- 1 8 million Americans could get a lower rate on their student loans
- 2 Refinancing Student Loans: Everything You Should Know and even more
- 3 When (and How) Should You Refinance Your Student Loans?
- 4 Three Reasons Parents With Young Kids Should Refinance Student Loans
- 5 Three times it just makes sense to refinance your student loans
8 million Americans could get a lower rate on their student loans
Eight million Americans could get a lower interest rate on their student loans, and many of them might not even know it.
That's the estimated number of borrowers eligible to refinance their debt, according to a new report from Credible, an online student loan marketplace. It's roughly one-third of all people who are currently paying down student loans.
Short of getting someone else to help shoulder the cost (good luck with that), refinancing is one of the only ways that could both lower your monthly payments and cut the amount of money you'll pay over the life of the loan.
And it's not just for people pulling in six-figure salaries.
Your eligibility does depend, though, on how much money you earn relative to the amount of debt you have, and it helps to have a good credit score.
Federal loans, which make up most of the country's student debt, come with much lower interest rates now than they did a decade ago. But the government doesn't allow people with older loans to refinance at current rates.
Instead, you have to turn to a private lender to refinance both federal and private loans.
Some banks offer student loan refinancing -- like Darien Rowayton and Citizens. And a handful of online lenders have recently launched specifically for this purpose, like Sofi and CommonBond.
Credible, which helps student borrowers shop around for the best rates, analyzed data from its users over the past 17 months to see who was getting the best rates, and how much money they were saving. Here's a look at what they found.
Every lender has its own qualifications, but ultimately you have to show you're able to repay the debt. It might hurt you if you've missed payments before, have a low credit score, or aren't making the big bucks yet.
But it's not uncommon for people with debts larger than their annual income to refinance, according to Credible. It could be helpful if you don't have other big debts to pay like a credit card balance, mortgage, or car payment.
Recent grads who used Credible to refinance had an average income of $54,200 and a loan balance of $49,379.
What can refinancing do for you?
Ideally, you're looking to pay less over the long term.
Refinancing will get you a new interest rate and possibly a different repayment term, which could be longer or shorter than the 10-year standard term that comes with a federal loan.
On average, borrowers who refinanced reduced their rate by 1.7 percentage points, cut their term by five years, and can expect to save $18,668 over the life of the loan, according to the report.
Most lenders don't charge an origination or closing fee.
Even if you're eligible, refinancing might not be the best option for you. A new loan with a lower rate and a shorter term might drive up your monthly payment.
Other ways to help pay down your loan
If you are struggling to pay your federal loans, you could apply for an income-driven repayment plan. Typically, the government will cap your monthly payment at 10% of your discretionary income. And if you make full payments for 20 years, any remaining debt will be forgiven. (If you have loans for graduate school, it's forgiven after 25 years.)
President-elect Donald Trump has suggested capping your monthly payment at 12% of your income and forgiving your remaining debt after 15 years.
Currently, federal loan forgiveness is also offered after 10 years for people who work for the government and non-profit organizations.
But remember, you could lose some of these protections if you refinance into a private loan. While some private lenders offer similar income-based repayment options and hardship deferrals, many do not. So if your financial situation is unsteady, it might be worth staying put with a federal loan.
Refinancing Student Loans: Everything You Should Know and even more
Just imagine – one of six Americans, who owe a student loan/loans, default on their payments or make them less than one in a year! The statistic might not frighten you until you hear this number – $1.2 trillion. $1.2 trillion in student loans is the price the Americans have to pay for their educational services (according to the report made by the Federal Reserve Bank of New York).
The statistic might not frighten you until you hear this number – $1.2 trillion. $1.2 trillion in student loans is the price the Americans have to pay for their educational services (according to the report made by the Federal Reserve Bank of New York).
Taking into account this statistic, it becomes clear that student loans are a painful subject both for American banks and American students. Of course, this situation has to be solved.
I know that lots of students and their parents are following me. You know, I am fond of reading financial blogs. So, I can advise you the reasonable solution – to refinance student loans.
I’m sure that you’ve heard about this operation for many times but there are moments that must be considered. So, don’t pull the trigger before familiarizing with the pieces of my modest life experience.
So, the main question of this post is the frequent question: “should I refinance my student loans?” If it worries you, keep on reading.
I’m not the real expert in the financial sphere but I have a friend of mine, who knows everything about these awkward financial affairs.
So, the first moment I want to outline briefly is the difference between loan refinancing and consolidating (lots of people confuse these terms and fall into a trap).
