Borrowers using Credible to refinance student loan debt into a loan with a shorter repayment term can expect to save an average of $17,3441 over the life of their new loan.
That’s according to an analysis of self-reported data provided by borrowers who refinanced their student loans using the Credible marketplace from Nov. 1, 2017, through Dec. 29, 2018.
The savings you can achieve when refinancing student loan debt will depend on your goals, and the strategy you choose to reach them.
Some borrowers choose to maximize their overall savings by refinancing into a loan with a shorter repayment term. That not only allows them to pay their loans off faster, but can help them qualify for a lower interest rate. But keep in mind that this strategy can increase your monthly payment.
Borrowers who want to focus on reducing their monthly payment may refinance into a loan with a longer repayment term. Although borrowers pursuing this strategy typically reduce their interest rate, their overall repayment costs may increase because they’re stretching their payments out over a longer period of time.
- Borrowers who chose a loan with a shorter repayment term in order maximize overall savings reduced their interest rate by 2.13 percentage points and will pay $17,344 less over the life of their new loan, on average.
- Those who chose a longer loan repayment term saw rate reductions averaging 1.82 percentage points and reduced their student loan payments by $2092 a month.
Another approach is to refinance into a loan with a lower interest rate and a repayment term that’s comparable to your existing loan. Borrowers pursuing this strategy can reduce both their monthly payment and the total amount repaid, although not by as much as if they’d chosen to focus on just one of those goals.
What the numbers say
Credible’s analysis broke users into two groups:
- Those focused on reducing their interest rate and repayment term in order to decrease the total amount repaid (group one), and
- Those who were aiming to reduce their monthly payment by increasing their loan repayment term (group two).
We found that borrowers in both groups were able to reduce their interest rate by an average of 1.95 percentage points when they refinanced their loans with lenders who compete for business through the Credible marketplace.
Because loans with shorter terms generally have lower interest rates, borrowers who chose loans with shorter repayment terms saw the greatest interest rate reduction.
Student loan refinancing outcomes, by group
|Group||Average change in loan term (months)||Average interest rate reduction (percentage points)||Average change in monthly payment||Average loan balance||Average lifetime savings|
|Group one (reduced repayment term)||-50 months||-2.13%||+$135||$56,170||$17,344|
|Group two (increased repayment term)||+62 months||-1.82%||-$209||$48,949||(-$5,056)|
|Both groups||+15 months||-1.95%||-$64||$52,001||$4,411|
Source: Student loan refinancings by multiple lenders initiated through the Credible marketplace from Nov. 1, 2017, through Dec. 29, 2018.
Borrowers using the Credible marketplace to refinance into a loan with a shorter repayment term saw their monthly payments increase by $135, on average. But because they will make an average of 50 fewer payments — and pay down their loan at a lower interest rate — those borrowers will save an average of more than $17,000 in the long run.
Borrowers who used Credible to refinance into a loan with a longer repayment term will pay $5,056 more over the life of their new loan, on average. That’s because even though this group of borrowers was able to trim $209 from their monthly payment and reduce their interest rate by 1.82 percentage points, they’ll make 62 months of additional payments, on average.
How to use these numbers
The interest rate reduction and savings you could realize by refinancing your student loan debt depends on a number of factors, including:
- The strategy you pursue — maximizing overall savings, or reducing your monthly payment
- The type of loan you choose (short or long repayment term, fixed or variable interest)
- The amount you refinance
- Your credit and earnings history
Because many borrowers have used Credible to refinance graduate school debt, the average loan balance for all users — $52,001 — is greater than the debt typically taken on by undergraduates. If you have less student loan debt than the average Credible user, your savings from refinancing could be proportionately less.
This analysis of thousands of borrowers who have refinanced their student loan debt through Credible is only intended to be a starting point for further research.
Requesting prequalified rates through Credible does not affect your credit score, or require that you share your personal information with lenders at this stage of the process. But, if you do choose a lender and move forward with an application, your information will be sent to the lender and you will agree to a hard credit inquiry, which can impact your credit score between 2 to 9 points.
