Refinancing your student loans WILL save you thousands of dollars!
I originally started this blog to help people who are navigating through their debt, trying to maximize their earning potential, and just wanting to feel prepared! I’ve put in countless hours of research in order to educate myself on my loans, insurance, taxes, investments….you name it! One of the best (and easiest) things I’ve done in my debt payoff journey, has been refinancing my student loans.
How Refinancing Your Student Loans Will Save You Thousands
This post may contain affiliate links, which means we may receive a commission, at no extra cost to you, if you click a link and purchase something that has been recommended. I only recommend products I personally use and genuinely recommend.
What Is Compounding Interest
“Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t, pays it”
When you take out a loan (i.e. student loans) you are given an interest rate. Typically, the interest rate you receive when you take out the loan isn’t great. You likely received your loan when your income was low or your credit score wasn’t great, which made you a higher risk to the lender.
Your interest rate is calculated as a % of your loan and added to the principal balance. As you carry out the life of your loan, you continue to pay interest on top of the balance (aka interest on top of interest!). This is compounding interest, and how you can end up paying an extra $20k on a $50k loan you borrowed.
Related Reading: How To Increase Your Credit Score
What Is Refinancing
Refinancing is taking out a loan, with a new rate and new terms, to pay off your existing loan. When you originally took out your loan, you likely had a lower credit score, lower income, and other factors that lenders use to qualify you for a certain rate. You also may have taken out a loan for 30 years, which would qualify you for a higher rate than a shorter term of say 20 years.
Qualifying For A Lower Rate
Before you refinance, I recommend checking your credit score, which you are entitled to do for free (this does not count against your credit). Once you understand your credit score, determine if you need to improve your score. The higher the score, the better rates you’ll qualify for. For a better understanding of credit scores, check out this post I’ve written on how to improve your credit score (it’s actually easy than you may think).
Refinancing Your Loan
After countless hours of reading reviews, talking to customer service, and looking into many options for refinancing, I decided to refinance with SOFI. I was blown away by their customer service, the application process was painless and all done online. I think it took me 30 minutes to apply. They give you estimates based on different scenarios, so you can see what term is best for you before you even apply. Most importantly, their rates were some of the lowest I’ve seen! Here’s how you can apply through SOFI:
- Go to this link (As my referral, you’ll get $100 when you refinance!)
- Fill out their easy application – There are some documents they’ll ask you to upload including your W2 and drivers license. You can always save your application if you need time to find your documents
- Determine your terms – This will vary on your personal situation. In general a shorter term will save you the most money and you’ll have a lower rate. A higher term is great if you are looking for a lower monthly payment.
- Apply – It may take a few days for SOFI to send you your approved rate based on the term you selected. They even show you how much you’ll save with your new rate!
- Sign and Save – Sign the documents online and you’re ready to start saving!
I ended up saving ~$100 per month by refinancing with SOFI and shortening my payback period by 10 years! Over the life of the loan, refinancing with SOFI will end up saving us tens of thousands of dollars. I feel like I should send them a thank you note…
Side Note: While refinancing is the best method of saving, there are other ways to save a little more on your student loans. Check out this post for a few more money saving ideas after you’ve refinanced!