How Much Does It Cost To Refinance Student Loans?

Most private lenders don't charge upfront fees to refinance student loans, but refinancing can still come with costs. These often show up if you make a late payment, have a payment returned, or take other actions that trigger fees.

To maximize your savings, it's important to understand these potential costs and how to avoid them. Beyond fees, you'll want to consider how factors like extending your repayment term or differences in lender policies can affect the total cost of refinancing.

Here's what to know about the true cost of student loan refinancing and how to maximize your total savings.

Current student loan refinance rates

Are there fees to refinance student loans?

It's rare for private lenders to charge upfront fees when you refinance. However, there may be some exceptions, as some smaller banks or local lenders may occasionally charge application or origination fees.

“One of the value propositions with private student loans is they don't charge fees, compared with federal loans that charge fees of about 1% to 4% on new loan originations,” says Mark Kantrowitz, author of “How To Appeal for More College Financial Aid.”

Look out for late and returned payment fees

Private lenders typically don't charge application or origination fees, but you could still face other refinancing costs.

“The real costs show up later,” says Stanley Tate, an attorney specializing in student loans. These can include:

• Late-payment fees: These fees apply if your payment is past due. They are usually $30 to $50, or in some cases, 5% of the overdue amount.
• Returned-payment fees: These fees are charged when a payment is returned due to insufficient funds or another issue.
• Prepayment penalties: These fees may apply if you pay off your loan ahead of schedule, though prepayment fees are rare.

Extending your repayment term can cost you more in interest

Even if you find a lender with no fees and a lower rate than you currently have, you could lose those savings by refinancing into a longer loan term.

Lower monthly payments may look appealing, since the repayment is spread out over more years, but that also means interest has more time to accrue.

For example, let's say you refinance $30,000 in student loans at a 7% interest rate. With a 7-year term, your monthly payment would be about $453, and you'd pay about $38,034 total — $8,034 of which is interest. If you extend the term to 15 years, your payment drops to about $270, but your total repayment rises to approximately $48,537, including $18,537 in interest.

Even with the same interest rate, the longer term adds more than $10,000 in extra interest costs.

Because of this, it's important to compare the total cost of the loan, not just the monthly payment, when deciding whether to refinance.

How to compare the true cost of refinancing

When you compare refinance offers, don't stop at the interest rate. The better figure to review is the loan's annual percentage rate (APR), which includes both the interest rate and any fees. This gives you a clearer picture of what refinancing will cost over a year.

You don't have to calculate this on your own. A student loan refinance calculator can show the difference between interest savings and added costs, allowing you to determine which offer is truly the most competitive.

According to Tate, the most efficient way to shop is through a loan marketplace, which lets you compare offers from multiple lenders in one place.

“If you apply individually, do it in a single session or close window so you don't rack up multiple hard pulls on your credit,” he warns.

Tips to minimize refinancing costs

If your goal with refinancing is to save money, there are several steps you can take to keep costs down:

• Work with a no-fee lender: Choose a lender that doesn't charge application, origination, or other fees. Even small charges can add up over time if you encounter them repeatedly.
• Set up autopay: Enrolling in autopay ensures you never miss a due date and risk late fees. Many lenders also offer an interest rate discount — typically 0.25 percentage points off your rate — when you sign up.
• Avoid late payments: Late fees are more common on refinance loans, but you can avoid them by paying on time every month. Setting up autopay or reminders can help you stay on track.
• Opt for a shorter term: A longer repayment term lowers your monthly payments but increases your total interest costs. If you can afford the higher monthly payments, a shorter term can help you save more overall.
• Improve your credit before applying: A stronger credit score increases your chances of qualifying for a lower refinance rate. You can improve your score by making on-time payments, keeping balances low, and limiting new credit inquiries.