While the federal government originally offered suspended payments and no interest on federal student loans until the end of September, that deadline was recently extended to December 31, 2020.
Following this historic pause on student loan payments and interest, it is now the worst time to refinance federal student loans with a private lender. After all, you don’t have to make a single payment on your federal loans until the end of the year, and the fact that you don’t earn interest means you can get your loans back on January 1 without waste nothing but time.
That being said, what about private student loans?
Some private lenders are offering short-term forbearance to borrowers affected by COVID-19, but those who can still keep track of their loan payments may be in the best position to refinance and get a much better deal.
Why You Should Refinance Private Student Loans Now
The main reason you should consider refinancing private student loans right now is the same reason consumers have been breaking through lenders’ doors to refinance their mortgages. Record breaking interest rates have created an environment where those who can qualify for refinancing can easily save thousands of dollars in interest or more, and all for the amount of work involved in submitting documents and jumping through some hoops. .
How far can the interest rate on your student loan go? It really depends on your credit rating, your income, and how the rates go from here.
Ryan Inman, who is the founder of Wealth management services for physicians, says he recently worked with several physician clients who got rates below 1% when they refinanced their student loans. A few of his clients got rates between 0.4% and 0.5%, and another got a refinance rate of 0.14%. All of those rates were available on 5-year variable loans through Credible.com, he says.
The amount of money these borrowers will save can be substantial, especially considering the fact that most of Inman’s clients start their medical careers with massive amounts of student debt. Among clients who were able to refinance their student loans at these record high rates, Inman says they all owed more than $ 100,000 on their student loans, but most owed more than $ 200,000.
Inman says that some of his clients who have refinanced have seen their payments increase since switching from a 10-year repayment plan to a new 5-year variable rate loan. However, a few other clients saw their payments drop because they refinanced over a longer period of time.
Either way, Inman says that “rates overall have been cut from about 3% to 4%.”
How Much Can You Save By Refinancing Private Student Loans?
Not everyone will be able to claim interest rates as low as those Inman has helped their clients achieve. After all, the best refinancing rates and terms always go to those with great credit and incredibly strong income profiles, and doctors are in an excellent position to qualify because of their high salaries and job security. .
Yet today’s record interest rates still mean that a large percentage of borrowers can qualify for a better deal. According to a recent analysis of 60,000 tariff requests Submitted to Credible in August 2020, rates on a 10-year loan averaged a record low of 4.31%, down 29% from the 6.09% high in May 2018.
When you run the numbers with those numbers, it’s easy to see how the hassle of refinancing could be very profitable.
After all, a borrower with $ 60,000 in student loans on a 10-year repayment plan would pay $ 689.20 per month on their loans for 120 months with a total loan cost of $ 82,704.49.
But if you refinanced at the 4.31% lower average rate, you would pay $ 629.63 per month for 120 months for a total loan cost of $ 75,555.86. That’s a savings of over $ 7,000 just for filling out paperwork.
Ready to refinance? Steps to take now
If you think you might benefit from refinancing your student loans, but you’re not quite sure, be aware that many student loan refinancing companies like Credible and College Ave allow you to “check your rate” without a thorough investigation of your credit report. This option allows you to assess your ability to qualify for a student loan refinance while uncovering an approximate range of interest rates for which you may be eligible. From there, you can use a student loan calculator to find out how much you could save by refinancing your loans at your current rate into a new loan with better terms.
Before taking the necessary steps to refinance your student loans, it may also be helpful to take stock of your credit score so you know where you stand. Also, keep in mind that the best refinancing rates and terms go to those with very good or excellent credit, which usually means a FICO score of 740 or higher.
If your credit score isn’t great, you might want to see if a family member with great credit would be willing to co-sign your new student loan. After all, applying with a co-signer who has excellent credit can dramatically improve your chances of qualifying for the lowest rates and best terms. Remember, you shouldn’t take your co-signer for granted and they are putting their own credit on the line to help you out.
The bottom line
If you have private student loans with higher rates than currently advertised, the least you can do is pre-qualify to see if you have the credit and income required for a lower interest rate, payment lower monthly, or both. You have nothing to lose by checking your rate to see if you can qualify, but you could miss out on thousands of dollars in savings if you procrastinate or forget.