The #1 Thing You Need To Do To Pay Off Student Loans Faster (+ Student Loan Refinance Calculator)

The #1 Thing You Need To Do To Pay Off Student Loans Faster (+ Student Loan Refinance Calculator)

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Want to get rid of that pesky student debt you're carrying? The #1 thing you need to do to pay off your student loans is refinancing so you can have the same loan, with lower interest. #refinancing #studentloans #earlyretirement #retireearly #financialindependence #debtfree
There's only one thing you need to do to pay off your student loans earlier. #studentloans #debtfree #personalfinance #financialindependence #savemoney #makemoney

The average American graduates from college with $30,000 in student loans.

College graduates finish their degree with insane student loan interest rates compared to what they could get on the open market today. The number one thing you need to do to pay off your student loans faster is refinance to a lower interest rate. It takes a few minutes and requires much less energy than figuring out how to save money in your budget. Obviously saving money in incredibly important, but you should start in order of ease.

I created a calculator at the bottom of this post to show you how much you could save by refinancing your student loans.

Why are student loan interest rates so high?

There are studies showing that people who complete college get paid more and are less likely to default. However, there are tons of adults who drop out of college and so are saddled with debt. Those adults who don’t finish college are more likely to default, so student loan companies aren’t willing to refinance your loan until you graduate from college and pose less of a risk of defaulting.

What is refinancing?

Refinancing refers to getting a lower interest rate on your loan. The lower your interest rate, the less your monthly payment is, and the less you’ll pay in interest rate overall. The average American can save thousands of dollars over the course of the loan by refinancing. Unlike mortgage refinancing, student loan refinancing does not require a fee and is generally painless because it doesn’t require loads of paperwork.

What are the lowest rates I can get?

Interest rates are dependent on either the 10-year Treasury Bond for fixed rates or LIBOR (London InterBank Offered Rate) for variable rates. When the economy is not doing well, interest rates plunge. In 2008, the government arm who controls the benchmark rate, the Federal Reserve, dropped interest rates to all-time lows.

Since then, interest rates have stayed at rock-bottom lows for 7 years until the Federal Reserve started raising rates at the end of 2015. The market is continuing to predict interest rate increases at quarterly intervals, so you should refinance sooner rather than later if you want to get the lowest rates. The next Fed meeting (when they can vote to increase rates) is on June 21st.

Are there reasons I shouldn’t refinance?

If you have federal loans, there are a few benefits your federal loans get:

  • Forbearance – You can pause payments for a year at a time. Interest still accrues.
  • Deferment – You can pay less than your monthly payment for 3 years due to economic hardship. Interest still accrues.
  • Income Based Repayment (IBR) – Paying less than the monthly payment based on your income. Interest still accrues.
  • Loan Forgiveness – PSLF forgives your debt after 10 years if you’re a government worker or work in a non-profit. You still have to pay a certain percent of your income. REPAYE forgives after 20 (undergrad) or 25 (grad) years of payments. Loan forgiveness only really makes sense if your career won’t pay much much.

If you have private loans, there isn’t a good reason for you not to refinance.

Remember, no matter what kind of government benefit you get, your interest will always accrue and your loan will continue to grow due to that interest.

How do I refinance?

When you’re refinancing, all you’re doing is looking for the lowest interest rate. Currently, the lowest rate is 3.15%.

Good student loan refinancing companies will offer the following:

  • No hard credit check, only soft pulls so they don’t affect your credit when you’re checking what your refi rate could be.
  • Low fixed and variable rates.
  • No origination fees (example, for mortgages, if you borrow $100k, they’ll charge X% as an origination fee. Student loan companies should not charge a fee at all)

There are a lot of student loan companies, but LendKey currently has some of the lowest fixed rates out there (other companies are 3.25%.

I created the below calculator so you can input all your loans, with the number of months left and interest rate on the loan.

You can see how much you’d save in your monthly payment and overall interest you’d have to pay.

While you can extend your loan period when refinancing to pay much less every month, I wouldn’t recommend it unless you’re experiencing hardship in paying off your current monthly payment. Remember, that interest will grow faster if you’re paying it off slower!

Enter your info in the blue cells and let the calculator tell you how much you can save if you get the best rate possible. The savings are in the green cell.

Author: Olivia

Olivia worked in finance and wants you to learn the secrets of financial independence. She believes there are so many ways to monetize your life and make money doing the things you're already doing because so many companies offer free money.

The average savings account rate is 0.1%. The big banks have incredibly low savings accounts rates. CIT Bank offers a 1.75% savings account. You can open an account with just $100 and no monthly fees or charge . Tired of being charged fees and getting peanuts in interest at your current bank? Open a CIT Bank savings account in less than 15 minutes online.

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4 thoughts on “The #1 Thing You Need To Do To Pay Off Student Loans Faster (+ Student Loan Refinance Calculator)

  1. This is something I WISH I had known about while paying off my student loans (at 8.5%, yikes). I don’t think I want to know how much I could have saved with a refinance… but something I will make sure my youngest brother is aware of when he graduates in a few years.

    1. That’s insane!! We should have a portion of PF classes (when we actually get them) dedicated to the history of interest rates and inflation. Definitely not a concept one just thinks of naturally, but the lightbulb goes on when someone else mentions it!

  2. My wife and I recently refinanced her dental school loans and highly recommend it. Our average interest rate on the federal loans was 7.1%! Great to see you starting the conversation about refinancing. Although we haven’t seen any companies that don’t do hard credit pulls. Luckily the credit check does not affect your credit very much.

    1. It’s crazy how much the difference is, isn’t it?

      Apologies, meant to say it’s soft credit pulls to check your rate. Somehow it didn’t make it there. Just fixed :). Thank you!

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Author: Olivia

Olivia worked in finance and wants you to learn the secrets of financial independence. She believes there are so many ways to monetize your life and make money doing the things you're already doing because so many companies offer free money.

The average savings account rate is 0.1%. The big banks have incredibly low savings accounts rates. CIT Bank offers a 1.75% savings account. You can open an account with just $100 and no monthly fees or charge . Tired of being charged fees and getting peanuts in interest at your current bank? Open a CIT Bank savings account in less than 15 minutes online.

If you have a car, Rideshare apps allow you to pick a direction you want to go twice a day, so you can get extra money going somewhere you were driving to anyway at least twice a day. Get a $300 sign-up bonus with Lyft.

One of my favorite ways ways of monetizing my life is via credit card bonuses with cards that give you cashback or rewards. Check out our review of the Chase Sapphire cards, which give you at least $500 in cash or $625 in travel credit.