Is Refinancing Student Loans Worth It?

Author
Abigail Eun
Abigail Eun
author

Abigail Eun is a freelance writer and personal finance expert. Through diligent research and continuous learning, she has honed her knowledge in budgeting, saving, investing, and debt management. Abigail is passionate about helping people get their finances in order. She believes that everyone should have access to the information they need to make sound financial decisions. Her goal is to provide clear and concise information that is easy to understand.

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Edited by
Daniel Kahn
Daniel Kahn
editor
Daniel is the co-founder and COO at Sparrow. Daniel is responsible for the day-to-day operations of a company, working closely with other members of the executive team to develop and implement strategies to support the growth and success of the company.
Daniel was a 2023 Forbes 30 Under 30 lister in the Education category.  Daniel was born and raised in Raleigh, North Carolina and graduated from Duke University in 2020.
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Reviewed by
Camden Ford
Camden Ford
reviewer

Camden leads Sparrow’s business operations – everything from product management to business analytics. After graduating Cum Laude from Duke University where he studied Civil Engineering, Camden worked as a Consultant for A.T. Kearney where he worked in their Strategic Operations practice. With a strong background in analytics, Camden strives to deliver data-driven conclusions and insights.

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Updated
January 25, 2024

As a borrower, refinancing your student loans can be beneficial. For example, borrowers who use Sparrow to refinance save, on average, $17,000 over the life of their loan.

That said, the savings can vary greatly depending on the borrower. With that in mind, you might be wondering, “Is refinancing student loans worth it?.”

It’s always a good choice to explore your options to make a financially sound decision for yourself. To determine whether refinancing is worth it for you, here’s what you should know.

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How Student Loan Refinancing Works

Loan refinancing is the process of taking out a new loan to pay for your current debt. The new loan should have more favorable terms, such as a lower interest rate or monthly loan payment.

For example, let’s say you currently have a student loan of $80,000 with an 8% interest rate and a 10-year repayment plan. You decide to refinance and qualify for a new loan of $80,000 with a 5% interest rate, with a 15-year repayment plan.

Through refinancing, you have a new loan with a lower interest and longer repayment period.

To refinance your student loans, you need to submit a formal application to the lender of your choice. Generally, lenders are looking for borrowers who have a strong credit history and a low debt-to-income (DTI) ratio.

The Pros and Cons of Refinancing

To better understand if refinancing student loans is worth it for you, consider the pros and cons:

Pros
  • prosYou Can Have Lower Monthly Payments If your student loan payments are too high, refinancing can help relieve the financial strain. You can extend your repayment plan to reduce monthly payments and pay the loan over a longer period of time.
  • prosYou Can Save More Money By refinancing to a lower interest rate, you can save more money in the long run. For example, let’s say you currently have a student loan of $80,000 with an 8% interest rate and a 10-year repayment plan. You decide to refinance and qualify for a new loan of $80,000 with a 5% interest rate. After refinancing, instead of paying $36,474.49 in interest with an 8% interest rate, you’d only need to pay $21,822.89, saving you roughly $15,000.
  • prosYou Can Pay Off The Loan Quicker Just like you can extend your repayment period through refinancing, you can shorten it if you want to pay off the loan quicker. This will mean that your monthly payments will be higher, but if your financial situation allows for this increase, it may be desirable for some borrowers.
  • prosYou Don’t Qualify for Student Loan Forgiveness Refinancing may be the way to go if: -You have private student loans, which do not qualify for loan forgiveness. -You do not have an income-driven repayment plan for your federal loans. -You do not work in a qualifying public service position for Public Service Loan Forgiveness.  Refinancing is done through private student loans. If you opt to refinance a federal student loan into a private student loan, you will lose the benefits that come with federal student loans. However, if you plan to refinance a private student loan, these benefits are not at risk.
Cons
  • consYou Can Lose Federal Borrower Protections If you refinance your federal student loans, they will become private loans. This means that you’ll lose out on federal borrower protections, including the opportunity for loan forgiveness, more flexible repayment plans, and loan deferment and forbearance options.
  • consYou Can’t Get a Lower Interest Rate And/Or Monthly Payment If you don’t have a high enough credit score or a cosigner with a strong credit history, you may not qualify for a lower interest rate and/or monthly payment. If this is the case, you shouldn’t refinance your student loans because you wouldn’t be gaining anything from doing so.
  • consYou’re Almost Done Paying Off Your Student Loans If you only have a few more payments left on your student loans, it may be better to not refinance your loans. When you refinance your loans, you have to choose a new repayment plan that can extend the life of the loan, increasing the amount you have to pay. Instead of refinancing, pay off your loan with your current plan.

