How to decide if you should refinance your student loans when interest rates are rising

Although interest rates have risen in recent months, some borrowers may still be able to reconcile a lower monthly payment with a student loan refinance. (one)

The Federal Reserve has begun implementing a series of rate hikes planned for 2022 to combat record-high inflation. As a result, according to credible data, interest rates on private student loans have increased this year.

Despite the current interest rate environment, some student loan borrowers can still reap the financial benefits of refinancing at a lower interest rate. Student loan refinance can help you pay off debt faster, reduce your monthly payments, and save money on interest charges over time. Here’s how to determine if you should refinance your student loan debt:

Read more about each step in the sections below, and you can visit Credible to compare student loan refinance rates for free without hurting your credit score.


Determine if you will benefit from federal loan programs

When deciding whether you should refinance, it’s important to consider the type of student loans you have. Refinancing your federal student loan debt into a private loan would make you ineligible for certain federal protections, including:

But if you already have private student loan debt that doesn’t qualify for these programs, then refinancing doesn’t put you as much risk. And if you don’t want to take advantage of these federal benefits, refinancing into a personal loan may be worthwhile. You can learn more about student loan refinance by connecting with a knowledgeable professional at Credible.


Compare your student loan interest rate with current interest rates

While student loan refinance rates have increased slightly in recent months, current interest rates may still be lower than they were when you first picked up your college debt.

A Credible analyzes found that the average federal student loan rates from 2006 to 2022 were 4.60% for undergraduates, 6.16% for graduate students, and 7.20% for grads or parents who took out PLUS loans. In comparison, the average interest rate for 10-year personal student loans was 4.59% in the last week of April 2022.

Additionally, interest rates on personal student loans are determined in part based on a borrower’s creditworthiness and debt-to-income (DTI) ratio. Applicants with excellent or very good credit are usually eligible for much lower interest rates than applicants with good or bad credit. Those with a limited credit history can get a lower interest rate by refinancing with a creditworthy co-signer, such as a trusted friend or relative.

Average student loan refinancing rates by credit rating, January 2022

With private lenders, you can pre-qualify to see your estimated student loan refinance rate with a gentle credit check that won’t damage your credit score. You can visit Credible to pre-qualify with multiple lenders at once, so you can buy the best rate for your situation.


Use a student loan calculator to estimate your savings

Once you have your current student loan rate and estimated interest rates that you qualify for, you can use a student loan refinance calculator to determine if this debt repayment strategy is worthwhile. You can Use Credible’s Student Loan Calculator to estimate your new monthly payment and the total interest paid over the life of the loan. This allows you to estimate your potential savings from refinancing your student loan debt.


Do you have a financial question but don’t know who to contact? Email The Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert section.

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