by Repayable | Jun 26, 2017 | Refinancing
Photo Credit: Rachael Gorjestani
Read this if you’re considering refinancing your student loans. Estimated read time ~5 minutes.
If you have student loan debt you may have heard whispers about refinancing for a lower interest rate. But you might be wondering if that’s legit, it definitely sounds like a scam. Essentially you give all your income and debt information to a company in the form of a loan application and they approve you and offer you a reduced interest rate. What’s in it for them? Interest on a $1.4 trillion market.
So how do you decide if refinancing your student loans is a smart financial move for you? Read on for straightforward questions and answers to help you decide.
How Predictable is Your Income?
Federal student loans have by far, the most flexible monthly payments. They’re designed to meet the needs of young borrowers inexperienced with debt and landing entry-level positions that may not pay incredibly well. While some refinancing companies offer monthly payment flexibility and the possibility for deferment, many refinancing companies don’t. Borrowers with predictable income are better suited to refinancing.
How Good is Your Credit?
Many student loan companies require minimum credit scores of 660-680. The better your credit score, the better your interest rate. Even if you use a company like Earnest who doesn’t have a minimum required score, a low score may not actually snag you a better interest rate than you currently have. Refinancing is best suite to borrowers with good to excellent credit scores but is worth looking into even if your score is lacking.
Do You Have Federal and Private Loans?
Student loan refinancing allows you to pick and choose the loans you refinance and consolidate them all into one loan. It’s important to note that if you have some loans at a better interest rate than your refinanced rate you can keep those with your current servicer and refinance only the higher interest rate loans. If you’re looking to simplify many loans with different interest rates into one loan with one interest rate, refinancing is a good fit.
How Quickly Do You Want to Repay?
Student loan refinancing shouldn’t be used to extend the term of your loan repayment. Many companies offer terms from 5-15 years. The goal of refinancing is to pay less interest. If you extend your loan term you could wind up paying more. The speed with which you intend to repay your loans can help you decide if a fixed or variable interest rate is right for you. Fixed rates tend to appeal more to those who plan to take awhile to repay and lower starting variable rates appeal to those who want to repay quickly.
What are Your Other Financial Goals?
Less interest = more bang for your buck. You’ll be out of student loan debt faster making the same monthly payment. Do you want to buy a home, max out your 401K contributions, max out your IRA, make additional investments, start a side hustle, drop down to part time at work, change careers, travel? Refinancing will help you get out of student loan debt faster so you can go all in on these goals guilt-free. However, some borrowers don’t want to delay these financial goals and may want more of their money right now. If that’s you, you may not be the right candidate for refinancing.
Will refinancing get you to your debt free dream? Is there a category that you struggle with? Let me know in the comments below or on the Repayable Facebook Page. You can always send me an email jeni@repayable.org with any questions you have about whether refinancing is right for you or not.
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by Repayable | Jun 12, 2017 | Refinancing
Read this article if you’re looking to refinance your student loans but aren’t sure which borrower benefits you actually need.
Estimated read time 10 minutes.
Refinancing your student loans can slash your interest rates and save you thousands and even tens of thousands of dollars in interest. For those who qualify it’s a no-brainer. You can keep making the same monthly payment and see each payment get you closer to your debt free dream. There are a multitude of student loan refinancing companies out there. So how do you decide which company best suits your repayment style? This article will discuss the various borrower benefits offered by refinancing companies and describe the folks who need them.
Loan Forgiveness Upon Death
This is a borrower benefit attached to all federal student loans. Essentially if the borrower dies the remaining loan balance is forgiven. That means no one can go after your estate or living family members to get the money to repay the balance. Some refinancing companies offer this benefit while others will collect the money from your co-signers or estate. Most refinancing companies have insurance and will go to their insurance rather than dragging the money out of your living relatives.
Do you need to refinance with a company that offers loan forgiveness in the event of borrower death?
If you don’t carry enough life insurance to cover the cost of your funeral and end of life expenses (other debts) plus the cost of your student loan debt you should choose a company that offers the benefit of loan forgiveness upon borrower death. If something tragic were to happen to you it would make an awful situation worse by leaving your family to repay your debt.
Companies that offer loan forgiveness upon borrower death are: Earnest, DRB, RISLA, CollegeAve, SoFi, EdvestinU, and Citizens Bank.
Companies that don’t offer loan forgiveness upon borrower death or offer restricted loan forgiveness upon borrower death are ELFI, CommonBond, iHELP, and LendKey.
Flexible Monthly Payments
Federal loans carry many different repayment plan options. This gives borrowers maximal flexibility to adjust their payments to their financial situation. When refinancing student loans repayment plans are eliminated and you are left with the monthly payment and term of your loan as decided in your contract. Some refinancing companies offer the opportunity to reassess your monthly payment and change it if needed while others remain rigid and adhere to the terms of your loan.
Do you need to worry about the flexibility of your monthly student loan payment?
If you have unpredictable income you may be better off choosing a company that offers more flexibility. It should also be noted that unpredictable income is a reason to consider keeping federal loans instead of refinancing because federal loans offer the most gracious repayment plans and periods of forbearance for financial hardship.
Companies that offer the option to change your monthly payment are: RISLA, Earnest, and iHELP.
Periods of Deferment and Forbearance
Deferment is pausing monthly payments generally without the accrual of interest while forbearance is the ability to pause monthly payments while interest accrues. Generally when refinancing companies offer the ability to pause payments interest continues to accrue on the loan. Education related forbearance and deferment are attached to all federal loans. That means if you enroll at least half-time you’re able to pause payments on your student loans (interest accrues on unsubsidized loans).
Do you need to worry about being able to pause your monthly payments?
If you’re considering returning to school in a way that decreases your monthly income (i.e you stop working or drop down to part time) you need to be sure to refinance with a company that offers this benefit. It will come at a cost as interest will accrue in most cases throughout the period of paused payments.
Companies that offer the ability to pause payments for education are: Earnest, SoFi, CommonBond, Citizens Bank,
Companies that offer the ability to pause payments in the case of financial hardship are: Earnest, SoFi, CommonBond,iHELP, EdvestinU, Citizens Bank
What are the benefits you’ve got to have in order to refinance your student loans? Let me know in the comments below or on the Repayable Facebook page.
Additional resources
My $7,000 Student Loan Mistake
Student Loan Refinancing: A Millennial’s Guide to Earnest
How to Refinance if You’re a Pharmacy Resident
Eight Questions to Ask Student Loan Refinancing Companies
A note about the links to refinancing companies.
The links to the refinancing companies in this article are affiliate links. That means if you follow this link and choose to refinance your loan we will both get money. I want you to choose the company that makes the most sense for you and gives you the best interest rate while also meeting your benefit needs as a borrower.
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