Do your research
Refinancing student loan debt with a private lender is not for everyone. If you refinance government loans with a private lender, you’ll lose access to programs like income-driven repayment, and the chance to qualify for loan forgiveness after 10, 20, or 25 years of payments.
While some private lenders will grant deferment or forbearance to borrowers facing financial difficulties, government student loans can be more lenient in that respect.
Enrolling in a government-sponsored income-driven repayment program like REPAYE can lower your monthly payments by extending your loan term to up to 25 years. Borrowers can also extend their repayment terms by consolidating student loan debt and enrolling in a standard or graduated repayment plan. But extending your loan term in a government repayment program does not provide an interest rate reduction, and can increase total interest and principal payments.
The student loan refinancing outcomes presented here are based on refinancings by multiple lenders initiated through the Credible marketplace from Nov. 1, 2017, through Dec. 29, 2018.
Savings were calculated by subtracting the projected lifetime cost of each borrower’s student loans after refinancing from the projected total cost of their original student loans.
Some borrowers refinancing through the Credible marketplace choose variable-rate loans that can rise and fall with benchmark interest rates. Our analysis does not attempt to predict how rates on these loans could change over time. The calculations also assume that users will make payments on time, and that there will be no prepayments.
We excluded a few anomalous cases in which borrowers may have provided erroneous information about their existing loans. Our analysis of loans refinanced through the Credible marketplace excluded any borrowers whose reported monthly payment was not enough to pay down their existing loans over time, or whose reported monthly payment exceeded $5,000.
Also excluded were borrowers:
- Who we calculated had more than 25 years of remaining payments
- With less than one year of payments remaining
- Whose self-reported loan balance differed by more than 5% from the amount actually refinanced
Borrowers enrolled in income-driven repayment plans like REPAYE qualify for loan forgiveness after they have made regular payments for 20 or 25 years. The amount forgiven is considered taxable income by the IRS. Public service loan forgiveness programs for teachers, government employees, and tax-exempt nonprofits, provide tax-free relief after 10 years of payments. We did not factor the potential for loan forgiveness into our savings calculations.
1$17,344 savings disclaimer: Actual savings may be higher or lower. Average $17,344 savings calculation based on self-reported data from users who provided data to Credible.com about their original loans (such as loan balance, repayment term, and rate), created an account between Nov. 1, 2017 and Dec. 29, 2018, and refinanced into a student loan with a shorter repayment term than their previous loan(s). This calculation excludes borrowers who refinanced to a loan of a similar or longer duration or who reported loan terms that deviate from normal user experiences, including: (i) any loan term with less than one (1) year or more than twenty-five (25) years remaining; (ii) monthly loan payments greater than $5,000 per month; and (iii) any existing loan amount that deviates more than five (5) percent from the loan amount disbursed upon refinancing. Our calculations do not take into account variable factors such as the borrower’s potential eligibility for loan forgiveness, variable interest rates, or pre-payments. Please note that your actual savings may vary depending on interest rate, balance, loan terms, credit score, and other factors.
2Reduction in monthly payment disclaimer: Actual reduction in monthly payment may be higher or lower. Average reduction in monthly payment calculated based on self-reported data from users who provided data to Credible.com about their original loans (such as loan balance, repayment term, and rate), created an account between Nov. 1, 2017 and Dec. 29, 2018, and refinanced into a loan with a longer repayment term than the weighted average of their previous loan(s). This calculation excludes borrowers who refinanced to a loan of similar or shorter duration or who reported loan terms that deviate from normal user experiences, including: (i) any loan term with less than one (1) year or more than twenty-five (25) years remaining; (ii) monthly loan payments greater than $5,000 per month; and (iii) any existing loan amount that deviates more than five (5) percent from the loan amount disbursed upon refinancing. Our calculations do not take into account variable factors such as the borrower’s potential eligibility for loan forgiveness, variable interest rates, or pre-payments. Please note that your actual savings may vary depending on interest rate, balance, loan terms, credit score, and other factors.