It looks like 8 million Americans could get a lower rate on their student loans, but most haven’t even looked into refinancing.

That’s according to a new report from online student loan marketplace Credible.com that also details different strategies borrowers employ when refinancing.

For those who think refinancing is only for career climbers with perfect credit and six-figure incomes, Credible’s report demonstrates otherwise.

Analyzing thousands of student loans refinanced through Credible.com in the last 1 ½ years, the report found that recent graduates with annual salaries of $54,200 are refinancing $49,379 in student loan debt, on average.

Who’s eligible to refinance

With a growing number of lenders competing to refinance student loans, a broad range of borrowers can qualify -- you don’t need a “super-prime” credit score of 740 or higher.

Your eligibility to refinance your student loans depends largely on your credit history, and how your student loans and other debt stack up against your income. An elevated debt-to-income ratio above 36 percent can make it more difficult to refinance student loan debt. In some cases, having a cosigner can help.

If you do qualify to refinance, the question is whether you can get a better interest rate than what you have on your existing loans. A good credit score will help you get a lower rate, but the loan’s repayment term also plays an important role. The shorter the loan term (5 or 10 years for example, versus 15 or 20), the lower the interest rate.

How different borrowers approach refinancing

One of the most useful things about Credible’s report is it shows different approaches borrowers take when refinancing. There are three basic strategies:

Lower your monthly payment: For those who are stretching to make their monthly student loan payments, refinancing into a loan with a longer repayment term gets the biggest reduction in monthly payment. But because you won’t get as much of an interest rate reduction and will make more payments, your total cost of repayment may go up.

Get the biggest savings: If you’ve landed a job or won a promotion that boosts your salary, your extra income could allow you to boost your monthly student loan payments and refinance into a loan with a shorter repayment term that gets you the biggest interest rate reduction and maximizes your overall savings. 

Lower your monthly payment AND total cost: Refinancing into a loan with a lower interest rate and roughly the same repayment term as your existing loan can lower your monthly payment while also reducing the total amount repaid. The reduction in monthly payment won’t be as big as if you extended your loan term, and total savings won’t be as great as if you reduced it, but you’ll get a little bit of both.

Alternatives to refinancing

If you’re just looking to reduce the monthly payments on your student loans, you can stretch out the payments on your federal student loans without refinancing them. Just remember that because you won’t get an interest rate reduction, your overall cost of repayment may go up if you switch to an extended or graduated repayment plan, or consolidate your loans and enroll in an income-driven repayment plan.

Refinancing is not for everyone -- borrowers who refinance federal loans with private lenders lose borrower benefits like access to income-driven repayment plans and the potential to qualify for loan forgiveness after 10, 20, or 25 years of payments.

But Credible.com makes the process of exploring refinancing strategies simple and transparent -- you can see personalized rates you qualify for with multiple lenders in about 2 minutes, without affecting your credit score or sharing your personal information with lenders until you see an option you like.




The views expressed above are those of the author and do not reflect the views of MoneyLion Inc. Any statements or speculation provided in this blog are intended for informational purposes only. MoneyLion does not guarantee the accuracy or completeness of any of the information presented above.