Borrowers using Credible’s multi-lender marketplace to refinance student loan debt with the goal of reducing their interest rate, repayment term and total amount repaid can expect to save nearly $19,000 over the life of their new loan.
That’s according to an analysis of loans refinanced by borrowers using the Credible marketplace from April 15, 2015 to Sept. 21, 2016.
- Borrowers who chose a loan with a shorter repayment term in order to get the lowest interest rate and maximize overall savings reduced their interest rate by 1.71 percentage points and will pay $18,668 less over the life of their new loan, on average.
- Those who chose a longer loan repayment term saw rate reductions averaging 1.36 percentage points, and reduced their student loan payments by $218 a month.
Borrowers refinancing student loans can reduce both their monthly payment and the total amount repaid when they refinance into a loan with a lower interest rate and a repayment term that’s comparable to their existing loan.
They can also choose to maximize total savings by refinancing into a loan with a shorter repayment term, or shrink their monthly payment by choosing a loan that stretches their payments out over a longer period of time.
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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 1.56 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)||Interest rate reduction (percentage points)||Change in monthly payment||Average loan balance||Average lifetime savings||Median lifetime savings|
|Group one (reduced repayment term)||-59 months||-1.71%||+$151||$56,202||$18,668||$10,389|
|Group two (increased repayment term)||+54 months||-1.36%||-$218||$49,041||(-$5,051)||(-$1,991)|
|All Credible refinancings||-6 months||-1.56%||-$25||$52,759||$7,747||$2,513|
Borrowers using the Credible marketplace to refinance into a loan with a shorter repayment term saw their monthly payments increase by $151, on average. But because they will make an average of 59 fewer payments — and pay down their loan at a lower interest rate — those borrowers will save an average of nearly $19,000 in the long run.
Borrowers who used Credible to refinance into a loan with a longer repayment term will pay $5,051 more over the life of their new loan, on average. That’s because even though this group of borrowers was able to trim $218 from their monthly payment and reduce their interest rate by 1.36 percentage points, they’ll make 54 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 depend 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 — $54,591 — 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 closer to the median lifetime savings provided for each group.
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 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.
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 April 15, 2015 to Sept. 21, 2016.
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.
In group two, we excluded borrowers whose calculated savings represented more than 95 percent of their loan balance, as this is likely an indicator of a data entry error.
For borrowers who reported a remaining term of more than 25 years on their existing loans, savings values are calculated based on 25 years worth of payments.
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.
Credible is a multi-lender marketplace that allows borrowers to request personalized rates in real time without affecting their credit scores.