The True Cost of Student Loan Interest: How Refinancing Can Save You Big

Student loans are a reality for many college graduates, and for most people, it’s a long-term commitment. The average U.S. borrower owes around $30,000 in student loans, but the real cost isn’t just the amount you borrowed. What many people don’t realize is that the interest that builds up over time can add thousands of dollars to what you actually end up paying.

In this post, we’ll take a look at how student loan interest works, how it can really add up over time, and how refinancing your loans can potentially save you a significant amount of money.

Understanding the Real Cost of Interest

The concept of interest might sound simple: it’s the extra amount you pay to borrow money. But when it comes to student loans, interest can quickly turn into a major financial burden. With student loans, interest doesn’t just sit still — it compounds, meaning you’re charged interest not only on the original loan amount (the principal), but also on the interest that accumulates over time. This is why, even if you make your regular monthly payments, the total amount you owe can grow substantially.

Take, for example, a $30,000 loan with a 6% interest rate over a 10-year period. While it might seem manageable to pay $300 or so each month, over time, you’re actually paying much more than you think. Over the course of 10 years, you could end up paying more than $10,000 just in interest, making the total cost of that loan closer to $40,000.

This is where refinancing can make a big difference, especially if you’re able to lower your interest rate. By refinancing your loan, you can reduce the amount of interest that accumulates over the life of the loan, saving you potentially thousands of dollars.

How Refinancing Can Lower Your Interest Rate

Refinancing is a process where you replace your current student loan with a new one from a private lender, ideally at a lower interest rate. The reason refinancing works so well is that it gives you the opportunity to secure a rate that’s better than what you’re currently paying.

By securing a lower interest rate, you reduce the amount of money that gets tacked on to your loan each month and each year. But how do you know if refinancing will really benefit you? That’s where a refinancing calculator can come in handy. This tool lets you input your current loan details — like the loan amount, interest rate, and repayment term — and see how much you could save if you refinanced at a lower rate.

Using this tool can give you a clear idea of how much of a difference refinancing could make in your monthly payments, as well as how much money you could save over the life of the loan. It’s a great way to see if refinancing is worth the effort before you dive in.

The Long-Term Impact of a Lower Interest Rate

To understand just how impactful refinancing can be, let’s take a closer look at the numbers. Imagine you have a $30,000 loan with a 6% interest rate and a 10-year repayment term. If you refinance that loan to 4%, here’s how the numbers stack up:

With the original loan, at 6% interest, your monthly payment would be about $332. Over the life of the loan, you’d pay roughly $10,000 in interest, bringing the total cost to around $40,000.

Now, if you refinance that loan at 4%, your monthly payment drops to around $304. The total interest you’d pay over 10 years drops to around $6,000, bringing the total loan cost down to $36,000. That’s a savings of $4,000 — all from a simple change in the interest rate.

But that’s not all. If you choose to refinance for a shorter loan term (say 8 years instead of 10), you could save even more money in interest, although your monthly payment might be higher. Refinancing not only allows you to lower your interest rate but also gives you the flexibility to adjust your loan term based on your goals.

Why Refinancing Makes Sense for Many Borrowers

The key advantage of refinancing is that it can save you a significant amount of money in the long run. Whether you’re aiming to lower your monthly payments or pay off your loan more quickly, refinancing offers the opportunity to make a real impact on your financial situation.

Beyond just saving money, refinancing can simplify your life. If you have multiple loans with different interest rates, refinancing allows you to consolidate them into one loan with one monthly payment. This reduces the hassle of juggling multiple loans and makes it easier to stay on top of your payments.

Plus, by refinancing, you may also improve your credit score over time. As you pay down your loan and make regular, on-time payments, your credit score can improve, which may help you secure better terms on future loans or credit cards.

When Refinancing Might Not Be the Best Option

While refinancing can offer significant savings, it’s not the right choice for everyone. If your loans are federal, refinancing them through a private lender means you lose access to federal protections like income-driven repayment plans, deferment options, and loan forgiveness programs such as Public Service Loan Forgiveness (PSLF).

Also, refinancing usually requires good credit. If your credit score is less-than-ideal, you may not qualify for a lower rate or favorable loan terms. In that case, it might be worth waiting until your credit improves before refinancing.

Lastly, if you anticipate needing flexibility in your repayment options in the future (for instance, if you think you might need to apply for income-driven repayment), refinancing might not be the best option.

Final Thoughts: Is Refinancing the Right Move for You?

Refinancing can be a game-changer when it comes to student loan debt. By lowering your interest rate, you can save a significant amount of money in the long term. Refinancing also offers the flexibility to adjust your loan term based on your financial goals. However, it’s important to weigh the pros and cons carefully, especially if you have federal loans or need flexible repayment options.

Before deciding if refinancing is the right move, take advantage of a refinancing calculator to estimate your potential savings. This tool can give you a better understanding of how much refinancing could help and whether it’s worth the effort for your situation.

