Today, almost 45 million Americans hold more than $1.64 trillion student loan debt — yes, trillion with a “T.” As student loan debt has turned into a full-fledged crisis, student loan refinancing companies have emerged to provide relief to student loan borrowers. Through one of these private lenders, you could refinance federal student loans or private ones for better rates and terms.
With a better interest rate, you could not only save money, but you could also use those savings to make extra payments on your loans and get out of debt faster. Or, if your payments are too burdensome, you could select a longer term to obtain a lower monthly payment on your student loans.
- How much money can you save by refinancing federal student loans?
- Do you plan on using any federal repayment options?
- What are the potential new repayment terms from refinancing?
- Student Loan Hero’s recommendation
3 questions to determine if you should refinance federal student loans
While refinancing can be a major financial improvement to those who qualify, there’s one (big) caveat.
When you refinance your federal student loans with a private lender, you forfeit most federal student loan protections. Student loan refinance companies can refinance both federal and private student loans, but given this one potential issue, many borrowers often ask us: Should I refinance my federal student loans?
Read on for tips and tricks to help you decide.
1. How much money can you save by refinancing federal student loans?
When you refinance federal student loans, you give up benefits such as income-driven repayment plans and loan forgiveness, so it’s important to analyze if the risk/reward of refinancing makes sense.
Refinancing your federal student loans may get you a better interest rate if you qualify, and save you money, but how much could you save by refinancing? Be sure to run the numbers with our student loan refinancing calculator.
Student loans most likely to benefit from refinancing include Grad PLUS and Parent PLUS loans, which bear relatively high interest rates ranging all the way into the double digits, depending on the year you obtained them.
Most student loan refinancing companies allow you to check your prospective rate before filling out a full application. Checking your interest rate will typically result in a “soft” credit pull and won’t affect your credit score. Prequalifying lets you shop for your best terms and calculate how much you could save without hurting your credit.
2. Do you plan on using any federal repayment options?
The federal government has created several income-driven repayment plans, which lower monthly payments, to make repayment more manageable for federal student loan borrowers. These programs include Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and the Revised Pay As You Earn (REPAYE) plan.
Some of these plans are need-based and only available to certain eligible borrowers. Others are available to most federal student loan borrowers. While there are definite downsides to an income-driven plan (such as paying more in interest or getting hit with a tax bill after loan forgiveness), these plans can be a lifesaver if you lose your job, experience economic hardship, or simply need the lowest possible payment.
Also, if you work as a federal employee or for a specific not-for-profit employer, you may be eligible for student loan forgiveness after making consistent payments over a set period. Consider these three examples:
By opting to refinance your federal loans, you are no longer eligible for any of these repayment plans or loan forgiveness programs through the federal government.
If you have a high debt load, it is usually a safer bet to keep your federal loans, along with the option to apply for alternative repayment plans if needed.
If you are confident in your ability to repay your loans over your given repayment term and are seeking to maximize savings, and you also have a good credit score and healthy income, refinancing your federal loans could be a wise option.
3. What are the potential new repayment terms from refinancing?
If you’re thinking of refinancing your federal student loans, it’s crucial to compare your repayment terms. Be sure to look at your:
- Repayment period (or how long you will be paying your loans)
- Interest rate
- Monthly payment
For federal student loans, you can have anywhere from 10 to 30 years (for consolidated loans) to repay your loans. Refinancing companies typically offer repayment terms ranging from five to 20 years.
Also note that federal loans are fixed-rate loans and guaranteed to maintain the same interest rate during repayment.
Private lenders, on the other hand, offer both fixed and variable interest rates. These options can either hurt you or help you, depending on current and future interest rate market conditions. It is typically a safer bet to choose a fixed-rate loan, but you can also realize additional interest savings with a variable rate loan in a low-interest rate market.
If you do choose to refinance your federal student loans, understand what impact it may have on your monthly payment as well. You’ll want to make a side-by-side comparison of your repayment terms to understand if refinancing will truly benefit you in the end.
Student Loan Hero’s recommendation:
Deciding to refinance your federal student loans can be a big decision. There’s no doubt that refinancing can be helpful for private student loan borrowers, but given the repayment flexibility and loan forgiveness options the federal government provides, it’s a tougher decision to make regarding federal student loans.
So what do we recommend? If you recently graduated, are underemployed or thinking of changing jobs, we recommend keeping your existing federal loans due to the generous repayment options available until you stabilize your employment situation.
However, If you are in a comfortable and secure financial and employment position, have good credit and are seeking to eliminate your student loan debt as fast as possible, we recommend examining refinancing as a viable option.
Rebecca Safier contributed to this article.
Interested in refinancing student loans?
Here are the top 5 lenders of 2020!| Lender | Variable APR | Eligible Degrees | |
|---|---|---|---|
 | 1.99% – 6.65%1 | Undergrad & Graduate | |
 | 3.21% – 6.67%2 | Undergrad & Graduate | |
 | 1.99% – 7.10%3 | Undergrad & Graduate | |
 | 2.39% – 6.43%4 | Undergrad & Graduate | |
 | 3.21% – 6.69%5 | Undergrad & Graduate | |
| Check out the testimonials and our in-depth reviews! 1 Important Disclosures for Laurel Road. Laurel Road DisclosuresLaurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association. ANNUAL PERCENTAGE RATE (“APR”) FEE INFORMATION There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account. LOAN AMOUNT For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans. ELIGIBILITY & ELIGIBLE LOANS Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements). Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment. All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions. For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned. INTEREST RATES The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency. DISBURSEMENT OPTIONS The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired. POSTPONING OR REDUCING PAYMENTS After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends. We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment. If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments. KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. This information is current as of March 4, 2020 and is subject to change. 2 Important Disclosures for SoFi. SoFi Disclosures
3 Important Disclosures for Splash Financial. Splash Financial DisclosuresSplash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member. The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website. You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans. Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020. Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan). Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
4 Important Disclosures for Earnest. Earnest DisclosuresTo qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application. Earnest fixed rate loan rates range from 3.20% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 2.39% APR (with Auto Pay) to 6.43% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of June 3, 2020, and are subject to change based on market conditions and borrower eligibility. Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance. The information provided on this page is updated as of 6/03/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product. © 2020 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America. 5 Important Disclosures for CommonBond. CommonBond DisclosuresOffered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.8100000000000002% effective April 10, 2020. |
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