REMEMBER: Loan consolidating doesn’t always mean declining an interest. Loan consolidation doesn’t always mean a profit for the borrower.
Loan refinancing in 90% of cases leads to the declining of the interest. Is it profitable? Hmm. Let’s see.
Obviously, a couple of years ago you could apply for the best offer ever and qualified for the student loan on reasonable conditions. Still, when there is an opportunity to apply for more affordable terms, there might be a party you want to be invited to. Am I wrong? No.
So, you decided to refinance your student loan. I won’t delay the treasured moment – it’s always easier to refinance federal student loans. It has been formed historically that government deals faster and easier with the refinancing of federal students loans than private ones. Honestly, I have no desire to delve deeper.
Still, refinancing your federal loan into private isn’t always a good idea. By refinancing federal loans into private ones, students usually have to say “goodbye” to some benefits. The federal deferment, income-based repayment, or forbearance, forgiveness is the short list of the possible benefits you can lose.
But if you decided to refinance private student loans, I have to upset you. According to the latest changes in laws, you can only refinance the federal loan into a private one. No feedback path. Unfortunately.
Of course, a person, who will ask about the bad credit refinancing loan, is now reading this post. My answer remains the same. Obviously, if your credit is as small as your shoe size, student loan refinancing is almost impossible. Though, it can work with private lenders.
So, improve your credit and everything will be great.
I’ve intentionally kept this issue until the end. Refinancing student loans is always a complicated multi-faceted issue. I tried to consider the crucial moments but there are more of them. I hope that you will work with the trustworthy bank consultant, who will tell you the right way.
Otherwise, you can always leave your feedback in comments below and I will answer!
So, here are a couple of places to ask for student loan refinancing:
Yes, this service appears in lots of reviews but it can really work. It was the first online institution, which started dealing with student loan refinancing. What you need to know:
The only substantial requirement is that a potential borrower must be a graduate of the Title IV school. Still, this organization is more than a lender. There were cases, when people, who lost their jobs and failed in payments, got a help from SoFi and found new promising jobs.
This resource offers an opportunity to change fixed and variable rates throughout debt repayment process. I’ve never felt the need to do it but people consider it to be a useful offer. It also offers “skip a payment” and bi-weekly payments for people in difficult financial situations. What you need to know:
This company offers student a loan refinancing for graduates and undergraduates students. I’ve read the review that it offers financing education for people in need. I’m not familiarized with the process. But if you are interested, you are welcome to find information.
What you need to know:
- Variable rates from 2.35%
- Fixed rates from 3.37%
- If you are interested in the credit unions, you can choose among the following:
- The Alliant Credit Union offers up to $100,000 for 25 years.
- Credit Union Student Choice – a cool and proven resource but it’s available for the members only. Check out if you are a member, cuz some people live their life and don’t know about this membership.
- Navy Federal Credit Union is very profitable for people, who serve. Just check out what the beneficial offers they prepared for you.
So, the best way to refinance student loans is the most reliable one. I truly hope that information that you received will help you! I truly hope that the question “How to refinance student loans?” will never occur in your family. And I truly hope that this day was cool!
If you have any questions, you can always contact me in comments below. And I really appreciate your feedback and propositions.
When (and How) Should You Refinance Your Student Loans?
"If you have upped your income and credit score since first borrowing, you’re likely to benefit most from refinancing because you may qualify for lower rates."
If you went to college, there’s a good chance you have student loans. And they’re probably staggering. A whopping 44 million Americans owe $1.4 trillion in student debt—about $620 billion more than total outstanding U.S. credit card debt. The average borrower these days is graduating with more than $37,000 in student debt.
One option that may lessen your pain? Refinancing your student loans. Here’s what you need to know before you do.
You can’t refinance existing federal or private loans into a new federal loan—refinancing requires working with a private lender. That may mean sacrificing certain benefits and consumer protections associated with federal loans like death and disability discharge provisions and flexible repayment and forgiveness plans, says student loan expert Heather Jarvis.
But while you may give up some benefits, there may be more to gain from refinancing—specifically, a lower interest rate and monthly payment that help you pay off your debt faster .
Since refinancing has different implications for federal and private loans, though, be sure to round up all your debts as you're weighing the benefits. You can check the National Student Loan Data System for info about your federal loans, and check recent statements to see the interest your paying now and balance remaining on any private loans.
