Eight million Americans could get a lower interest rate on their student loans, and many of them might not even know it.
That’s the estimated number of borrowers eligible to refinance their debt, according to a new report from Credible, an online student loan marketplace. It’s roughly one-third of all people who are currently paying down student loans.
Short of getting someone else to help shoulder the cost (good luck with that), refinancing is one of the only ways that could both lower your monthly payments and cut the amount of money you’ll pay over the life of the loan.
And it’s not just for people pulling in six-figure salaries.
Your eligibility does depend, though, on how much money you earn relative to the amount of debt you have, and it helps to have a good credit score.
Federal loans, which make up most of the country’s student debt, come with much lower interest rates now than they did a decade ago. But the government doesn’t allow people with older loans to refinance at current rates.
Instead, you have to turn to a private lender to refinance both federal and private loans.
Some banks offer student loan refinancing — like Darien Rowayton and Citizens. And a handful of online lenders have recently launched specifically for this purpose, like Sofi and CommonBond.
Credible, which helps student borrowers shop around for the best rates, analyzed data from its users over the past 17 months to see who was getting the best rates, and how much money they were saving. Here’s a look at what they found.
Every lender has its own qualifications, but ultimately you have to show you’re able to repay the debt. It might hurt you if you’ve missed payments before, have a low credit score, or aren’t making the big bucks yet.
But it’s not uncommon for people with debts larger than their annual income to refinance, according to Credible. It could be helpful if you don’t have other big debts to pay like a credit card balance, mortgage, or car payment.
Recent grads who used Credible to refinance had an average income of $54,200 and a loan balance of $49,379.
What can refinancing do for you?
Ideally, you’re looking to pay less over the long term.
Refinancing will get you a new interest rate and possibly a different repayment term, which could be longer or shorter than the 10-year standard term that comes with a federal loan.
On average, borrowers who refinanced reduced their rate by 1.7 percentage points, cut their term by five years, and can expect to save $18,668 over the life of the loan, according to the report.
Most lenders don’t charge an origination or closing fee.
Even if you’re eligible, refinancing might not be the best option for you. A new loan with a lower rate and a shorter term might drive up your monthly payment.
Other ways to help pay down your loan
If you are struggling to pay your federal loans, you could apply for an income-driven repayment plan. Typically, the government will cap your monthly payment at 10% of your discretionary income. And if you make full payments for 20 years, any remaining debt will be forgiven. (If you have loans for graduate school, it’s forgiven after 25 years.)
President-elect Donald Trump has suggested capping your monthly payment at 12% of your income and forgiving your remaining debt after 15 years.
Currently, federal loan forgiveness is also offered after 10 years for people who work for the government and non-profit organizations.
But remember, you could lose some of these protections if you refinance into a private loan. While some private lenders offer similar income-based repayment options and hardship deferrals, many do not. So if your financial situation is unsteady, it might be worth staying put with a federal loan.