You’ve heard about refinancing student loans. Maybe you’ve even wondered if you would benefit from refinancing your student loan debt. Yet for some reason, you keep putting it off.
It’s not too late to refinance your student loans and take advantage of today’s low interest rates, freeing up money for other financial goals.
Read on to find out why now is the best time to refinance student loans.
If you have a higher student loan interest rate, refinancing can be one way to lower it. Currently, the best lenders that refinance student debt have variable rates as low as 2.50%, and fixed student loan rates at 3.25%. You’ll need excellent credit to qualify for the lowest rates in most cases; even if your credit isn’t amazing, it doesn’t hurt to get a few quotes and see if you can save.
You can take the refinancing quiz below to see if you’re likely to benefit from favorable student loan refinancing rates.
If you’re hoping to refinance to a lower student loan interest rate, you’ll need to act fast. In March, the Federal Reserve raised the Federal Funds rate, a key factor influencing current student loan rates. The Fed is expected to bump rates at least twice more in 2017, with the next rate hike projected for June. So if you’re hoping to get a lower rate by refinancing student loans, today’s rate offers are probably your best bet.
With higher interest rates on the horizon, student loan borrowers should move today to refinance their debt. Refinancing now will be key to take advantage of lower interest offers. It could also be smart to refinance from a variable-rate student loan to a fixed-rate loan to avoid potential rate increases in the future.
If refinancing student loans could result in significant interest savings for you, there are few good reasons to put it off. And every month you put off refinancing could cost you.
Take, for example, Silvia, a borrower who has student loan rates at 8.00%. If she is just entering repayment with a balance of $35,000, she will face monthly payments of $425. Refinancing to a rate of 5.00% over 10 years, however, lowers her payments to $370, saving her almost $55 a month, or $660 a year.
If she wanted to go the extra mile, she could use her $55 in interest savings as extra monthly payments on her new 10-year student loan. Those extra payments would save her another $4,481 in interest and shave 2.4 years off her repayment period.
Use the calculator below to calculate your potential savings after refinancing student loans.
Clearly, refinancing student loans to a lower interest rate will produce savings over time. However, getting a lower interest rate isn’t the only reason to refinance. You can also refinance student loans to change your repayment term, either shorter or longer. If you opt to extend your repayment term to 15 or 20 years, your monthly payments will be significantly reduced.
Lower monthly payments free up funds you can use to work on other time-sensitive financial goals. Refinancing student loans has long-term benefits when you use this cash flow to make smart money moves. Maybe you use extra funds to save more for retirement, or you can use extra funds to put towards a down payment on a home.
While you will end up paying more in interest over the life of your loans, the trade-off for more immediate cash might be worth it for you.
Refinancing now can help you save on interest to get rid of your student debt faster (depending on the term you choose). But you can also use those saving to pay extra towards more expensive debt instead.
For instance, maybe Silvia refinances to her lower student loan interest rate over 15 years instead of 10.
Her new monthly payments would drop to $277 a month, freeing up $148 a month (or $1,778 a year) to put toward other goals. And Silvia would still save $1,170 over the life of the loan, thanks to her lower interest rate.
Silvia also has a $6,000 credit card balance with an 18.00% APR. If she paid only her $120 minimum every month, this debt would take nearly eight years to repay and cost $5,170 in interest. But what happens if she adds the extra $148 from refinancing to her monthly credit card payments?
That extra $148 knocks out Silvia’s $6,000 credit card debt in just 2.3 years and saves $3,807 in interest. That’s $4,977 of combined savings on credit card and student loan interest.
Perhaps you’ve been putting off refinancing because you’re holding out for changes to student loan policy that would make your debt cheaper or easier to repay. You could be counting on President Donald Trump’s campaign proposal for student loans, which suggested capping student loan payments at 12.5 percent of income and forgiving remaining balances after 15 years.
But should you count on it? The early Trump presidency has not prioritized the student debt crisis. And Secretary of Education Betsy DeVos has taken some administrative actions that weakened protections for student loan borrowers.
Even if Congress or Trump were to work on a student loan assistance plan tomorrow, that kind of legislation could take years to hammer out, improve, and pass. There are no guarantees that if Trump delivers on his promise, it will be in time to be of much help to today’s borrowers.
You can’t afford to leave your student loans and financial fate to politicians. If refinancing can help you save on student loan interest, go for this guaranteed savings over the gamble of betting on the future.
Of course, no one should rush into refinancing student loans without carefully considering their options. There are some downsides, too. Take the time to understand how refinancing will affect your student loans and payments moving forward before making a decision.
Once you’ve found a solution that makes sense, take action. You can quickly refinance student loans and start reaping the benefit before your next payment is even due.