Student Loan Refinance Calculator
You should always refinance private student loans if you can 1) find a lower interest rate and 2) afford the payment. The student loan refinancing calculator above will show you how much you could save.
For federal student loans, you should only refinance if the following three points hold true:
- You have at least three months’ expenses in the bank (emergency fund)
- Your debt-to-income ratio is below 1.5 to 1 (meaning you make $100,000 but owe less than $150,000 of student debt)
- There’s no chance you could benefit from Public Service Loan Forgiveness program (PSLF)
When you refinance, you lose government protections. If you don’t have an emergency fund, the savings shown on this refinancing calculator are pointless because you won’t be able to make the payments.
Forgiveness programs generally look better when you owe a lot relative to your income or if you could use PSLF. That’s the reasons for points 2 and 3.
Assuming you passed my test and know you should refinance, what kind of savings could you expect?
Two Ways to Save with the Student Loan Refinancing Calculator
The first way refinancing saves you money is by cutting your interest rate. If you refinance $100,000 of federal debt at a 6% rate to a 5% rate, you’ll save $1,000 in the first year. If you take 10 years to pay the loan back, you’ll save a total of $5,945 on the interest (I used the calculator above to figure that out).
The second way to use the student loan refinancing calculator is to see the impact of a shorter payment term. Of course, you can make this higher payment with federal loans, which also carry no prepayment penalties.
The different is that a federal student loan’s interest rate will never change. In contrast, you generally get a lower interest rate with a shorter loan term.
If you could get a 5% rate with a 10 year term, you might get a 4% rate with a 5 year term.
Using the Calculator to See the Impact of Refinancing
With a $100,000 loan at a 6%, your standard 10 year payment would be $1,110. If you wished to pay that loan off in 5 years, you’d pay $1,933 a month.
Doing so would save you a collective $17,227 in interest from getting rid of finance charges earlier.
Here’s where this calculator comes in to see your savings:
- A 5 year fixed rate of 4% on $100,000 produces a payment of $1,841 instead of $1,933. The total interest savings are $22,725 compared with the 6% 10 year fixed rate loan. Refinancing in this case saved you $5,498 over 5 years.
- If you stuck with your 10 year loan term, you might only get 5% for refinancing since lenders charge higher rates for longer terms. Then your total savings from refinancing are $5,945 like we stated earlier on the post. You save slightly more, but those savings are spread out over 10 years. The per year savings are lower.
Hence, you could save $1,099 in interest per year with a 5 year fixed rate from refinancing or $595 per year with a 10 year fixed rate. You save more money from refinancing to a shorter term at the cost of a higher monthly payment.
Plug in your own numbers to the student loan refinancing calculator above and see how much it could save you.
Of course, if you refinance to a term longer than the 10 year, you save money on a per year basis but you could pay more long term in total interest just from taking longer to pay off your loan.