Refinancing a loan – combining two or more loans into one private loan with its own terms and interest rate – can save a lot of money. As soon as you sign up for a new loan, your existing loans are paid off and you make payments on the new loan instead.
In addition to making the repayment process easier, refinancing lowers the total amount of interest you will pay over the life of the loan by lowering the interest rate (annual interest rate). You can combine both federal and private loans when refinancing.
How the calculator works
Comparing rate estimates side by side is helpful, but it doesn’t always show you the full picture, especially if you’re juggling multiple interest rates and term options.
The calculator is designed to give you an objective view of how each term and interest rate will affect your new loan.
Fields you enter
Current loans
Add information about three current loans, including balance, interest rate (between 2% and 9%) and monthly payment.
If you have more than three credits, enter the three with the highest balance. Or, if two of your loans have the same interest rates, combine the balances and monthly payments into one entry.
New loan
- Term (years) — Lenders typically offer terms ranging from five to 20 years.
- Interest rate – If you have seen the estimates and know the interest rate you are likely to receive, enter the information accordingly. If not, compare your results with as many bets as possible. The sliding scale varies from 2% to 9% (the calculator does not allow you to choose between a fixed and a variable rate).
Your results
Monthly payment
Here you see your potential monthly payment depending on the loan term you choose. It may be more or less than what you are currently paying.
Keep this rule in mind: total debt payments (including any other payments you make in addition to student loans) must not exceed 40% of your monthly pre-tax income. Lenders look at your debt-to-income ratio when they approve a loan.
Read more: How to pay off student loans
Months left
Here you will see how much faster (or slower) you will pay off the loan if you refinance it.
Total cost of interest
This field shows how much interest you will pay over the life of your current loan – it’s okay if this figure shocks you – and the interest you will pay over the life of your refinanced loan. The difference will show you how much you can save over time.
Read more: Should I refinance my student loans?
Summary
Refinancing your student loan can save you money, but before you do so, you need to make sure the terms and interest rates are working in your favor. You can use the student loan refinancing calculator to determine if this step is right for you.