans. When you first sign up for Juno, you enter your email and some details about your loans… and there is no credit check in the beginning when they first go out to negotiate. I like this aspect about Juno because it means you can get a sense of what lenders might offer you, without it impacting your credit history. Once you pick a lender, then you will go through the standard application process and credit check with that lender. Juno has helped secure loan financing for about ~$100M in loans, so they’re a startup. I’ve partnered with Juno to create a special page just for those who are refinancing student loans, so you can learn more about what they do
Nerdwallet reviews – you should always check your offers against a search on NerdWallet, which is my favorite website that reviews financial services ranging from HYSA to student loans, credit cards, and more.
Don’t feel ready to refinance? Not to worry, take your time to figure out your one next step. Check out my 100% free 10 Steps to Student Loan Freedom guide to figure out what are some easy things you can do right now, to get on a debt free journey with your student loans.
