The trick to slashing your student loan interest rate

Here's a quick education in refinancing your debt.

Earning that degree took a lot of hard work. If you took out student loans to cover the costs, you’re likely working hard to pay off the debt. But you could be paying more than you have to.

The current student loan interest rate has been decreasing due to the coronavirus pandemic’s impact on the economy. It might be time to apply for student loan refinancing. You can pay off the debt faster by reducing the total amount you have to pay. With Credible, you can compare student loan refinancing offers and find out what rate you qualify for today.

As you start looking at lenders, there are a few things to consider.

1. Should I refinance my student loans?

Deciding to refinance will depend on the type of loan you have. You cannot refinance federal student loans (Congress sets the rate). If you want to refinance them to a lower interest rate, you'll have to convert them into private student loans. However, private loans don't offer some benefits that federal loans do.

For example, federal programs offer student loan forgiveness for people in specific fields, such as teaching, or if you work in public service. You can get a portion of your balance forgiven if you make a certain number of payments. Federal loans may also offer income-driven repayment plans, where your monthly payment is adjusted based on your salary. And federal loans were automatically put into deferment during the COVID-19 crisis to help borrowers with their monthly expenses. Refinancing to a private loan would forfeit these potential benefits.

If you have private loans, you might want to look into student loan refinancing if the current rate is lower than yours. You can use Credible to compare private student loan lenders and see which offers the most appealing rates and benefits to you.


Another reason to take out a new loan is to convert a variable interest rate into a fixed interest rate at a lower percentage. If you have been diligent with your loan payment and improved your credit history, you may qualify for a lower rate than you did when you initially took out the loan. If you have multiple loans with different lenders, refinancing can help you consolidate the debt into a single payment. The new loan may also have a lower monthly payment, freeing up cash that you can use to pursue other financial goals. 

If you're confident in your credit score and history, then use Credible's free online tools to see what rates are available to you. Credible makes it easy to check rates from different lenders without affecting your credit score.

2. How do I refinance my student loans?

If you determine that student loan refinancing is smart, you can choose to refinance with your current lender or apply for a loan with a new financial institution. Getting a new loan will be similar to the steps you took to get your existing loans.

First, shop around for the best lender. The most efficient way to compare offers is to use a tool like Credible that allows you to view a rate table that displays rates from some of the best student loan refinancing companies at once.


To provide you with an accurate rate quote, lenders may ask you for personal information, including the amount of debt you want to refinance, your income, your current monthly debt payment, your education level, and your employment status. Lenders may also check your credit history.

Once you decide which lender’s offer and terms are right for you, you'll need to apply. The application will typically request documentation, such as proof of employment, residency, graduation, and citizenship. At this time, the lender will complete a hard inquiry, which will affect your credit score.

Once you’re approved, you’ll sign the new loan documents. At that time, the lender will pay the balances on the existing loans, and you'll make payments on your new loan according to the terms.

3. How much money can I save from refinancing my student loans?

That depends on the rates of your original loans. To determine how a new loan could impact your monthly budget, use an online student loan refinancing calculator like Credible's to estimate the new payment. You can also calculate the entire interest you’ll pay on the new loan.


For example, the average amount of student loan debt is $32,731. If you recently graduated with this amount of debt and have a student loan with a 6.5 percent interest rate and a 10-year repayment plan, your monthly payment is $372. Refinancing that debt to a new loan with a 3.5 percent interest rate and the same term would lower your payment to $324 and reduce the overall amount of interest you would pay by $5,759.

If you can qualify for an incredibly cheap student loan refinancing rate, the more you can save. You'll want to put your best foot forward, so take some steps to increase your credit score to meet the qualifications. For example, you should be paying all of your monthly bills on time to establish a good payment history. Look at your debt-to-income ratio, which is the amount of debt you have compared to your income level. Most lenders like to see borrowers with less than 40 percent. And it would help if you had a good income that shows you can pay the student loan payment and your other expenses without difficulty.

Overall, student loan refinancing can potentially help save thousands of dollars over the length of your loan.