For borrowers with sky-high interest rates on their student loans, refinancing can be an excellent way to save money and pay off debt faster. In fact, a 2021 U.S. News survey found that just 30% of private student loan borrowers took advantage of student loan refinancing.
Why such a small number? Many people don’t understand how student loan refinancing works or think the cost of refinancing will be too high.
Just how much does it cost to refinance student loans? With most lenders, it’s completely free. Seriously — free.
How Does Student Loan Refinancing Work?
To refinance your student loans, you apply for a large enough loan to pay off your existing student loan debt. The new loan has different terms, and if you have good credit and a reliable income, you could secure a lower interest rate than you have now.
There are many benefits to student loan refinancing, including:
1. Reduced PaymentsWhen Is Refinancing Student Loans a Good Idea?
Refinancing lenders offer repayment terms as long as 20 years. You could lower your monthly payments by refinancing your loans and choosing a longer loan term than you have now. That result can free up money every month to put toward other goals, but consider that you’ll pay more in accrued interest over time.
[Tip: Pick the shortest loan term possible that still gives you a payment you can afford. While a longer term can be appealing because of the smaller monthly payment, you’ll likely pay a higher interest rate and pay more overall. Lenders usually give the best rates to borrowers that opt for shorter loan terms, such as under 10 years, so you can save more money by selecting a shorter loan term.]
2. Simplified Payments
As a college graduate, you likely have several different student loans. You may even have a mix of federal loans and private debt. By refinancing your loans, you can combine them into one. Having just one loan to manage makes it easier to remember due dates and stay on track.
3. Overall Savings
The overall savings from student loan refinancing can be significant. Education Loan Finance borrowers reported saving an average of $286 every month after refinancing.1 Or, they reported an average of $22,500 in total savings after refinancing their debt.
You can use ELFI’s student loan refinance calculator to estimate how much you can save by refinancing your loans.*
How Much Does It Cost to Refinance Student Loans?
While you may be interested in the idea of refinancing your debt, you may be worried about the cost of refinancing student loans. However, the cost may surprise you!
Top refinancing lenders like ELFI don’t charge application, origination, or disbursement fees, so there’s no cost to refinance your loans. You can refinance your debt, lock in a lower interest rate, and save thousands of dollars, all at no cost to you.
Rather than charging an upfront fee, refinancing lenders make money off the loan’s annual percentage rate (APR). Even though you may get a lower annual percentage rate than you have now, the lender is still profitable because of the interest that accrues on the loan — a mutually beneficial arrangement for lenders and borrowers.
Are There Other Fees?
When it comes to student loan refinance costs, it’s important to know that there may be other fees associated with a refinancing loan beyond what you pay in interest. Besides the loan’s APR, you may incur the following costs:
- Late Fees: If you don’t make a payment by its due date, the lender will likely charge a late fee. For example, the late fee could be 5% of the past due amount or $50, whichever is less.
- Returned Payment Fees: The lender will charge a returned payment fee if your payment is returned due to insufficient funds or other circumstances. Fees are usually about $30 per incident.
- Collection Costs: If you default on your student loans, the lender may send your account to collections. As a result, you could be responsible for collection costs, including penalties and the fees paid for hiring the collection agency.
- Prepayment Penalties: Depending on the type of loan you use to refinance, there may be prepayment penalties. If the lender charges a prepayment penalty, they will charge you a fee, often a percentage of the outstanding loan balance. However, major student loan refinancing lenders — including ELFI — don’t charge prepayment penalties. You usually only have to worry about prepayment penalties when you’re dealing with other types of credit used to consolidate debt, such as personal loans or home equity lines of credit.
To avoid unexpected fees, review the student loan refinancing company’s loan terms and disclosures and review all the costs associated with the loan. You can view ELFI’s loan disclosures and terms and conditions online.
Refinancing Your Student Loans
How much does it cost to refinance student loans? While you may be surprised to learn that student loan refinancing is completely free, it’s true; there is no charge to refinance your student loans. Just be sure to make all of your payments on time — and ensure you have enough cash in your checking or saving account to cover the payment amount on its due date — to avoid unnecessary fees.
By utilizing student loan refinancing, you could get a lower interest rate, reduce your payments, and save a substantial amount of money. Ready to get started? You can get a rate quote without affecting your credit score with ELFI’s Find My Rate tool.*
The content on this website is for educational and informational purposes only and should not be construed as legal, financial or tax advice. Links to other websites or references to services or applications are provided as a convenience only. A link does not imply ELFI’s sponsorship or approval of any other site, service or application. ELFI does not control the content of these sites, services or applications.
1 Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 11/01/2021 and 12/15/2021. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.
*Education Loan Finance is a nationwide student loan debt consolidation and refinance program offered by Tennessee based SouthEast Bank. ELFI is designed to assist borrowers through consolidating and refinancing loans into one single loan that effectively lowers your cost of education debt and/or makes repayment very simple. Subject to credit approval. See Terms & Conditions. Interest rates current as of 04-01-2022. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. See Eligibility Requirements for more information. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.10 per $1,000 borrowed. Rates are subject to change.