Is Refinancing Student Loans Worth It? It Depends.

You should consider refinancing if:

  • You qualify for a lower interest rate or monthly payment.
  • You do not qualify for federal loan forgiveness.
  • It will save you money in the long run.

You should not consider refinancing if:

  • You are almost done with paying off your loans.
  • You do not qualify for more competitive terms than the ones you already have.
  • You are eligible for federal student loan forgiveness.
Student loan rates from our partners
lender Ascent logo
Ascent
Minimum credit score
Varies
Fixed APR
Fixed APR

Ascent’s undergraduate and graduate student loans are funded by Bank of Lake Mills, or DR Bank, each Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentFunding.com/Ts&Cs. Rates are effective as of 3/1/2024 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit: AscentFunding.com/Rates. 1% Cash Back Graduation Reward subject to terms and conditions. Cosigned Credit-Based Loan student must meet certain minimum credit criteria. The minimum score required is subject to change and may depend on the credit score of your cosigner. Lowest rates require interest-only payments, the shortest loan term, a cosigner, and are only available for our most creditworthy applicants and cosigners with the highest average credit scores. Actual APR offered may be higher or lower than the repayment examples above, based on the amount of time you spend in school and any grace period you have before repayment begins.

4.09 - 15.71%
Variable APR
Variable APR

Ascent’s undergraduate and graduate student loans are funded by Bank of Lake Mills, or DR Bank, each Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentFunding.com/Ts&Cs. Rates are effective as of 3/1/2024 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit: AscentFunding.com/Rates. 1% Cash Back Graduation Reward subject to terms and conditions. Cosigned Credit-Based Loan student must meet certain minimum credit criteria. The minimum score required is subject to change and may depend on the credit score of your cosigner. Lowest rates require interest-only payments, the shortest loan term, a cosigner, and are only available for our most creditworthy applicants and cosigners with the highest average credit scores. Actual APR offered may be higher or lower than the repayment examples above, based on the amount of time you spend in school and any grace period you have before repayment begins.

6.16 - 16.09%
lender LendKey logo
LendKey
Minimum credit score
660
Fixed APR
Fixed APR

1 – Terms and Conditions Apply

Loan products, terms, and benefits may be modified or discontinued by participating lenders at any time without notice. Rates displayed are reserved for the most creditworthy consumers who enroll to make automatic monthly payments. Your initial rate will be determined after a review of your application and credit profile. Variable rates may increase after consummation. You must be either a U.S. citizen or Permanent Resident in an eligible state and from an eligible school, and meet the lender’s credit and income requirements to qualify for a loan. Certain membership requirements (including the opening of a share account, a minimum share account deposit, and the payment of any applicable association fees in connection with membership) may apply in the event that an applicant wishes to apply with, and accept a loan offered from, a credit union lender. If you are not a member of the credit union lender, you may apply and become a member during the loan application process if you meet the lender’s eligibility criteria. Applying with a creditworthy cosigner may result in a better chance of loan approval and/or lower interest rate. Loans for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not available via LendKey.com.

2 – Cosigner Release

Some lenders participating on LendKey.com may offer the benefit of cosigner release. Cosigner release is subject to lender approval. In order to qualify, the borrower, alone, must meet the following requirements: (1) Make the required number of consecutive, on-time full principal and interest payments as indicated in the borrower’s credit agreement during the repayment period (excluding interest-only payments) immediately prior to the request. Any period of forbearance will reset the repayment clock; (2) The account cannot be in delinquent status; (3) The borrower must provide proof of income indicating that he/she meets the income requirements and pass a credit review demonstrating that he/she has a satisfactory credit history and the ability to assume full responsibility of loan repayment; (4) No bankruptcies or foreclosures in the last sixty months; and (5) No loan defaults.

