You might be concerned about whether refinancing your student loans will cost you anything.
There’s no fee for refinancing your student loans. That’s true whether you want to lower your interest rates or adjust your monthly payments.
In this post, we’ll dive deeper into student loan refinancing fees and we’ll provide some context about how refinancing works so you can make an informed decision about whether this type of student loan repayment strategy is right for you.
- Is It Costly to Refinance Student Loans?
- Are There Hidden Costs Of Refinancing Student Loans?
- Is Refinancing Your Student Loans Truly Free?
- How Much Money Will Refinancing Save Me?
- Does Refinancing your Student Loans Hurt Your Credit?
- Refinance With Lenders Who Do Not Charge Fees
- Is It Worth Refinancing Your Student Loans?
- Frequently Asked Questions
Is It Costly to Refinance Student Loans?
Refinancing may save you money rather than costing you money. If you obtain a lower interest rate, refinancing might help you save money.
For example, switching from an 8% to a 2.3% rate on $40,000 worth of loans may save you more than $6,000 in interest.
On the other hand, refinancing to extend your repayment term (for example from 10 years to 20 or 25 years) would lower your monthly payment but raise the overall cost of your debt since interest would have more time to accumulate and capitalize.
However, refinancing itself is completely free and clear.
With most respected lenders there are no prepayment fees and no cost to prequalify and apply for a refinancing (only disreputable institutions generally charge an application fee).
There is also no charge for taking out a loan from most top-rated lenders you should be concerned about any that charge a federal loan like an origination fee.
Are There Hidden Costs Of Refinancing Student Loans?
There are various methods for lenders to increase their profit margins while you shouldn’t have to repay your student loans.
The following are some of the most typical student loan fees:
- If you zero your balance before the end of your loan term, you’ll be charged a prepayment penalty.
- Fees for collecting defaulted loans
- Late payment fees for failing to pay your dues on time
Ask each lender how much they will charge you for their services. This way, you can ensure that they won’t nickel-and-dime you later on.
While refinancing student loans does not cost anything, these companies may charge fees in certain situations.
The good news is that you may avoid these fees by paying on time and ensuring that you have enough cash available before it is due.
Signing up for autopay might help you avoid missing future payments. Many lenders provide discounts to borrowers (0.25% Interest reduction) who choose automatic payments.
You may also like: Can I Refinance Student Loans During My Grace Period?
Is Refinancing Your Student Loans Truly Free?
Some student loan refinancing firms provide perks and incentives (such as unemployment insurance) in addition to their service for free.
They’re competing with one another to attract creditworthy borrowers who are likely to pay their bills on time.
When you pay off your debt, the bank is reimbursed and can then lend the money to someone else. It’s a win-win situation.
However, refinancing to extend your repayment period, say to 20 years, would cut your monthly payment but raise the total cost of your loan since interest would have more time to collect and capitalize.
You may also like: 5 Solutions If Your Student Loan Refinancing Denied
How Much Money Will Refinancing Save Me?
Refinancing your student loans can save you money on interest and, if done correctly, might help you pay off your student loan faster.
For instance, Borrowers who refinanced their student loans between 2019 and 2020 were expected to save an average of $16,943 throughout their loan.
Borrowers have also chosen to reduce their repayment terms by an average of 41 months.
If you want to have an idea how much you could save check our student loan refinancing calculator.
Does Refinancing your Student Loans Hurt Your Credit?
The lender will conduct a thorough credit check when you apply for refinancing to verify your creditworthiness.
This can temporarily affect your credit score, but it is usually only minor and will soon bounce back.
Making on-time payments on your new loan may improve your credit score, which may outweigh any initial negative effect.
If you decide to refinance your student loan debt, do not limit yourself to a single lender, instead, seek out as many lenders as possible to discover the best loan for you.
Refinance With Lenders Who Do Not Charge Fees
Is It Worth Refinancing Your Student Loans?
You may be feeling as though every student loan service and the product comes with a catch or at least some jargon-filled legalese.
While there are advantages and disadvantages to student loan refinancing, paying to have your loan changed isn’t one of them, so don’t be fooled into doing so.
Just because refinancing is free doesn’t necessarily mean it’s the best option for you.
If you’re seeking to decrease your interest rate or monthly payment, move to a lender with better customer service, or combine your federal and private loans into one debt with a single monthly payment, refinancing might be an excellent alternative.
If you believe you’ll need the protection that comes with your federal loans, refinancing might be a mistake.
If you consider refinancing federal student loans for private loans, you will lose access to income-driven repayment, most loan forgiveness options, and other government-specific benefits.
Take the time you need to investigate whether refinancing is suitable for you.
Frequently Asked Questions
Marie got her journalism degree from the University of California and is an award-winning financial journalist, who’s responsible for collecting and analyzing information concerning students and young adults within the world of finance.
Marie has spent her career with more than 5 years writing for unique media outlets like Yahoo finance, GoBankingRates, and CNBC. She also teaches them how to plan strategically to get out of loan debts easily.
Her goal is to educate students about the different stages in life that involve finances so they can get their money’s worth.