If you have upped your income and credit score since first borrowing, you’re likely to benefit most from refinancing because you may qualify for lower rates. If the opposite is true, however, you may want to focus on improving your stats before applying. A short or spotty credit history, or a credit score under 700, can keep you from qualifying for the best rates, Jarvis says. A credit score above 700 is considered good—750 and up is excellent.
Once you’ve decided refinancing makes sense for you, start comparing offers from various lenders, such as SoFi, Earnest, CommonBond and LendKey, paying particular attention to:
Rates. The higher your current rate, the more you gain from refinancing to a lower one—so make sure to research multiple lenders. SoFi and Earnest, for example, have variable rates starting at 2.79 percent.
Fees. Next, confirm that you won’t be charged an application or origination fee. Fortunately, Jarvis says this has become increasingly less common, thanks to more competition.
Repayment Terms. Using online loan calculators can help you visualize the impact of a new loan payment term (usually five, seven, 10, 15 or 20 years). Keep in mind that a longer term may lower your payment, but you’ll end up paying more in interest overall.
Other Perks. Finally, compare consumer protections offered by different lenders. Jarvis says some of the newer companies are competing with big banks by offering “previously unheard-of provisions” for private loans, like flexibility in repayment if you become unemployed.
To truly compare apples to apples, you may want to actually apply for more than one loan before choosing one. Typically, applying for several loans or lines of credit can have a negative impact on your credit score. But FICO says it treats loans like these, which commonly involve rate-shopping, differently, treating inquiries that fall in a “typical shopping period” (think 30-45 days) as just one inquiry. So if you focus your efforts in a short period of time, the effect on your score can be minimal.
You may also see a small dip in your score when you actually refinance as opening a new account can also lower your average account age, which can shorten your overall credit history. But it should improve as you start making regular payments on your new loan.
Three Reasons Parents With Young Kids Should Refinance Student Loans
I’m not a father yet, but a few of my colleagues at Student Loan Hero have started families over the last couple of years. And I know how important it is for parents and parents-to-be to get their finances in order.
For one thing, if you’re buried in student loan debt, it can be difficult to provide for your kids in the way you want. Trying to manage student loan payments with family and household expenses is not an easy balancing act.
The good news is refinancing student loan debt is a great way to reduce the cost of your loans so you can give your kids a better start in life. Here are a few reasons why refinancing might be the best move for you.
1. There’s a limit to how much cost-cutting you can do
If you have a budget, you’ve probably noticed that you can only slash your expenses so much. After all, your family still needs to be fed, clothed, and sheltered.
If you have federal student loans, you can apply for an income-driven repayment plan (IDR) to potentially lower your monthly payments. But while this type of repayment plan may lower your costs now, you’ll end up paying more in interest over the life of your loans. Plus, it may take you longer to pay them off.
So what are your options if you don’t qualify for an IDR plan or you have private student loans? That’s where student loan refinancing comes in.
Here’s how refinancing works: You compare lenders to see which one offers the best interest rate and other features for your needs. Once you find a lender, you apply to consolidate one or more of your student loans into one new loan. That way, you’ll have only one payment to deal with each month.
By refinancing your student loans with a private lender, you may qualify for a lower interest rate, a lower monthly payment, or both. Depending on your strategy, you may be able to save a little more money each month and even pay off the loans sooner.
2. You can put more money toward your child’s future
After experiencing the burden of student loans, you may want to start putting away some cash to help your kids pay for college.
But in order to get to a place where you can save for your kids’ future, you need to have a solid financial foundation yourself. This means getting rid of your student loan debt altogether, not just lowering your monthly payments.
Look into prepaying your student loans and increasing your payment size. Keep in mind, however, some private student loan banks penalize you for paying off your debt early. In this case, student loan refinancing can help.
When it comes to federal student loans, it can be difficult changing the repayment period, unless you’re suffering from economic hardship.
So if you want to aggressively pay down your loans, you can find refinancing lenders with shorter repayment periods. Going with a shorter term will likely mean higher monthly payments. The bright side is that you’ll pay off the debt faster, potentially save thousands of dollars in interest, and be able to start investing in your kids’ future sooner.
The alternative to cutting back on expenses is to earn more money. For many people, that means finding a second job or picking up a side hustle.
Although this strategy can help you pay off your debt more quickly, it can also leave you with less time for your family. Consider coupling this approach with refinancing to pay off your student loan debt faster. This will allow you to attain a better work-life balance down the road.