3 – Autopay Rate Reduction

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments.

4 – AutoPay Discount & Lowest Interest Rate

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised APR is only available for loan terms of 10 years and is reserved for the highest qualified applicants, taking into consideration the applicant’s credit and other factors.

4.39 - 10.39%
Variable APR
Variable APR

1 – Terms and Conditions Apply

Loan products, terms, and benefits may be modified or discontinued by participating lenders at any time without notice. Rates displayed are reserved for the most creditworthy consumers who enroll to make automatic monthly payments. Your initial rate will be determined after a review of your application and credit profile. Variable rates may increase after consummation. You must be either a U.S. citizen or Permanent Resident in an eligible state and from an eligible school, and meet the lender’s credit and income requirements to qualify for a loan. Certain membership requirements (including the opening of a share account, a minimum share account deposit, and the payment of any applicable association fees in connection with membership) may apply in the event that an applicant wishes to apply with, and accept a loan offered from, a credit union lender. If you are not a member of the credit union lender, you may apply and become a member during the loan application process if you meet the lender’s eligibility criteria. Applying with a creditworthy cosigner may result in a better chance of loan approval and/or lower interest rate. Loans for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not available via LendKey.com.

2 – Cosigner Release

Some lenders participating on LendKey.com may offer the benefit of cosigner release. Cosigner release is subject to lender approval. In order to qualify, the borrower, alone, must meet the following requirements: (1) Make the required number of consecutive, on-time full principal and interest payments as indicated in the borrower’s credit agreement during the repayment period (excluding interest-only payments) immediately prior to the request. Any period of forbearance will reset the repayment clock; (2) The account cannot be in delinquent status; (3) The borrower must provide proof of income indicating that he/she meets the income requirements and pass a credit review demonstrating that he/she has a satisfactory credit history and the ability to assume full responsibility of loan repayment; (4) No bankruptcies or foreclosures in the last sixty months; and (5) No loan defaults.

3 – Autopay Rate Reduction

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments.

4 – AutoPay Discount & Lowest Interest Rate

Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised APR is only available for loan terms of 10 years and is reserved for the highest qualified applicants, taking into consideration the applicant’s credit and other factors.

6.09 - 11.33%
lender Earnest logo
Earnest
Minimum credit score
650
Fixed APR
Fixed APR

Auto Pay Discount Disclosure

You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.

Student Loan Origination (Private Student Loan) Interest Rate Disclosure

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.36% APR to 16.15% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.87% APR to 16.45% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Earnest Private Student Loans are made by One American Bank, Member FDIC, or FinWise Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Finwise Bank, 756 East Winchester, Suite 100, Murray, UT 84107

Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank, FinWise Bank, and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

© 2024 Earnest LLC. All rights reserved.

4.11 - 15.90%
Variable APR
Variable APR

Auto Pay Discount Disclosure

You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.

Student Loan Origination (Private Student Loan) Interest Rate Disclosure

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.36% APR to 16.15% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.87% APR to 16.45% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan origination loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account. It is important to note that the 0.25% Auto Pay discount is not available while loan payments are deferred.

Earnest Private Student Loans are made by One American Bank, Member FDIC, or FinWise Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Finwise Bank, 756 East Winchester, Suite 100, Murray, UT 84107

Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank, FinWise Bank, and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America.

© 2024 Earnest LLC. All rights reserved.

5.62 - 16.20%
lender College Ave logo
College Ave
Minimum credit score
Mid-600s
Fixed APR
Fixed APR

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

*The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation. $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 08/25/2022. Variable interest rates may increase after consummation.

This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 2/15/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

4.11 - 15.44%
Variable APR
Variable APR

College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

*The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation. $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 08/25/2022. Variable interest rates may increase after consummation.

This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 2/15/2024. Variable interest rates may increase after consummation. Approved interest rate will depend on creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

5.59 - 16.65%

Closing Thoughts From the Nest

Consider the pros and cons of student loan refinancing to determine whether the decision is worth it for you in the long run.

If refinancing your student loans is beneficial to you, consider using Sparrow as a tool to see your loan refinancing options. You can compare personalized offers across 15+ different lenders, all for free.

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