The average student loan borrower pays $393 per month, according to Education Data. Students who seek additional degrees, like doctoral, average payments of $1,210 per month. Student loan borrowers typically pay between 3% and 6% interest on their loans.
If a 3% difference doesn't seem like much, consider this example:
- Student A: $30,000 student loan at 6% over 15 years. The monthly payment for student A is $253.16, and they pay $15,568 in interest.
- The monthly payment for student A is $253.16, and they pay $15,568 in interest.
- Student B: $30,000 student loan at 3% over 15 years. The monthly payment for student B is $207.17, and they pay $7,291 in interest.
- The monthly payment for student B is $207.17, and they pay $7,291 in interest.
While the monthly payment may not seem much smaller, Student B's total interest is almost half of the interest paid by Student A.
If you're considering student loan refinancing, use an online student loan refinancing calculator to get an idea of what your new monthly payments could be. Head to the online marketplace Credible to compare rates and lenders within minutes. (Just remember: This is a better option for private student loan borrowers right now. Those with federal student loans could lose benefits by refinancing into a private loan).
What to do if you're denied student loan refinancing
The Federal Reserve predicted that they'd keep their interest rates low through 2023, which means you may have time to prepare to refinance your student loans. If you don't qualify for a refinance right now, here are three things you can do to put yourself in a position for approval in a few months:
- Reduce other debt
- Increase your income
- Review your credit report for errors
- Improve your credit score
1. Reduce other debt
Take a few months to reduce the amount of debt you owe on credit cards. If you can reduce your debt-to-income ratio, your credit score will improve, and you're more likely to get approval for a loan refinance.
If you want to take advantage of low interest rates, consider refinancing your student loans — especially if you have private student loans. Online marketplace Credible can check your credit score, debt-to-income ratio, and determine if you qualify for a refinance easily.
2. Increase your income
Consider taking on a side-hustle, a second job, or overtime to increase your paychecks. More money could help you pay off other debt, and it can approve your credibility with lenders.
3. Review your credit report for errors
According to Consumer Finance, the FTC determined that 1 in 5 people have errors on their credit report. These errors can affect your credit score and your ability to qualify for loans. Make sure to review your credit reports at least once per year. If you find errors, contact the reporting agency to request a change.
Take time to look for the best rates possible. If you're going to refinance your loan, you want to get terms that work best for your financial situation. Credible can do the work for you.
4. Improve your credit score
Your credit score tells student loan lenders how risky of a borrower you are. The higher your score, the more likely you are to pay your debt back. Your credit includes several key factors:
- Payment history
- Credit utilization
- Credit age
- Credit mix
- New credit
Credit scoring agencies look at all these factors to compute a three-digit number. Lenders use this number to determine if they should loan you money and what interest rate to charge. Lenders will give better interest rates to borrowers with higher credit scores. Your credit score could also affect insurance rates and your ability to rent an apartment.
You can use an online tool like Credible to compare student loan refinancing rates from multiple lenders at once without affecting your credit score.
How to qualify for a student loan refinance
When you refinance a student loan, you replace your old loan with a new one. Since you're getting a new loan, you'll need to meet traditional loan standards. Your new lender will review your credit score, credit history, loan balance, payment history, and income.
To qualify for student loan refinancing with the best rates, aim to have a credit score over 650 and a debt to income ratio below 50%. To maximize savings, consider refinancing your student loan if you have a balance of over $5,000. Additionally, lenders want to see that you have a steady income.
While researching if student loan refinancing is right for you, use an online tool like Credible to view a rates table that compares rates from multiple lenders at once.
Whether you're struggling to make your student loan payments or want to save money on your education, student loan refinancing could be a practical option. With current interest rates at record lows, now may be an excellent time to refinance and save a lot of money. Although refinancing a student loan is a great way to save money, not all borrowers will qualify.
Note: Federal student loan borrowers can only refinance into a private loan. If you're currently taking advantage of loan deferment or loan forgiveness, refinancing your student loan may not be your best option. You cannot refinance back into a federal loan. If you refinance to a private loan, you could miss out on any future benefits of federal loans. At publication, CARES Act protections that suspended payments and interest on federal student loans are set to expire at the end of January 2021.