a woman sits on the floor of her living room with laptop reviewing paper bills

Why you may want to refinance your student loans

Aug 18, 2020
Empower Insights

Refinancing student debt can be an effective way to save

When you signed on the dotted line for your student loans, you agreed to a slew of conditions—most importantly, that you’d pay off your debt over a certain period. However, you may not be stuck with those exact loan terms forever. Refinancing may give you better terms that improve your overall financial picture.

Here are some of the top reasons to consider refinancing:

Get a lower interest rate. If interest rates are lower now than they were when you took out the loan, you may be able to get a lower rate on your student loan. Doing so can save you a substantial amount of money over the life of the loan.

Lower your monthly payments. Depending on the offer, your refinanced loan may give you a lower interest rate or a longer term—or both, which reduces your monthly payment. With your leftover savings, you’ll have more cash to allocate to other financial goals. And you’ll also lower your debt-to-income ratio, which can be an important factor if you’re applying for a mortgage or auto loan.

Simplify your finances. When you’re paying off student loans, you’re often dealing with several different lenders. That can make paying bills a hassle—especially if you encounter any confusion or need to ask a question. Consolidating your loans allows you to cut down the number of lenders, so you may have just one student loan to pay each month. In the long run, dealing with fewer lenders could save you time and some headaches.

a woman sits on her couch talking on mobile phone and using laptop

Cut your co-signer free. Circumstances and relationships change. There may come a day when your co-signer no longer wants to be on the hook for your student loans, and refinancing gives you a chance to let them off.

The difference refinancing can make

What exactly does refinancing your student debt look like? The answer will depend on how much you owe and the offer you accept. For example, let’s assume you borrowed $30,000. If you have a 10-year term and your interest rate is 7%, you’re paying roughly $350 per month. That means you’ll pay about $11,800 in interest over the life of the loan. [1]

Say you refinance for a 10-year term with a 3% interest rate. Your monthly payment would be about $290, and you’d pay $4,760 total in interest. You’d save about $60 every month—and more than $7,000 over the life of the loan.

Refinancing isn’t right for everyone. If you have federal loans and an income-driven repayment plan, for example, refinancing may not offer the same benefits. And not everyone is eligible to refinance. In general, you’ll need a good credit score and a reliable source of income to qualify. As with all loan-related decisions, it’s critical to read all of the fine print, so that you understand the terms you agree to.

If you are eligible, refinancing to get a lower interest rate can be a smart move that may help you achieve your financial goals more quickly.

Save for those financial goals in an Empower Investment Account

1 NerdWallet, Student Loan Calculator. https://www.nerdwallet.com/blog/loans/student-loans/student-loan-calculator/, July 2020

Latest Empower Insights

A family of 4 sits on a dock peering at the view of a lake
Sep 22, 2020
Empower Insights

Summer of sacrifice

How one family is persevering after losing much more than an annual trip.

View of the front of a home
Sep 14, 2020
Empower Insights

Parked at home

How one family is moving forward after pumping brakes on summer RV trip.

Lobster traps and fishing boats at a seaside dock
Sep 8, 2020
Empower Insights

‘Maine’ priority

How one professor is holding it together after putting family reunion on hold.

Carefully consider the investment option’s objectives, risks, fees and expenses. Contact Empower Retirement for a prospectus, summary prospectus for SEC registered products or disclosure document for unregistered products, if available, containing this information. Read each carefully before investing.

Securities offered and/or distributed by GWFS Equities, Inc., Member FINRA/SIPC. GWFS is an affiliate of Empower Retirement, LLC; Great-West Funds, Inc.; and registered investment adviser, Advised Assets Group, LLC. Investing involves risk, including possible loss of principal. This material is for informational purposes only and is not intended to provide investment, legal or tax recommendations or advice.

IMPORTANT: The projections, or other information generated on the website by the investment analysis tool regarding the likelihood of various investment outcomes, are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The results may vary with each use and over time.

Insurance products are issued by or offered through Great-West Life & Annuity Insurance Company, Corporate Headquarters: Greenwood Village, CO; or in New York, by Great-West Life & Annuity Insurance Company of New York, Home Office: New York, NY. Guarantees are subject to the terms and conditions of the contract and the claims-paying ability of the insurer.

The Empower Institute is a research group within Empower Retirement, LLC.

All features may not currently be available and are subject to change without notice. ©2020 Empower Retirement, LLC. All rights reserved.

Unless otherwise noted: Not a Deposit | Not FDIC Insured | Not Bank Guaranteed | Funds May Lose Value | Not Insured by Any Federal Government Agency.