Student Loan Refinancing
How to Pay off Student Loans Fast
Managing Your Student Loan Debt
Parent PLUS Loan Refinancing
Why Parents Should Refinance Student Loans
How to Refinance Parent Student Loans
Parent’s Guide to Student Loans
When to Apply for Private Loans
How to Pay for College Tuition
Applying for Student Loans Guide
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Student Loan Refinance 101
Student Loan Glossary
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If you’re one of the millions of student loan borrowers that hasn’t had to make payments due to the federal student loan freeze, you may be feeling anxious about repayment starting again in 2022.
On average, student loan borrowers pay $393 per month toward their debt, so your payments can eat up a significant amount of your take-home pay.
If you’re worried about making ends meet or simply want more breathing room in your budget, here’s how to lower student loan payments, and what you should consider before reducing your payment.
If your payments are too high, you run the risk of missing payments. Besides late fees, missed payments can also lead to delinquency and default. In fact, the Federal Reserve reported that 18% of student loan borrowers were behind on their payments before the student loan freeze went into effect, meaning a large percentage of borrowers may struggle with their payments again very soon.
Reducing your payments can make your loans easier to manage. Depending on the type of loans you have and your situation, you may be able to use one of the following ways to lower student loan payments:
If you have federal Direct Loans, one option is to enroll in one of the four income-driven repayment (IDR) plans.
If you apply and are approved, your repayment term will be extended from 10 years to 20 or 25, and your loan servicer will calculate a new monthly payment based on the longer term and your discretionary income. Depending on your family size and income, you could get a much lower payment; some borrowers even qualify for $0 payments.
You can apply for an IDR plan by contacting your loan servicer or by filling out the online IDR application. You can choose which plan you want, or you can check the box that allows your servicer to enroll you in the plan that gives you the lowest possible monthly payment.
Another option for federal loan borrowers is to consolidate your loans with a Direct Consolidation Loan. Your loans will remain in the federal loan program, so you’ll still be able to utilize federal loan benefits. But, your loan term will be extended up to 30 years, and you can elect to enroll in an IDR plan to further reduce your payments.
Direct Consolidation Loans are especially helpful if you have loans that are ineligible for IDR plans, such as Parent PLUS Loans. After consolidating your debt, your loans will be eligible for an IDR plan, helping you lower your payments.
Warning: If you’ve made payments toward IDR loan forgiveness or PSLF, you’ll lose credit for those payments and the clock will restart. Keep that in mind if you were hoping to have a portion of your loans forgiven.
If you decide that loan consolidation is right for you, you can apply for a Direct Consolidation Loan online.
If you have older federal loans or private student loans, you may be eligible for an alternative repayment plan that can lower your payments.
With federal loans, such as Federal Family Education Loan Programs accounts, you can enroll in one of the following plans:
If you have private student loans, you aren’t eligible for federal repayment plans. However, some private lenders have alternative payment options for borrowers experiencing financial issues.
Whether you have private or federal student loans, contact your lender right away if you’re experiencing any issues affording your payments. You can discuss your options and find out if you’re eligible for another repayment plan that can help you avoid student loan default.
If you’ve lost your job or have become seriously ill, you may be able to postpone your payments through student loan deferment or forbearance.
With federal loans, there are multiple forbearance and deferment programs. Depending on your situation, you could postpone your payments for up to three years.
If you have private loans, forbearance policies vary by lender. For example, College Ave offers up to 12 months of forbearance for borrowers experiencing financial hardships. By contrast, Ascent allows borrowers to enter forbearance for up to 24 months.
Contact your lender right away to see if you’re eligible for student loan forbearance or deferment.
If you have private loans or a mixture of federal and private loans, another way to lower your student loan payments is to refinance your loans. With student loan refinancing, you combine your loans into one by taking out a loan from a new lender for the total amount of your existing debt.
If you have a good credit score, have a stable income and a low debt-to-income ratio — or have a co-signer willing to help you — you could qualify for a loan with a lower rate or extend your repayment term to get a lower payment.
For example, Sue had $35,000 in student loans at 6% interest. On a 10-year repayment plan, her payments were $389 per month. Sue decided to refinance her loans, and she qualified for a 15-year loan at 6% interest. With a longer loan term, her payments dropped to $295 — a savings of $93 per month.
The downside is that Sue would pay more in interest due to a longer loan term. But to make her payments more affordable, that tradeoff may be worth it.
You can use the student loan refinance calculator to find out how much you can lower your payment by refinancing your debt.
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Freeing up more cash sounds great. However, lowering your student loan payments isn’t always a good idea. Before entering into a new repayment plan, postponing your payments, or requesting forbearance, consider these pros and cons.
Clearly, the main perk of lowering your payments is that you can more easily afford them every month, reducing the risk of falling behind on your payments, damaging your credit, or entering into default.
Depending on your situation, you may want to get more room in your budget to pay for other expenses, such as rent or transportation. By lowering your payments, you can more easily afford other essentials, or even improve your living quality by upgrading to a better apartment or a more reliable vehicle.
Student loan payments can be prohibitive and keep you from pursuing other goals. Many borrowers report delaying buying a home, starting a business, or even getting married because of their debt.
