7 Smart Ways to Use the Money You May Save When Refinancing Student Loans

High monthly student loan payments can sometimes push other goals further away, like buying a home or car, saving for retirement or being prepared for financial emergencies. If you refinance your student loans, you could lower your monthly payments and reallocate the money you save to make real progress toward your other goals!

Student loan refinancing could help you save money, simplify your repayments and reduce financial stress. Let’s explore a few smart ways to repurpose the money you save by refinancing your student loans so you can get on the path to financial freedom.

How to Put Your Money to Work After Refinancing Student Loans

Refinancing your student loans can reduce your monthly payment and give you extra money for other important parts of life. Here are 7 smart ways you could use those savings to help improve your financial well-being.

How to Use Your Student Loan Refinancing Savings

Refinancing your student loans can open up new financial opportunities by freeing up extra money each month. Refinancing involves obtaining a new loan with potentially better terms, such as lower interest rates and reduced monthly payments.

Here are 7 tips on how to repurpose those savings to achieve important milestones and put yourself on solid financial footing.

1. Save for a home down payment

Homeownership may seem like a long way off, but it’s never too early to start saving for a down payment. Start by setting a savings goal and creating a dedicated savings account for your future home.

Consistently contributing a portion of your student loan savings can help you reach your goal faster. A larger down payment can lower your monthly mortgage payments and reduce the total interest paid over the life of the loan.

2. Make extra mortgage payments

If you already own a home, consider using the money saved from refinancing your student loans to make extra mortgage payments. Extra payments can reduce the principal balance on your mortgage, helping you pay off the loan faster—and save on interest. Even small additional payments can significantly reduce the cost of your mortgage and help build home equity faster.

3. Boost your emergency fund

An emergency fund is crucial for financial stability, and the money saved from student loan refinancing can help you start or grow yours. Aim to save up at least 3-6 months’ worth of living expenses. Having an emergency fund can help protect you from unexpected financial shocks and prevent you from accruing high-interest debt during tough times.

4. Increase your retirement contributions

Investing in your retirement is one of the best uses for extra money. With the savings from refinancing your student loans, consider increasing your contributions to retirement accounts such as a 401(k) or IRA. Higher contributions can take advantage of compound interest, helping you grow your retirement nest egg more effectively.

If your employer offers a matching contribution, aim to maximize it so you can save the most toward your retirement.

5. Pay down high-interest debt

High-interest debt, such as credit card balances, can be a significant financial burden. Using the extra money from refinancing your student loans to pay down these debts can help unload those burdens.

Prioritize debt with the highest interest rates first to save the most on interest payments. Reducing high-interest debt also could help boost your credit score, which paves the way toward more favorable loan terms in the future.

6. Set aside funds for big milestone events

Life’s big milestones—weddings, honeymoons, starting a family—often come with major costs. The money saved from refinancing your student loans can help you prepare financially for these events.

Create a savings plan for each milestone and consistently contribute to it. Planning ahead and saving incrementally can make these important life events more affordable (and less stressful).

7. Make extra auto loan payments

Consider using your student loan refinancing savings to make extra payments on your auto loan. Paying off your car loan early can reduce your interest costs and free up money in your budget. Even better: Eventually eliminating your usual car loan payment can give you more financial flexibility each month.

Student Loan Refinancing FAQs

Is it worth it to refinance student loans?

Refinancing student loans can be worth it if you secure a lower interest rate or better loan terms. This could reduce your monthly payments and the total interest paid over the life of the loan, helping you pay off your student loan debt faster. It can also simplify your repayment process by consolidating multiple loans into one.

How does refinancing student loans save money?

Refinancing can save you money by lowering your interest rate, which reduces the amount of interest you pay over the loan term. It can also extend your repayment period, lowering your monthly payments, though this may increase the total amount of interest paid over time.

To estimate your potential savings, you can use a student loan refinancing calculator, which provides a detailed breakdown of how refinancing could lower interest rates and save money over time.

What credit score do I need to refinance my student loans?

Lenders typically require a good to excellent credit score to qualify for the best refinancing rates and terms. Generally, a credit score of 650 or higher is considered good, but higher scores could secure better rates. Some lenders also offer refinancing options for borrowers with lower credit scores but may charge higher interest rates.

If you don’t have a credit history or have a lower credit score, adding a co-signer with good credit to your student loan application could help you be more likely to get approved for a loan. You also might be able to secure a better loan term or interest rate when applying with a co-signer.

Can I refinance both federal and private student loans?

Yes, you can refinance both federal and private student loans. However, refinancing federal loans with a private lender means losing federal loan benefits and protections. Before refinancing federal student loans, consider the pros and cons of refinancing as well as your financial situation and long-term goals.

How long does the refinancing process take?

The refinancing process typically takes a few weeks from application to approval. This timeline can vary depending on the lender and your responsiveness in providing the necessary documentation. Once approved, your new lender will pay off your existing loans, and you’ll begin making payments to the new lender.