Refinancing a student loan allows you to adjust the interest rate and repayment term of your student loans by taking out a new loan that pays off some or all of your existing student debt.

Fixed 10-year refinance rates are currently at all-time highs, which could make it a good time for you to refinance your private student loans if you qualify. Due to COVID-19, payments and interest on federal student loans have been suspended until September 30, 2021. This means that, at this time, refinancing your federal loans is not the best idea.

Student loan refinancing rates have fallen since April

The Federal Reserve has responded to the coronavirus pandemic by cutting interest rates to record levels. As of October 2020, the Federal Reserve’s target fed funds rate ranged from 0% to 0.25%. Since student loan refinance rates generally follow the trend of the Federal Funds Target Rate, this means you may be eligible for a lower rate than a year ago.

If the economy improves, the Federal Reserve will likely increase its federal funds rate range. This will make it more expensive for lenders to borrow money, which means that rates will likely go up as well. This is why now is a good time to take advantage of low rates before they go up.

You can see how much the rates have fallen in the graph below:

See more : Historical trends in student loan refinancing rates

How much could I save by refinancing?

The average federal student loan payment is $ 393 per month, although it may be lower or higher depending on your degree. From 2006 to 2021, the average interest rate for undergraduates was 4.66% and the average interest rate for graduate students was 6.22%.

Let’s say you had $ 35,359 in student loans at 6.22% interest. With a 10-year repayment term, your minimum monthly payment would be $ 396 per month and you would pay $ 12,218 in interest charges over the life of your loan.

If you refinanced your debt and qualified for a 10-year loan at 4% interest, your monthly payment would drop to $ 358, saving you $ 38 per month. Over the course of your loan repayment, you would only pay $ 7,600 in interest charges, which would save you over $ 4,600.

If you decide to refinance your student loans, be sure to consider as many lenders as possible to find the loan that’s right for you. It’s easy with Credible – you can see your rates from our partner lenders in the table below in two minutes.

How to refinance a student loan

If you decide to refinance student loans, follow these three steps:

1. Know your credit score

Several factors influence the interest rate you get, including your credit score. You will generally need good to excellent credit to get the best rates. If your credit is poor or fair, having a creditworthy co-signer may make you eligible for a lower interest rate.

Even if you don’t need a co-signer to be eligible for refinancing, applying to a co-signer could help you get a lower interest rate than you would on your own.

2. Compare Student Loan Refinance Lenders

Each refinance lender has their own rate, term, and approval requirements. You may qualify for a loan with lower interest rates or better repayment terms from one lender over another. So it’s a good idea to consider as many lenders as possible to find the right loan for you.

When you compare lenders, be sure to look at their interest rates, repayment terms, fees, and whether they accept co-signers on applications. Credible makes it easy – you can compare multiple student loan refinancing lenders in two minutes after filling out just one form.

3. Stay up to date with your monthly payments

Once you’ve refinanced your loans and your old debt has been paid off, it’s important to get your monthly payments under control. Making all of your payments on time helps you build a strong credit history and keeps you away from the risk of student loan defaults.

Setting up automatic payments can be a good way to avoid missing due dates. Some lenders also offer interest rate reductions if you sign up for automatic payment, which means you could save money and keep your loan up to date at the same time.

Is it Worth Refinancing a Student Loan?

Refinancing your student loans might be a good idea if you can lower your interest rate or lower your monthly payment. Before you decide, it’s a good idea to consider the pros and cons:

Benefits of refinancing

• Could get a lower interest rate: If you qualify for a lower interest rate, you could save thousands of dollars in interest charges over the life of your loan.
• May be able to pay off your debt sooner: If you can lower your interest rate or shorten your repayment term, you could pay off student loans faster.
• Can make reimbursement more manageable: If you refinance multiple student loans, you will end up with one loan and one payment. This could make your repayment much easier to track in the long run.

Disadvantages of refinancing

• Potentially higher interest charges: If you decide to extend your repayment term, you could get a lower monthly payment. However, it also means that you might end up paying more interest over time.
• Loss of Federal Benefits: If you refinance federal student loans, you will lose access to federal benefits and protections. These include access to income-based repayment plans and student loan waiver programs.

If you decide to refinance your loans, be sure to consider as many lenders as possible. This way, you can find a loan that matches your needs.

Kat Tretina is a Credible contributor that covers everything from student loans to personal loans to mortgages. Her work has appeared in publications like the Huffington Post, Money Magazine, Business Insider, and more.