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How Much Money Are You Wasting by NOT Refinancing Your Student Loans?

January 20, 2020 By Kevin

The average student owes $35,051. If you owe student loan debt in this range or higher, you may be wasting money by not refinancing.

How much money are you wasting by not refinancing your student loans

Whether or not you can benefit by refinancing your student loans will depend upon the interest rate that you are paying on your current loans.

Private source student loans usually carry higher interest that includes variable rates that could start low, but rise over the course of the loan term. Private student loans are also credit-based, so interest rates can run into double digits if you have less-than-perfect credit.

Here’s information that you can use if you are interested in refinancing your student loans.

Know the Difference Between Student Loan Refinancing and Consolidation

When it comes to student loans, the terms “refinancing” and “consolidation” are sometimes used interchangeably. In fact, they are two very different processes, and generally involved two different student loan types.

Student loan refinances are provided by private money sources, such as banks and online lending platforms. They can be used to refinance both federal student loans and private student loans.

The advantage of a refinance is replacing existing student loans with a new loan that offers a lower rate of interest. This can often result in a lower monthly payment, which can be made still lower if you can also extend the repayment term of the loan.

The disadvantage of doing a student loan refinance is that you must credit qualify for the loan. The lender providing the refinance will consider your credit history, your income, and your debt-to-income ratio in determining whether or not to extend you a loan. For this reason, refinances work best for borrowers with strong financial positions. A weak financial position can result in either higher rates than you currently have, or outright loan decline.

Student loan consolidations are available only for federal student loans. The general purpose is to consolidate several federal loans into a single loan with one monthly payment. Unlike student loan refinances, consolidations do not require that you be credit qualified in order to take the loan.

The primary negative with a consolidation is that it will not lower your rate of interest on your loans. Consolidation loans instead use a weighted average of the rates you are paying on your current outstanding student loans. If you have several loans, that weighted average will result in a new rate that is lower than the rate on some loans, but higher than on others. However, you can still have a lower monthly payment on a consolidation loan if the term on the new loan is longer than the various terms on your current loans.

Still another disadvantage of consolidations is that they apply only to federal student loans and not private loans.

We’re going to discuss student loan refinances in this article. If you would like to consider a consolidation loan instead, you can get more information at Student Loans.org from the US Department of education.

Be Careful When Refinancing Federal Student Loans!

In refinancing your student loan debts, it’s important to understand that interest rate is not the only consideration. Federal student loans come with certain consumer protections, and those protections will be lost in the event that you refinance those loans through a private lender.

Those protections include emergency forbearance as well as income-based repayment plans (IBRs) and public service loan forgiveness (PSLF), that will enable you to either lower your monthly payments based on your income, or have your loans forgiven entirely by working in government jobs for at least 10 years.

Where to Refinance Your Student Loans

One of the more popular student loan refinance companies is:

SoFi Student Loan Refinancing

SoFi is coming up quickly as an online peer-to-peer lending platform that specializes in student loan refinances. One of the biggest advantages SoFi offers is in its underwriting criteria: the platform uses nontraditional credit underwriting, and considers merit (education and career experience) and employment history, in addition to your credit profile. SoFi states that their members save an average of $14,000 when refinancing their student loans through the platform.

You can refinance both federal and private student loans and there are no application or origination fees. Loan terms can be up to 20 years. Fixed rate APRs range between 3.50% and 7.74%, while variable rate APRs are between 2.13% and 5.93%. You can refinance up to the full balance of your qualified education loans.

SoFi also offers unemployment protection. In the event you lose your job, your loan payments will be suspended for up to 12 months. In the process, SoFi will actually help you to find a new job.

Have you refinanced your student loans?  Why or why not?

Let us know in the comments below!

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Reader Interactions

Comments

  1. Michelle D. says

    March 17, 2016 at 9:56 am

    This is an extremely helpful article, and possibly an answer to prayer. My husband and I went to our local bank about our student loan and they would not refinance because there is no collateral connected with student loans. I am going to look into these options and see if we can get something done here, because at this point, it seems like not matter how much money we throw at the loan, half of it goes to paying interest! Crazy.

    • Bob says

      March 17, 2016 at 3:02 pm

      I love hearing that Michelle!

  2. Jenni says

    March 17, 2016 at 10:19 am

    Thank you so much for this article!! I saw an ad online for SoFi and wondered if it was a scam. It’s definitely not! Refinancing will cut my repayment time from 20 years to 10, with only a $50 bump in monthly payment. I’ll save $000s!! YOU GUYS ROCK! =)

    • Bob says

      March 17, 2016 at 3:02 pm

      You are welcome Jenni!

  3. SPK says

    March 17, 2016 at 1:46 pm

    I think Do the something

  4. Kayla says

    March 17, 2016 at 3:49 pm

    Those sound like wonderful options. I went to a community college, from what I can tell I’m not able to refinance through either of the first two (I was hoping for the variable rate with it so low!) do you know of any other options for me?
    Thanks!

  5. Karen Waddell says

    March 18, 2016 at 6:23 am

    What a time appropriate article! Thank you. I will speak with my husband and send this to my son who is interviewing and preparing for graduation with his Business Administration degree! Hopefully this will alleviate some of his stress about repayment and he will be able to pay it off early to save even more!

  6. Jennifer Wilson says

    March 18, 2016 at 6:41 pm

    Some years ago, I was raked over the coals by some church people because they told me I should consolidate my student loans. I had a reason for not doing it, but that didn’t seem to matter. I had an older loan (I believe this was a pre-1993 rule) that if you became permanently disabled, or had a child permanently disabled, ALL your student loans were forgiven. I paid off my loans 10 years ago, so I don’t remember specifics. The one thing I learned was no matter what people *think* they know, sometimes a clause can make the difference in your loan decisions. Thankfully I never needed to use that, but I have to say it gave me peace of mind that was worth not consolidating the loans. Yes, I might have gotten a bit smaller interest rate, but it wouldn’t have been much, and I would have had to given up the comfort knowing that is tragedy happened, I wouldn’t have to try to pay off my student loans. I know times have changed and comparing college loans from my day to those of current students is like comparing apples and oranges, but just wanted to share my experience.

  7. Justin says

    March 22, 2016 at 10:44 pm

    I tried to refi my loan which is at 8% fixed. The new option would be at 6% but could go all the way up to 19%.

    I feel like there is no other option and that was not a good option! It was through a Student Loan Credit union.

    UGH!!

    • Maggie says

      April 18, 2016 at 10:36 am

      Don’t give up, Justin! If your refinancing options look less than optimal now due to financing criteria, be sure to continue to search for your options. Refinancing can be a “quick fix” to some brutal interest rates, but sometimes patience, diligence and faith are needed to find your best refinancing option and to position yourself to the bank/institution’s refinancing criteria. Good luck in your refinancing market research…and ask a lot of questions along the way!

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