Best Options For Refinancing Student Loans

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Best Options For Refinancing Student Loans

The financial status of Americans is at an all-time low which means many students need a way to refinance their student loans. There are several options out there for people who find themselves in similar situations including federal loan refinancing and private student loan refinancing.

When it comes to federal loan refinancing, the government offers three different repayment plans with varying interest rates. If you choose the standard 10 year plan you have to make 36 monthly payments. However, if you opt for the 15 year plan and pay off your loan early, you could save yourself some money. To qualify for a lower interest rate, you’ll need to show proof of income.

If you don’t want to take advantage of the government’s repayment plan or simply do not qualify for them, you may want to look into other options. Private student loan refinancing does require a credit check, however, and only certain companies offer competitive rates. While there are many factors to consider before applying for a loan, using the right company makes sense.

To begin, you should shop around to get quotes from various lenders. Make sure you compare apples to apples when looking at each lender’s terms and conditions. You’ll also want to make sure they offer flexible payment plans that work with your budget. When making comparisons keep these things in mind.

Interest Rate – Most lenders charge between 5% and 8% APR. The type of interest rate you receive and how long you will owe them will vary depending on a number of factors. Factors like your credit score, loan amount and repayment term will affect the interest rate.

Payment Plan – Many lenders allow borrowers to customize their own repayment plan. This lets you choose how much you’ll repay per month. In addition, you can choose a fixed or variable payment plan. A fixed payment plan gives you a set sum every month while a variable payment plan requires you to pay a specific percentage of your total balance each month.

Flexible Payments – Flexible payments let you decide how much you’d like to pay each month. Your payment can be based on either your current balance or your future expected balance. This option works well when you know you’re going to graduate soon and have no idea what your future expenses might be.

Repayment Terms – One of the best ways to cut down on monthly fees is to sign up for a flexible repayment plan. These types of plans give you flexibility in how much you pay back each month. Many lenders offer various repayment terms ranging from 6 months to 30 years.

Income Based Repayments (IBR) – IBR is a repayment plan that takes into account both your monthly income and the size of your debt. This approach allows you to pay less per month than a traditional repayment plan. It starts with a minimum payment based on your debt and then calculates how much you can afford to pay each month.

For example, if you have $10,000 in school debt and earn $8,000 per month, you would pay $200 per month under this type of repayment plan.

Special Provisions – If you have any special circumstances, it’s probably a good idea to include them in your application. Things like a bad credit history or bankruptcy filing can potentially put you at risk for higher fees and penalties. Keep in mind that even if you qualify for the lowest possible interest rate, the fees associated with refinancing your student loans can still add up.

Don’t forget to include any additional information about your situation when asking for quotes. Such details can help ensure you end up getting the best deal possible.

Best Options For Refinancing Student Loans

FHA loans

FHA loans are government backed mortgage loans designed to help people purchase affordable homes. There are two types of FHA loans; conforming and non-conforming. Conventional mortgages have higher interest rates due to riskier borrowers than FHA loans. If you want to buy a home that costs less than $417,000, then you should consider using an FHA loan. The best way to use an FHA loan for financing is to get preapproved before searching for a property. You can do this by completing our free online application at www.fha.gov/online/.

VA Loans

VA loans are government guaranteed loans that can be used for purchasing a home, car or any other personal purpose. Unlike conventional loans, VA loans do not require credit checks and there are no down payments. However, if you make less than $90,000 annually (or $180,000 for married couples) then you may need to pay private mortgage insurance (PMI). The PMI premium could cost between 1% and 6%.

USDA loans

The USDA offers government loans to qualifying farmers. They provide low interest rates and long term repayment options. To qualify for these loans, applicants must have been certified as farmers by the U.S. Department of Agriculture. The amount of money provided varies depending on the type of farmer you are.

Home Equity Lines Of Credit(HELOCs)

A HELOC provides you cash out of your home’s equity while keeping your monthly payment lower over time. Your house serves as collateral so you don’t need to worry about a credit check. Lenders offer competitive rates and flexible terms.

Federal Stafford loans

These loans are offered by the U.S Department of Education and they allow students to borrow funds to cover college tuition and fees. Students who attend school full-time are eligible for subsidized loans of up to $23,500 per year while those who only attend classes part-time are eligible for unsubsidized loans of up to $12,500 per year.

College Savings Plan

College savings plans are tax advantaged accounts that let families set aside money to be used towards future education expenses. These plans are often sponsored by employers and work hand in hand with retirement plans. In order to be qualified you must contribute a certain amount each month and save according to financial advisors’ recommendation.

529 Plan

529 Plans make tax-free contributions toward higher education expenses and are open to residents of all states. When money is withdrawn from these accounts it is taxed at the federal level, so parents should keep this in mind.

