Student Loan Refinance Calculator
You should always refinance private student loans if you can 1) find a lower interest rate and 2) afford the student loan payment. The student loan refinancing calculator above will show you how much you could save.
How to know if refinancing your student loan is a good idea
For federal student loans, you should only refinance if the following three points hold true — we call this our refinancing test:
- You have at least three months’ expenses in the bank (emergency fund).
- Your debt-to-income ratio is below 1.5 to 1 (meaning, for example, you make $100,000 but owe less than $150,000 of student debt).
- There’s no chance you could benefit from federal loan programs like the Public Service Loan Forgiveness (PSLF) program.
When you refinance, you lose government protections on your loan debt, such as loan forgiveness or discharge. If you don’t have an emergency fund and won’t be able to make payments, the savings shown in this refinancing calculator could be pointless.
Forgiveness programs generally look better when you owe a lot relative to your income or if you could use PSLF. That’s the reason for points 2 and 3.
Assuming you passed this refinancing test and know you should refinance, what kind of savings could you expect?
2 ways to save with the student loan refinancing calculator
The first way refinancing your student loan saves you money is by cutting your interest rate. Using the calculator above, you can see if you refinance $100,000 of federal debt at a 6% rate to a 5% rate, for example, you’ll save nearly $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.
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 difference 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.
Don’t forget to compare your refinance rates among lenders
When you’re looking at refinancing student loans you need to shop around. Lenders offer different rates, and you’ll want to pick the lowest one. You can start comparing rates by looking at our list of refinancing lenders.
Your credit score isn’t impacted by looking at multiple interest rate offers. That’s because lenders only do a “soft credit pull” when you first get an interest rate quote. Only when you fill out the complete application will it show up on your credit report.
When you get your offers, look at the loan term (length of the loan), interest rates and monthly payment. It’s the right combination of these three things that can lead to savings.
How the refinancing calculator finds you the best deal
With a $100,000 loan at a 6%, your standard 10-year payment would be $1,110. If you wished to pay that loan balance off in five 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 five-year fixed rate of 4% on $100,000 results in 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 five years.
- If you are stuck with your 10-year loan term, you might only get 5% for refinancing because 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.
- So, you could save $1,099 in interest per year with a five-year fixed rate from refinancing or $594 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.
Student loan refinancing FAQs
You probably have a lot of questions about refinancing your student loans. Here are some of the most commonly asked questions:
1. Will you qualify for student loan refinancing?
Every lender has credit and income requirements listed in their eligibility criteria. Typically they also have a minimum for how much you need to refinance. For example, Earnest requires a minimum of $5000 in student loans, a 650 credit score, loan balances in good standing, and enough savings in the bank to cover at least two months of expenses.
These are only the minimums. The better your credit history and debt-to-income ratio, the better your chances of getting a lower interest rate.
2. When is the best time to refinance your student loans?
If you have private student loans, you should look into refinancing as soon as you can get a lower interest rate.
If you have federal student loans, you need to reread the first two paragraphs of this article to see if you pass the refinancing test. Then it’s safe for you to look into refinancing your student loans.
3. Should you choose a fixed interest rate or variable interest rate?
Generally, you should always choose a fixed interest rate. This means your payments will stay the same for the life of the loan. It’s also the basis for the calculator. Variable rates fluctuate and can end up costing you if you can’t afford to do a very short loan term. For more on comparing these two options check out: How to choose between fixed and variable interest rates.
4. Can you refinance more than once?
Yes, you can refinance more than once. If your credit improves significantly, you can start shopping around again to refinance your student loans. Plug in your own numbers to the student loan refinancing calculator above and see how much it could save you.
Our last tip: If you refinance to a term longer than 10 years, you save money on a per-year basis. However, you could pay more in total interest just from taking longer to pay off your loan. If you can afford the payments, get the shorter loan term.