Refinancing may lower your student loan payments
If you refinance your loan at a lower rate, your monthly payment amount should decrease as well.
Interest rates can be fixed or variable
Variable interest rates may be lower initially, but they can rise in the future.
Before refinancing, consider additional options
If you have government-issued loans, you may be able to reduce or postpone payments in some circumstances.
Important points
- Refinancing your student loans means that you replace your current loan (private or government-issued) with a loan from a private lender, like Earnest.
- Refinancing your student loans can be beneficial if you can secure a loan with a lower interest rate than the one you are currently paying.
- Interest rates are currently low. If you have not refinanced your student loan in the last two years, you may be able to lower your monthly interest payments by doing so now.
- Loan refinancing can come with two interest rate options: variable and fixed. Variable rates may be lower when you take out the loan, but there is a risk they will increase in the future.
- If you have government-issued loans: consider all your options before refinancing. Government-issued loans offer repayment options that you will forfeit upon refinancing with a private loan.
Details
Student loan interest rates have two types: variable and fixed.
- Fixed interest rates: do not change over time. This typically means that your monthly payments will stay the same.
- Variable interest rates: may vary over the term of the loan and rates are tied to market benchmarks. If the benchmark interest rate increases, the interest rate on your loan will increase as well, and so will your monthly payments.
Note: Once you take out the loan, you typically cannot change the type of the interest rate. Because student loans are typically repaid over ten years or more, refinancing your student loan with a variable rate loan may be riskier.
With federal student loans, such as Perkins or Stafford loans, you may be eligible for special repayment plans. For example, federal programs, such as income-based repayment or pay as you earn, cap your monthly payments at 10–15% of your discretionary income and extend the length of your loan. If you refinance your federal loan(s) with a private, non-government loan, you may lose some of these privileges. To understand the specifics, make sure to compare the terms for your current and new loans.