In plain text
Payment = B × (r) ÷ (1 - (1+r)^(-n)) Interest difference = I_current - I_new
What does refinancing a student loan do?
Refinancing pays off your existing student loan with a new loan from a private lender. The new loan has its own rate and term, and the lender sets them based on your credit and income. If the new rate is lower, your monthly payment or total interest may fall. If the term is longer, the payment may fall while the total interest rises.
How do I use it?
Enter the balance you still owe, the rate and years left on your current loan, and the rate and term from the refinance offer. The results show both monthly payments, the monthly saving, the total interest on the current loan, and the interest difference between the two loans.
How does the calculation work?
Each payment comes from the standard level-payment formula, using the balance, the loan's rate, and its term in months. The current total interest is the current payment multiplied by the months left, minus the balance. The new total interest is calculated the same way on the new loan. The interest difference is the current total interest minus the new total interest.
The calculator uses the balance as the starting amount for both loans, so it does not include fees or interest that has built up since your last statement.
Why is refinancing federal loans a special case?
Federal student loans come with protections that a private loan does not offer. These can include income-driven repayment plans, deferment and forbearance options, and some forgiveness programmes. Refinancing a federal loan with a private lender gives up those protections for good, even if the new rate is lower.
Before refinancing a federal loan, list the protections you may need in the next few years, such as a period of lower income, and check whether you would still need them.
What can the result not tell me?
The calculator does not know the rate or term a lender will offer you, and it does not include origination fees, prepayment penalties, or the value of federal protections you might lose. It also does not model changes in your income or a variable rate that could rise later.
Treat the result as an estimate. Compare written offers from several lenders, and read the terms before you accept one.
Does a longer term always help?
A longer term usually lowers the monthly payment, but it adds more months of interest, so the total cost can rise. A shorter term raises the payment and usually lowers the total interest. The interest difference in the results shows this trade-off for the terms you enter.
What should I compare before I refinance?
Compare the total interest, the monthly payment you can afford, and the protections the current loan gives you. A lower payment is only a gain if the total cost is also lower, or if you accept the trade for a clear reason. Look at the rate type as well, because a variable rate can rise over the life of the loan.
