Why It Makes Sense To Refinance Student Loans

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This is a guest post from Drew of the Student Loan Report. Enjoy!

Many college students need to borrow money to pay for college from both the government and private lenders.  If you have borrowed from multiple lenders, the due dates for each loan repayment can become blurry or the payments might be too much for your current salary. 


If you can relate to this scene or simply want to lower your monthly payments, refinancing your student loans with a private lender can help alleviate the stress of missing a payment while reducing your monthly payment amount.

Not only can you save money through refinancing, you can also alleviate the stress on your budget.

What Is Student Loan Refinancing?

If you have student loans, it is very likely that you have received offers to refinance your loans.  Student loan refinancing is combining all your current federal and/or private student loans together into one loan with new terms.  This means you only have one due date instead two or three. 

Because refinancing is a new loan with new repayment terms, you might also qualify for a lower interest if your credit score and creditworthiness have noticeably improved since the origination of your original loans. 

Why Refinance Student Loans?

There are several advantages of refinancing your current student loans.  Here are a few reasons why:

Lower Monthly Payment
Having all your loans combined into one you have essentially closed your old loan and received a “fresh start” with your new refinanced loan.  This means new repayment terms and a lower monthly payment than before although your principal still remains the same. 

If you only make the minimum monthly payment, it will take longer to repay the loan, but a lower monthly payment can make a world of difference for your monthly budget.  And, it can make your student loan payments affordable until you attain firmer financial footing. 

Of course, you can always prepay your loans to pay them off earlier.  Just make sure the refinancing option you choose does not include a prepayment penalty if you plan to pay off your loans early.

Lower Interest Rate
If you have been working and paying bills on-time for a year or two after college graduation, there is a good chance your credit score has increased since you received the original student loans. 

If your credit score has increased by 50 to 100 points there is an even greater chance that you can qualify for a lower interest rate when you refinance.  In addition to having a lower monthly payment, your loan balance will also accrue less interest which means you save money in the long run. 

Depending on your creditworthiness, principal amount, and type of payment terms, your rate can be as low as 2.13%. If you don’t have a decent credit score as of now, here are some great tips to improve it.

Save Time
A single loan means you only have to make one payment per month.  This makes it easier to track expenses and can also allow you to focus repaying a single loan. 

Refinancing removes the guesswork of trying to calculate which loan to dedicate extra money to in order to pay the lowest amount of interest possible.  With a refinanced loan, there is only one interest rate to worry about and you can pay it off as quickly as you want to.

What Types Of Refinancing Is Available?

When choosing to refinance your loans, there will be a couple decisions to make.  The primary decision will be if you want to only make “Interest-Only Payments” or “Full Principal & Interest Payments.” 

With the first option, your monthly payment for the first year or two will only pay the interest accrued each month.  In year two or year three, your monthly payments will increase and the money will go towards the principal and the monthly interest accrued.  This might be a good option if you are just starting out your career and need some time to get established. 

The second option is to immediately start payments on the principal and interest accrued.  You will pay off your loan sooner with this option and will spend less money long-term compared to interest-only loan installments. 

Another decision you will need to make is deciding between a fixed or variable interest rate.  Nobody can predict the future and if interest rates will increase or decrease, it is probably best to choose a fixed interest rate if you plan on using the full term of the loan to repay your student loans. 

If you plan to pay off your loans within a couple years, a variable interest rate is the better option as you will most likely qualify for a lower interest rate than with a fixed interest rate loan.   

There are many refinancing options to choose from and there should be a loan to fit your needs.  To save even more money, be sure to choose a loan that does not charge any application or origination fees and will not penalize you for prepaying.  Refinancing might be easier than you imagined.    

Drew Cloud is the founder of the Student Loan Report – a site dedicated to providing our nation’s latest student loan news. Check the site, found at, for new student loan related news, advice, and opinions from experts in the industry.

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Taylor K. Gordon is a writer and money blogger. She writes on how to live your best life without going broke.

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