“Should I refinance or stay the course with my student loans?” It’s a great question to ask yourself if you’re currently making monthly payments to pay off your education debt. The good news is that it’s easier than ever to find out if refinancing will save you some money.
Intuit recently partnered with student loan refinancer Earnest to enable TurboTax customers who may have student loans the ability to use their own data to easily get a refinance estimate. We asked the experts at Earnest about why you should consider student loan refinancing.
Why should I consider refinancing loans?
Refinancing is the process of getting a new loan that is optimized to your preferences, like a faster payoff, lower rate or smaller monthly payment. It is common practice for home loans, but these days you can do it for student loans, as well. There are three good reasons for refinancing.
The original rates you have on your student loans might vary depending on whether you borrowed from the government or a private lender, and if they were for undergraduate or graduate school.
Federal loans for undergraduate study tend to be very affordable and have low rates, but loans for graduate school are more expensive, with rates over 6%. Private student loans tend to be even more expensive with rates from 6-12%. Take a look at your current rates, and then use this student loan calculator to see how much you can save.
After you have graduated and have regular income, lenders may be willing to provide better rates to you than the ones you were offered when you originally took out those loans. Lowering your rate (and shortening your term) will save you money over the life of your loan. For example, the average savings for an Earnest client is $21,810 over the life of their loan. By using TurboTax to complete your income tax return, you can get sneak peek of your personalized student loan savings.
2. Managing Your Bills & Payments
When you graduate, you might have more than a dozen different loans, each with its own payment schedule. Refinancing can help you consolidate all your loans under one “roof”. Instead of having multiple loans to keep track of, you can refinance to obtain one new loan, with one unified payment.
3 . Your Budget
What can you afford to pay on your student loans each month? Is it $350 or $750? At Earnest, we believe your student loan payment should match your budget—rather than forcing you to structure your budget around your student loans. You can set your desired monthly payment with our Precision Pricing feature, and we’ll provide a customized rate and term matched to that amount.
How does refinancing my student loans affect my taxes?
With all student loans, private or federal, you can deduct the full amount of interest you paid (up to $2,500) during the taxable year, so long as your modified adjusted gross income (MAGI) doesn’t exceed $80,000 as a single/head of household filer or $160,000 as a married couple filing jointly (but note, if you’re married filing jointly you can only claim one deduction, not two.)
The deduction is gradually reduced according to your income level, and eventually eliminated when your MAGI reaches the annual limit for your filing status. When you refinance, you still can still qualify for the deduction on your income tax return as long as you are within the income limit.