Student Loan Refinance Calculator Formula
Understand the math behind the student loan refinance calculator. Each variable explained with a worked example.
Formulas Used
Monthly Savings
monthly_savings = current_pmt - new_pmtTotal Interest Savings
total_savings = (current_pmt - new_pmt) * nNew Monthly Payment
new_monthly = new_pmtVariables
| Variable | Description | Default |
|---|---|---|
balance | Current Loan Balance ($) | 40000 |
current_rate | Current Interest Rate (%) | 6.8 |
new_rate | Refinanced Rate (%) | 4.5 |
term_years | Loan Term (years) | 10 |
cr | Derived value= current_rate / 100 / 12 | calculated |
nr | Derived value= new_rate / 100 / 12 | calculated |
n | Derived value= term_years * 12 | calculated |
current_pmt | Derived value= balance * cr * pow(1 + cr, n) / (pow(1 + cr, n) - 1) | calculated |
new_pmt | Derived value= balance * nr * pow(1 + nr, n) / (pow(1 + nr, n) - 1) | calculated |
How It Works
How to Calculate Refinance Savings
Refinancing replaces your current loan with a new one at a lower rate.
Savings Formula
Monthly Savings = Current Payment - New Payment
Total Savings = Monthly Savings x Number of Payments
Both payments use the standard amortization formula with respective interest rates.
Worked Example
Refinancing a $40,000 loan from 6.8% to 4.5% over 10 years.
- 01Current monthly payment at 6.8% = $460.32
- 02New monthly payment at 4.5% = $414.02
- 03Monthly savings = $460.32 - $414.02 = $46.30
- 04Total savings over 10 years = $46.30 x 120 = $5,556
Frequently Asked Questions
When should I refinance student loans?
Consider refinancing if you can get a rate at least 1% lower, have stable income, and do not need federal loan protections like IBR or forgiveness.
Do I lose federal benefits when refinancing?
Yes, refinancing federal loans with a private lender means losing access to income-driven repayment, deferment, forbearance, and loan forgiveness programs.
Is there a cost to refinance?
Most student loan refinance lenders charge no application or origination fees. However, check for any prepayment penalties on your current loan.
Ready to run the numbers?
Open Student Loan Refinance Calculator