Best Options For Refinancing Student Loans

Income Based Repayment (IBR)

Income-based repayment plans have been around since 1994, but they’ve only recently started to gain popularity among borrowers. These programs allow students to pay back their loans based on their income rather than how much debt they carry. While IBR tends to be less generous than standard payment plans, it’s still possible to get out of paying anything upfront if your income increases over time. Plus, unlike many traditional loan options, you don’t need to make monthly payments for 20 years (though you do have to continue to repay principal). Instead, under the terms of IBR, you’ll start making monthly payments after 10 years, and then begin to pay off your remaining balance once you graduate and enter “public service” — either through a federal job or a career in public interest work. You can find information about how to apply here.

Pay As You Earn (PAYE)

This plan works similarly to IBR in that you won’t pay anything until you reach a certain financial threshold, but instead of basing your payments on your income, they’re calculated using your family size and the amount of debt you owe. If you had $10,000 in student debt at graduation, you might end up making monthly payments of $50 per month for 15 years. You can learn more about PAYE here.

Revised Pay As You Earn (REPAYE)

The REPAYE program was created in 2009 to help students manage their finances while maintaining strong credit scores. All payments are made based on a borrower’s expected future earnings, capped at 25% of discretionary income. Payments also aren’t paid in full until 30 years have passed or the total cost of the loan is fully repaid. In addition to lower monthly payments, REPAYE offers borrowers more flexibility in scheduling payments, plus some lenders may offer additional perks, like discounts on auto insurance or free checking accounts. Learn more about REPAYE here.

Income Contingent Plans:

Another option for refinancing your student loans are income contingent plans, or “payments-for-disposable-income” plans. Under these plans, you simply put down a percentage of your annual income for the first few years and then no monthly payments are required until after 10 or 12 years. Income contingent plans tend to have higher monthly payments right away, but the majority of those funds go towards paying down the principal. It’s not uncommon to pay more than double what you would pay under a standard plan, but the longer term benefits outweigh the extra costs. Interest rates on income contingent plans are also generally lower than what you’d receive on a standard plan, though they vary depending on your individual lender. To qualify for an income contingent plan, you’ll likely need to demonstrate that your income is stable enough to handle making regular payments without causing hardship.

Private Loan Consolidation:

If you’re finding it difficult to juggle your current loans, consolidating them could give you a leg up on saving money on interest. You can use private student loan consolidation services to combine all of your existing loans into a single larger loan. Lenders often offer to consolidate your loans if you’re having trouble managing them, especially if you’re already showing signs of having difficulty repaying them. Most private loan consolidation companies charge between 2% to 5% of the total amount borrowed; however, the exact rate varies from company to company. It’s worth noting that private loans are less regulated than federally backed ones and therefore private loans tend to have higher interest rates, though the gap isn’t always substantial.

Direct Subsidized Loans:

Direct subsidized loans are funded by the government and given directly to eligible students. They’re offered by both the Department of Education and the U.S. Department of Agriculture. Similar to income contingent plans, direct subsidies are designed to incentivize students to repay their loans early. But whereas income contingent plans rely on borrowers to set aside a portion of their income, direct subsidies force students to take advantage of the low-interest loans immediately. Once enrolled, students can choose whether to spread out their payments across six months or 12 months, though most choose the former. Students who opt to finance their education with direct subsidies often save thousands of dollars compared to income contingent plans. However, students will lose the subsidy if they default on their loans.

Federal Perkins Loans:

Perkins loans are available to students who demonstrate exceptional financial need. Eligible students must earn below $30,000 per year, be enrolled in an undergraduate or graduate degree program, maintain a minimum grade point average of 2.75, and live within 100 miles of where the school is located. While Perkins loans aren’t technically considered subsidized, they’re partially funded by the federal government so borrowers have access to flexible repayment terms and lower interest rates. The maximum length of a Perkins loan is 10 years, though borrowers have up to 20 years to finish obtaining their credentials. Borrowers can expect to pay anywhere between 3% to 6%, which is significantly cheaper than standard Stafford loans, but will increase rapidly if they miss any payments. Unlike standard loans, Perkins loans can’t be discharged through bankruptcy. Perkinloans.org provides more details on the different types of federal student loans.

Best Options For Refinancing Student Loans

Private Student Loan Financing

Private student loan financing includes short-term loans from private lenders and long-term loans offered by banks, credit unions, and other financial institutions. These types of financing options offer lower interest rates than government student loan refinancing programs. When choosing between these two options, consider the amount of money you need, whether you plan on paying off the loan quickly, and what state you reside in.

Federal Student Loan Refinance Program

The federal student loan program offers borrowers the opportunity to refinance their Stafford, Perkins, PLUS, or Graduated repayment student loans. If you have federal student loans, you could qualify to borrow more at a lower rate. Your monthly payments may decrease substantially after you refinance. Borrowers who do not make their federally subsidized payments on time may risk having their federal education benefits suspended or even lost completely. Additionally, borrowers may face higher loan fees and penalties if they default on their federal student loans.

State Student Loan Refinancing Programs

State-based student loan refinancing programs are often cheaper than federal programs. However, some states charge high application fees and require lengthy processing times. In addition, many state programs require borrowers to live in certain regions or attend school in specific schools.

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