How I Figured Out If I Should Refinance $56,000 in Student Loans

Do you have private student loans? I do, and they suck. Private student loans are the Wild West of the student loan world. Each company dictates its own interest rates based on your and/or your cosigner’s credit. Because of this, private student loans generally come with higher interest rates than federal student loans.

Over time, these seemingly small differences in interest rates can add up and cost you tens of thousands of dollars in additional interest charges. But you do have options. One, you can refinance your loans with another, more affordable company.

[Related: Fighting & Winning the Student Loan Debt Battle: How My Wife and I Paid Off $100,000]

How do you actually know if refinancing will save you money? Luckily, it’s not rocket science, but there are a few things to know. I’ll walk you through the process to show you exactly how I figured out if refinancing my private student loans was right for me.

Find out the details of your current loan

In order to see if student loan refinancing will help you, you need to be able to compare a potential new loan with your current one. This’ll take a bit of sifting through paperwork on your part. Can’t find it?

Check the National Student Loan Data System. If you have private loans and they are correctly categorized, they should show up there. If you have trouble finding all of your loans, check your credit reports to identify all creditors associated with your social security number.

You can get your free credit report on Credit Sesame and a free report every year from each of the major credit reporting agencies (Equifax, Experian and TransUnion) from AnnualCreditReport.com.

Still need help finding your details? The Ombudsman’s office can help.

For each of your private student loans, find and write down the following information:

– Remaining balance
– Interest rate
– Type of loan (variable or fixed-rate)
– Remaining number of payments
– Monthly payment

Here’s what I wrote down for my private student loans:

Shop for lower rates

Luckily for me, when I took out these loans my cosigner had great credit and so the interest rates are very low. (Thanks, Mom!) Even so, it can’t hurt to search around for lower rates.

Now that you have a baseline, it’s time to shop around for better rates.

Start with your current lender. Call them up and explain that you’re considering refinancing your loans, and ask them if they can beat their current rates. (Make sure you call up your lender, and not the loan servicing company.) I made this mistake at first and was told by the customer service rep that my lender was not currently adjusting rates, so if I wanted a lower rate, I would need to refinance. Oh well – it’s worth a shot!

The next step is to shop around. When checking rates, look for words like “soft credit pull” or “won’t hurt your credit” – otherwise, the lenders may do a hard credit pull which will show up on your report and lower your credit score.

Once you’ve narrowed down the lenders you’re interested in, the lenders may need to make hard inquiries into your credit report before they can tell you the exact rate you’ll qualify for. That’s OK, so long as you do your rate shopping within a short time period because FICO and VantageScore understand that consumers need to rate shop.

Tip: An inquiry for a student loan won’t hurt your score at all for the first 30 days after it’s made.

Then, all student loan inquiries made within 45 days count as a single inquiry where your credit score is concerned. If the loans are correctly categorized as student loans, you can safely shop around within a 45-day window.

In order to keep everything neat and organized, I wrote down the following information in a spreadsheet so that I could go back later and evaluate my options:

– Name of Loan Company
– Interest rate
– Loan type (variable or fixed)
– Extra fees, such as loan origination or prepayment fees
– Term of new loan (e.g., 5 year, 10 year, 20 year)
– Other perks, such as interest rate discounts for auto pay, job placement assistance, etc…

Compare total loan costs 

Now that you’ve gathered up all the information in a nice, neat spreadsheet, it’s time to do some calculations. Any online loan calculator should work.

Simply go down the list you generated in the last step and for each loan, plug the following information in the calculator: loan amount, loan term, and interest rate.

The calculator will spit back an estimated monthly payment. Write that number down next to the other information you have from that loan.

Then, look for an “amortization table” – you might have to search around for a button to show it. This shows how each monthly payment is broken down into what goes to interest and what goes to paying down the principal.

Near the “interest” column, there should be a column called “total,” or “total interest paid.” This is where the total amount of interest you’ve paid so far on the loan is tallied up.

Scroll to the bottom – your last payment (hooray!) – and write down that number with the rest of the loan information in your spreadsheet. This is how much total interest you will pay over the life of the loan.

Now, calculate the total cost of the loan. To do this, you simply add any fees to the total interest over the life of the loan. In my search, I did not come across any extra fees, and so the total cost of each loan was the same as the total interest I would be paying over the life of the loan.

Don’t forget to repeat this process with your current loans – you need something to compare it to, after all!

When you’re finished, compare the monthly payment and total loan cost for each of the potential loans to your current ones. Are there any that have a lower total loan cost? Can you still afford the monthly payments on that loan?

If so, congratulations – you’ve found a great loan for refinancing! Subtract the total loan cost of the new loan from your current loans. How much will you save?

Should I refinance my student loans?

Here is what my spreadsheet looked like after I collected all of the data and calculated the monthly payments and total loan costs. For simplicity’s sake, I only included a few of the different loans I shopped around for:

For Earnest, visit their refinance page to see the latest rates.

In my case, the number to beat was $25,726. None of the loans were able to come close, so for the time being at least, it looks like I’ve already got the best loan terms possible.

Just out of curiosity, though, I wondered what would have happened if my parents had terrible credit when they co-signed the loan. I’d be stuck with a much higher interest rate now, and would probably benefit from refinancing. In my searching, I found private student loans with interest rates as high as 12%!

If I were currently paying an interest rate as high as that, my monthly payments would be $626 and the total loan cost would be $93,445. Now, the loan with the lowest cost would be the CollegeAve loan. If I refinanced my loans with this company, I would reduce my monthly payment by $154, save $65,300 in the long term, and shave three years of the length of the loan to boot!

You might imagine that this process would take a long, long time. Not necessarily; I completed the entire process from start to finish in about two hours.

Although I concluded that I didn’t need to refinance my loans, in the worst case scenario I would have saved tens of thousands of dollars by doing so.

Now, how much can you save on your student loans by refinancing?

Read about how 5 real grads paid off their student loan debts.