Why lower interest rates are good for student loan refinancing

By refinancing¹ your student loans, you could save on interest, reduce your monthly payments, and enjoy more wiggle room in your budget². Since interest rates are currently low, you may want to take advantage of the situation and lock in a better rate through a refinance now. 

Below, we’ll explore the answer to the common question, “do interest rates affect student loan refinancing?”  We’ll also dive deeper into why lower interest rates are ideal for a student loan refi and how you can determine whether refinancing is right for you. 

How lower rates benefit student loan refinancing

The higher your interest rate, the more you’ll pay in interest over the life of your student loans. That’s why a lower rate on a refinance is essential if your goal is to save money. If you’re able to lock in a better rate than the rates you’re currently paying, you may spend significantly less on interest.

While a higher credit score and more stable financial situation might lead to a lower interest rate, so could rate cuts by the Fed. Depending on your circumstances, refinancing with a private student loan lender may be worthwhile when rates go down.

Factors to consider before refinancing 

Before you go ahead and refinance your student loans, it’s important to think about your unique situation and determine whether this strategy is actually worth it. Here are several factors to consider:

Your goals

So, can student loans be refinanced at a lower rate? The answer depends on your situation. However, even if you’re able to land a better rate, think about your financial goals and personal motivations to determine whether this strategy makes sense. You might benefit from a student loan refi if:

• You want to save money on interest: Refinancing could be a smart move if you want to lower your interest charges and reduce the overall cost of your student loans. You might be able to save.

• You’d like more repayment flexibility: When you refinance your student loans, some lenders, including Earnest will let you choose between a variable or fixed interest rate. If you currently have a variable interest rate, for example, switching to a fixed rate loan could leave you with more predictable payments.

• You’re unhappy with your current loan provider: Fortunately, there are many lenders who offer student loan refinancing. If you’re displeased with your existing lender, refinancing to a different lender may be a good idea.

Types of loans you have

If you have federal loans, you have access to hardship protections, such as income-based repayment plans³ and forgiveness options. Once you refinance, your federal loans will turn into private loans and you’ll miss out on these federal perks. It’s up to you to determine whether a potentially lower rate and interest savings are more important than federal protections. 

Your qualifications 

A lower rate environment doesn’t automatically mean you’ll get approved for a better interest rate. Student loan lenders will look at your credit score, income, and other requirements to determine your interest rate. Note that if you don’t have the best credit, a trustworthy cosigner may be able to help you land a lower rate. Check out Earnest’s eligibility requirements to get an idea of what you need to get approved for a refi.

Potential fees

Some lenders charge fees to refinance your student loans. Unless you opt for a no-fee lender like Earnest, it may be more cost-effective to stick with your existing loan term than to pay for refinancing. Our refinance calculator could help you do the math and determine whether a refinance can actually save you money.

What to do if you decide to refinance 

As you can see in the example below*, fee free refinancing with Earnest could reduce your monthly payments and free up your budget. It might also save you:

*Refinance example listed above is for illustrative purposes only and may not be representative of rates or terms offered by Earnest. Savings are not guaranteed and may vary.  

If you choose to refinance, do some research and compare the rates and fees of several lenders. Many lenders, including Earnest, let you check your rate for free. Once you zero in on the right lender, you may go ahead and apply online. 

Ready to reap the benefits of lower market rates and potentially save some serious money on your student loans? Check your rate with Earnest in under two minutes, with no impact to your credit score.

This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

¹ Please note that you may lose benefits associated with your underlying federal loans, such as federal Income-driven Repayment Plans (an example of which is the SAVE plan), Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options, if you refinance into a private loan. If you file for bankruptcy, you may still be required to pay back this loan.

² Choosing to refinance to a longer term may lower your monthly payment, but increase the amount of interest you may pay. Choosing to refinance to a shorter term may increase your monthly payment, but lower the amount of interest you may pay. Review your loan documentation for the total cost of your refinanced loan.

³ As a result of ongoing court actions, the terms of some Income-Driven Repayment (IDR) plans, including the SAVE plan, may be subject to change. Please refer to studentaid.gov for the current status of these plans.

⁴ Earnest’s Loan Cost Examples: These examples provide estimates based on principal and Interest payments beginning immediately upon loan disbursement. Variable APR: A $10,000 loan with a 15-year term (180 monthly payments of $118.28) and a 11.69% APR would result in a total estimated payment amount of $21,290.40. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 15-year term (180 monthly payments of $126.82) and a 13.03% APR would result in a total estimated payment amount of $22,827.79.