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What’s the Cost to Refinance Student Loans?

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Homeowners spend more than $4,000 on average to refinance a mortgage. That number can vary widely, depending on many factors.

The average cost for borrowers to refinance student loans, on the other hand, doesn’t change. That’s because it’s $0.

Is there a cost to refinance student loans?

Unlike the four-figure cost of refinancing a home loan, there’s no price to pay for refinancing your student loans. That’s true whether you’re motivated to refinance to reduce your interest rates or if you’re more focused on adjusting your monthly payments.

Rather than costing you money, refinancing could save you cash if you get a lower interest rate. Switching from a 7% rate to a 4% rate on $30,000 worth of loans, for example, could spare you $5,351 worth of interest, according to our student loan refinancing calculator.

On the flip side, employing refinancing to lengthen your repayment term — say, from 10 years to 15 or 20 years — would lower your monthly payment, but it would also increase the overall cost of your debt, as interest would have more time to accrue and capitalize.

Still, the process of refinancing itself is free and clear.

That also means there’s no charge to prequalify and apply for refinancing with most reputable banks, credit unions and online loan companies (only disreputable institutions generally charge an application fee). There’s also no amount due for receiving your loan from most top-rated lenders — in fact, you should be suspicious of any that impose a federal loan-like origination fee.

Why is student loan refinancing free?

Student loan refinancing companies don’t just offer their product for free — some also offer perks and benefits, such as unemployment protection. That’s because they’re competing with each other to recruit creditworthy borrowers who are good bets to repay their debt on time.

When you zero your debt, the bank is made whole and can lend the money elsewhere. It’s a win-win situation. It’s also how lenders make money.

Are there hidden costs of refinancing student loans?

While you shouldn’t have to shell out to refinance your student loans, there are different ways for lenders to add to their bottom line. Student loan fees to be wary of include:

  • Prepayment penalty for zeroing your balance before the end of your loan term
  • Late payment fees for submitting your dues past the deadline
  • Collections fees for defaulted loans

When shopping around for a lender, ask each one about its fee schedule. This way, you can ensure it won’t nickel-and-dime you down the road.

Should you refinance your student loans?

By now, you might feel like every student loan service and product comes with a catch or at least some section of fine print written in indecipherable legalese. But while there are pros and cons of student loan refinancing, paying to get your loan isn’t one of them, so don’t get tricked into doing so.

On the other hand, just because refinancing is free doesn’t mean it’s necessarily the right move for your own situation.

If you’re looking to lower your interest rate or monthly payment, transition to a lender with better customer service or consolidate your federal and private loans into a single debt with a single monthly payment, then refinancing could be a great choice.

But refinancing could be a mistake if you think you’ll need the safeguards attached to your federal loans. By trading your federal loans for a private refinancing loan, you will lose access to income-driven repayment, most of your loan forgiveness options and other government-exclusive benefits.

Take the time you need to determine whether refinancing might be right for your repayment. If it is, the only cost could be failing to investigate it further. Start by asking yourself the right questions before deciding whether to apply.


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