By lowering your payments, you can have more money to put toward your retirement fund, a down payment for a home, or wedding expenses.
There’s no magic solution to lowering your payments. To get a reduced payment, your loan term has to be extended. With a longer loan term and smaller payment, more interest will accrue over time. And, if you refinance your loans to a longer term, you may get a higher rate than if you opted for a shorter term.
You may find that you’ll pay thousands more in interest than if you stayed on your original payment plan.
By extending your term, you’re in debt longer. That may seem obvious, but having your debt over your head for decades can be emotionally draining and stressful. It can lead to some financial anxieties and uncertainty until the debt is paid off.
Because your student loan term is longer, your debt will affect you in many different ways. It impacts your debt-to-income ratio and could limit your ability to qualify for other forms of credit, such as an auto loan or home mortgage.
Check how long it will take you to pay off your student loans. Quickly see the effects of lower rates, extra payments, and different terms on your repayment plan.
Want to lower your rate to help pay off student loans faster? Check your rate at our top-rated lenders in 2 minutes, with no impact on credit.
After considering the advantages and drawbacks of lowering student loan payments, you may decide that extending your term and alternative payment plans aren’t best for you. Depending on your goals, you might be better off paying off your loans faster and exploring repayment programs to get rid of your debt as quickly as possible.
If you’re looking for ways to pay off your loans fast, consider these seven options:
If you only make the minimum required payment every month, you’ll be in debt for 10 years or more, depending on your repayment term. To pay off your debt and save money, you need to make additional payments. Review your budget and look for areas where you can cut back. If possible, pick up a side hustle, sell unused items, or ask for a raise to boost your income so you can afford a higher payment.
Even small extra payments can add up. If Sue from the above example increased her payments by $50 per month — paying $439 instead of $389 — she’d repay her loans 20 months early. And, she’d save over $2,300 in interest charges.
If you have federal loans, you may qualify for partial or full student loan forgiveness. There are two main programs:
The number of employers offering repayment assistance for their workers is steadily increasing as companies try to recruit and retain talented employees. Employer loan assistance programs function like retirement matching programs; the company will match your student loan payments, up to a monthly, annual, or lifetime maximum.
For example, let’s say your employer matches 100% of your loan payment up to 5% of your salary, and you earn $50,000 per year. The maximum you could qualify for is $2,500 in annual student loan assistance.
Some states and professional associations operate their own student loan repayment assistance programs, and you can get help with both federal and private student loans. For example, here are a few programs available throughout the country:
There are hundreds of student loan repayment assistance programs available nationwide. To find out if you are eligible, contact your state education agency or professional association.
Many lenders offer interest rate discounts for borrowers that sign up for automatic payments or that are existing customers. Depending on the lender, you could reduce your interest rate by 0.25 to 0.50 percentage points. Over time, those discounts can help you save thousands of dollars, and, if you make extra payments, could allow you to pay off your loans faster.
Many borrowers get stuck deciding between paying off their loans faster and lowering their payments. However, it doesn’t have to be an all-or-nothing decision. Instead, you can opt for a hybrid approach and tackle both.
For example, if you decide to refinance your debt, you could opt for a slightly longer term. Instead of extending your term to 15 or 20 years, you could choose a lender that offers 12-year terms. Your payment would still be lower than you have right now, but you may qualify for a better rate with a shorter term, and interest will have less time to accrue.
Here’s an example of how different terms could affect your payments and total repayment cost. For this example, the borrower had $40,000 in loans, and the original term was 10 years at 6.5% interest.
As you can see, extending your repayment term to 20 years would reduce your payments by approximately $200 per month. However, the longer term and higher rate would cost you, adding over $6,000 to your total repayment cost.
If you refinanced and opted for a 12-year loan, you’d reduce your payments by $112 per month. On top of that monthly savings, you would also save over $5,000 in interest – that’s the power of a lower interest rate.
If you want to supercharge your repayment and become debt-free as soon as possible, student loan refinancing can be a powerful tool. If you refinance your loans and have good credit, you could get a lower rate. If you opt for a shorter loan term than you have now, you could qualify for an even better interest rate, helping you save thousands of dollars.
For example, if you had $40,000 in loans at 6.5% interest and a 10-year term, your total repayment cost would be $54,503.
If you refinanced and qualified for a seven-year loan at 4.5% interest, your payment would increase to $556 per month. But, you’d pay a total of just $46,705. You’d pay off your loans three years earlier, and you’d save a whopping $7,798 in interest charges.
Right now, student loan refinancing rates are at historic lows, so it could be an excellent time to take advantage of a lender’s low rates. Even if you’ve refinanced your loans in the past, you can refinance student loans more than once to get an even better rate.8
Still not sure what strategy is right for you? If you fit into one of the following scenarios, lowering your student loan payments can be a good choice:
Reducing student loan payments isn’t for everyone. If you identify with the following, accelerating your repayment may be a better idea for you:
If you aren’t sure what approach is best for you, or if you want personalized advice on navigating the student loan refinancing process, schedule a consultation with a student loan refinancing expert. They will walk you through every stage of the application process, discuss refinancing benefits and drawbacks, and answer any questions you may have. Your consultation is free, and it can be scheduled online.
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