Ultimately, refinancing could save you big on student loan interest, but like any financial decision, it’s important to consider all your options and make sure it fits with your long-term goals.

This post may contain affiliate links.

More Recommended Ebike/Scooters

Check out these other ebikes and scooters I've reviewed:

Urban Arrow Ebike – Last year, I made one of the largest purchases I’ve ever made – I bought a $9,000 electric cargo bike from Urban Arrow. In my Urban Arrow review, I will discuss what it is and why I decided to buy this bike, as well as discuss how impactful a bike like this can be on your journey to financial independence.
Troxus Explorer Step-Thru Ebike – The Troxus Explorer Step-Thru is a fat-tire ebike that I’ve had the pleasure of riding for a while now. It has amazing power, great looks, and awesome range. If you’re looking for a great fat-tire ebike that offers a lot for the price, the Troxus Explorer Step-Thru is definitely one for you to consider. Check out my Troxus Explorer Step-Thru Review.
Hovsco HovBeta Ebike – The HovBeta is a folding ebike with great specs and a lot of interesting features, and importantly, it’s sold at a good price point. I’ve had a blast commuting with it and using it to do deliveries with DoorDash, Uber Eats, and Grubhub. Check out my Hovsco HovBeta Ebike Review.
Vanpowers Manidae Ebike – The Vanpowers Manidae is a fat tire ebike that I’ve been riding as my primary winter commuting bike and have also been using it to do food delivery with apps like DoorDash, Uber Eats, and Grubhub. After clocking in a decent number of miles with this ebike, I wanted to write a post sharing what my experience with the Vanpowers Manidae ebike has been like. Check out my Vanpowers Manidae Review.
Sohamo S3 Step-Thru Folding EBike Review – A Great Value Folding Ebike – The Sohamo S3 Step-Thru Folding Ebike is an entry-level folding ebike that offers a lot of value for the price point. I’ve been riding the Sohamo S3 for a while now, putting the bike through its paces, and I have to say, this bike has exceeded all of my expectations. Check out my Sohamo Review.
KBO Flip Ebike – The KBO Flip is an excellent bike. I’ve had a great time riding it and think it’s a versatile bike that can be used for a lot of purposes and can fit a variety of lifestyles. It’s worked out great for me as a general commuter bike and as a food delivery bike. Check out my KBO Flip Review.
Hiboy P7 Commuter Ebike – The Hiboy P7 is an excellent electric commuter bike that’s offered at an affordable price point. The range and speed of this bike are both very good, so you won’t have any trouble getting anywhere you need to go with it. As a food delivery vehicle, this is also good – with how much range it offers, you’ll be able to work all day on a single charge. Check out my Hiboy P7 Commuter Electric Bike Review.
Himiway Escape Ebike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
Espin Sport Ebike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
Varla Falcon Scooter – The Varla Falcon is an excellent scooter that offers a good amount of power at a lower price point compared to more powerful scooters. It’s not exactly an entry-level scooter, nor is it a high-powered scooter. I think it fits somewhere in-between those two categories – an intermediate scooter if I had to give it a category. Check out my Varla Falcon Review.
Hiboy S2 Scooter – The Hiboy S2 is an excellent entry-level commuter scooter that's perfect for someone looking to save some money in transportation costs and improve their commute. Check out my Hiboy S2 Review.
Hiboy S2R Scooter – The Hiboy S2R is one of the more interesting electric scooters I’ve been able to test out. It’s not a high-powered scooter, but for an everyday transport option, it’s very useful, especially given some of the unique features that it has. Indeed, for the price, the Hiboy S2R might be the best value scooter I’ve used. Check out my Hiboy S2R Review.
Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.

More Recommended Investing App Bonuses

For additional investing app bonuses, be sure to check out the ones below:

M1 Finance ($75) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $75 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with just $10 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.

More Recommended Bank Account Bonuses

If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.

Ally Bank ($100) – Of all the banks out there, Ally is, without a doubt, my favorite. At the moment, Ally is offering $100 to customers who open an eligible Ally account and meet the requirements. Here are the step-by-step directions to earn your Ally Bank referral bonus.
Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
US Bank Business ($400/$1200) – This is a fairly easy bank bonus to earn, since there are no direct deposit requirements. In addition, you can open the Silver Business Checking account, which comes with no monthly fees. Check out how to earn this big bonus here.
Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link. Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
Varo ($25) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $25 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.

Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.

Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.

Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:

SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $300 if you complete a direct deposit.
5% Savings Accounts. I'm currently getting 5.24% interest on my savings through a company called Raisin. Opening a Raisin account takes minutes to complete, it's free, and all of your funds are FDIC-insured. I explain how it works, why I'm now using it to store my emergency fund and any other cash savings I have, and why I recommend everyone check it out in this review.
US Bank Business. US Bank is currently offering new business customers a $400/$1200 signup bonus after opening a new account and meeting certain requirements.
M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $75 for opening an account.
Empower. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.

Feel free to send Kevin a message here.