It may be tempting to pay just the minimum on your student loans and try to devote your extra cash to other priorities. However, paying off your student debt faster essentially gives you back that payment every month to use for something more important. It can be savings for college, registration fees for sports, or even a family vacation.
Some of the top student loan refinancing lenders offer terms that can help you pay off your debt sooner. Shop around to find the best rates and terms for your situation, then apply.
As you work through this process, you’ll be one step closer to paying off your student loans and being able to better provide for your family, both in the future and in the present.
Andrew Josuweit is the founder and CEO of Student Loan Hero. Their free tools, calculators, and guides are helping over 150,000+ borrowers manage and eliminate more than $3 billion dollars in student loan debt.
Three times it just makes sense to refinance your student loans
Paying for college or graduate school is a tremendous financial burden. Refinancing can help ease some of that stress.
It’s 2016. Do you know how much you pay in student loan bills every month?
The start of a new year is a natural time to take a good look at how you spend your money. If you qualify, student loan refinancing is one way to cut down your student loan payments or shrink the number of years they weigh on you.
Refinancing replaces your current loans with a new, private student loan at a lower interest rate. The catch: You must meet specific criteria to be eligible. Plus, if it’s federal loans that you’re refinancing, you’ll lose access to certain student loan repayment plans and forgiveness programs. That means it makes sense to look into refinancing only when you’ve hit certain milestones.
Here’s how to know you’re ready to consider student loan refinancing as part of your new-year, new-you financial plan.
Lenders are most likely to offer you a refinanced loan when you’ve shown you’re a trustworthy borrower, meaning you pay your bills on time. Your credit history is one way they determine that. Borrowers in the 690 to 850 FICO credit score range will have the best shot at refinancing.
When you’re 20-something, of course, that can be difficult to pull off.
“It’s hard to have an established, high credit score when you’re first out of school,” says Jack Zoeller, founder of student loan refinancing lender CordiaGrad.
If your credit isn’t where you want it to be, you can use a co-signer — a parent or another trusted adult with strong credit who can take responsibility for the loan if you can’t pay it.
Some lenders, including SoFi and Earnest, have been backing away from credit scores as a basis for evaluating potential customers. Your monthly cash flow, education and employment history are more telling, they say.
Most lenders also look at how much you earn compared to your debt load. They’ll consider not only student debt but also car loans and credit card balances in the calculation.
“The primary reason that many get turned down by one or more lenders when they try the first time — beyond FICO, beyond having a below-average credit score — is too much debt,” Zoeller says.
Say you’re a few years out of school and earning $70,000 a year, but you have $150,000 worth of total debt. That’s more than double your income — more than what most lenders will take a chance on, says Vince Passione, CEO and founder of LendKey, a refinancing lender that works with community banks and credit unions.
“Some lenders might still require you to get a co-signer on that loan because you just don’t have enough capacity to pay off the loan over time,” he says.
Lower your debt by throwing extra funds at your credit card balance, student loans and car loans. Credit card debt in particular can be a red flag for lenders, Passione says. But once it’s gone, you’ll likely have a better chance at a favorable interest rate when you refinance.
“If you pay down that credit card over a couple of months you might be able to reapply six months later,” he says.
3. Your current loans’ interest rates are 6.5% or higher
The biggest draw of refinancing is how much you’ll save in interest over time with a lower rate. Qualifying borrowers are likely to save money if their private or federal student loans carry interest rates of 6.5% or higher. Parents who took out loans to pay for their children’s education can often get a good deal when they refinance parent PLUS loans, for instance.
You’ll save the most over time — but potentially pay more per month — if you choose a shorter repayment term along with a lower interest rate than you’re currently paying, says Zoeller of CordiaGrad. Many customers currently on a 10-year schedule refinance to five- or eight-year loan terms, he says.
“Twenty-five [percent] to 30% of our borrowers, almost a third, actually increase their monthly payments when they refi,” he says.
Fill out the form below to see how much you could save by refinancing through NerdWallet’s partner Credible, a marketplace that lets you compare refinancing offers from up to eight lenders. Click “Get personalized offers” on the next screen to complete a full application on Credible’s website. You can also check out lenders like SoFi and Earnest, which aren’t on Credible’s platform, to see what interest rates you get.
You’ll want to apply and complete the refinancing process within a 30-day period so your credit isn’t adversely affected. If refinancing makes sense for you, you’ll be able to free up cash for the things you want to do, in the short or long term — and that’s a solid way to start 2016.
This article first appeared at NerdWallet.
The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.