Best Refinance Options For Student Loans

Loan forgiveness programs

If you have federal student loans, you may qualify for loan forgiveness (also called income-based repayment). These programs allow you to lower your monthly payment by consolidating private student loans, and they could reduce your interest rate by up to 0%. However, since these programs only apply to federal student loans, you should check if your school offers them. LoanForgiveness.org provides valuable information about different types of loan forgiveness programs. If you’re looking to consolidate or refinance your federal student loans, use our free tool to compare student loan rates. We analyze thousands of student loan programs and find the best deal for you.

Federal Stafford Loans

The Federal Stafford Loan comes in two varieties: subsidized and unsubsidized. Both are available to students who attend public colleges and universities. Subsidized loans allow borrowers to borrow money at low interest rates while paying back their loans according to flexible payment plans. Unsubsidized loans don’t offer borrower aid; however, they tend to have much lower interest rates than subsidized loans. Students pursuing a career in the medical field often pursue the Medical School Admission Test (USMLE) exam after receiving undergraduate degrees.

Federal Perkins Loans

Federal Perkins Loans provide loan funding to help students pay for tuition costs. There are four types of Perkins Loans: Direct Loans, Direct PLUS Loans, Parent PLUS Loans, and Federal Work Study Programs. A parent can take out a PLUS loan on behalf of a child. To qualify for a direct PLUS loan, both parents and children need to be enrolled in an FAFSA-eligible program. Parents can get a PLUS loan even if they already have a Perkins Loan or Direct Loan. Because the PLUS payments aren’t tax-deductible, PLUS loans generally cost more than other types of loans. But the benefit is being able to borrow money without having to go through the rigorous application process for the Direct Loan or Parent PLUS Loan.

Federal Supplemental Loans

A Federal Supplemental Loan is similar to a Pell Grant. While Pell Grants are available to students from low-income households who meet certain eligibility requirements, Federal Supplemental Loans are available to students regardless of whether they’re low-income. Borrowers must sign a promissory note to receive a Federal Supplemental Loan, just as they would with a regular Federal Student Loan. While there’s no limit to how long you can keep a Federal Supplemental Loan, some people choose to repay them over time.

Federal Direct Consolidation Loans

While federal consolidation loans are often considered to be good alternatives to refinancing a private student loan, the main difference between the two is that you won’t have to worry about making a balloon payment when you finish repaying your federal student loan. This means that you’ll avoid paying high interest rates while paying off your student loans. The challenge with a federal consolidation loan is finding a lender willing to work with you.

Federal Income Based Repayment (IBR)

Federal IBR is a plan under which borrowers make smaller monthly payments based on their incomes instead of fixed amounts. Borrowers make higher monthly payments for a longer period of time compared to standard repayment plans, although they still end up paying less in total. Under this type of plan, borrowers can pay off their loans faster, which saves money on interest charges. However, borrowers must complete a financial review before enrolling in this program to ensure their budget is sufficient enough to cover payments.

Private Student Loans

Best Refinance Options For Student Loans

This video series was produced by New York’s own – H&H Financial Services. We offer affordable student loan refinancing services at competitive rates. If you’re looking to buy a home or refinance your student loans, drop us a line! Let’s get started!

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Benefits

Best Refinance Options For Student Loans

Federal student loans

Federal student loans are issued by the government and are what many people use to finance their higher education. These loans are offered under two different programs. Direct Stafford Loans are direct federal loans that work similarly to other types of federal loans. Undergraduate students can borrow up to $23,000 per year and graduate students can borrow up to up to $8,500 per year. Graduate Plus Loans allow borrowers to borrow up to $57,500, depending on how much money they have already borrowed, while Parental PLUS Loans let parents borrow up to $31,000.

Private student loans

Private student loans are loans that are not issued by the U.S. Department of Education. There are several private companies out there that offer these loans that may charge more than the government does. However, the interest rates are generally lower and the repayment terms are longer. Private student loans are useful if you don’t qualify for federal student aid or if you want to take out more money than the amount allowed by the Feds. Students should always seek professional advice before taking out a loan.

Income-based Repayment (IBR)

The IBR plan is a little bit confusing, so here’s a simple breakdown of what it entails. You pay back only 10% of your discretionary income. Anything leftover after that is paid off over 15 years. If you make less than $10,000 annually, then you will be able to pay off your loan faster at a reasonable rate. Any amount above that is subject to a variable interest rate based on the prime lending rate. If you earn between $10,000 and $30,000, you will pay about 6% of your discretionary income; anything over $30,000 and you will pay 8%; anything over $60,000 and you will repay 12%.

Pay As You Earn (PAYE)

PAYE is the IRS code for your standard 1040. Your taxes go into the bank account electronically, and then the lender pays the IRS on your behalf. While this might seem appealing since you avoid paying any fees along the way, keep in mind that the interest rates on student loans aren’t cheap. In fact, it’s probably cheaper for the government to just give you the money directly. Also, PAYE won’t help you get a good credit score.

Consolidation Loan

A consolidation loan is similar to refinancing your student loan. Instead of going to a different company, though, you consolidate your debt into one single payment. This lowers your monthly payments and makes repaying easier. However, consolidating your student loans doesn’t always save you money. Be sure to talk to a financial adviser before doing this.

Public Service Loan Forgiveness Program

This program was created to encourage graduates to become teachers and public servants. To receive forgiveness, you must teach full time for ten consecutive years in certain fields and make 120 qualifying payments. Eligible fields include early childhood education, teaching English as a second language and special education. After meeting both requirements, you must certify that you worked in those fields for at least five years before applying for forgiveness.

Teacher Loan Forbearance Program

If you think long-term employment isn’t realistic, then maybe the teacher loan forbearance program is right for you. This program lets you stop making payments on your student loan for six months and then reapplies them. You must meet the same conditions as the Public Service Loan Forgivness Program.

Best Refinance Options For Student Loans

Paying off student loans early

One way to reduce interest rates is to pay off the balance of your student loan sooner rather than later, especially if you’re making payments toward your principal each month. You’ll get a lower rate and save money over time. If you have federal Stafford loans, you may qualify for an income-based repayment plan. These plans allow you to cap monthly payment at 10 percent of discretionary income, meaning no matter how much you earn, you won’t owe more than 10% of your total earnings. If you don’t qualify for an IBR, then focus on paying down any remaining balance before July 1st of each year. Your current lender should provide options to refinance your debt.

Repaying your private loans

If you have private student loans, focus on reducing the amount of interest you pay per month. Start by contacting your servicer and asking about their payment plan options. A good rule of thumb is to aim to pay 2 percent less than what’s currently being charged. Another option is to set up an automatic payment plan where you make smaller payments throughout the month. And if possible, contact your servicer to see if you can consolidate your private debt into one loan at a lower annual percentage rate (APR).

Consolidating your student loans

If you have federal loans and private debts, you might benefit from consolidating them into a single debt. Private lenders often offer fixed rates, while federal loans often have variable rates. By combining the two types of debt, you could potentially lock in a low interest rate on both. However, this isn’t always possible: some borrowers who consolidate still end up owing more after paying off their private debts. So weigh the pros and cons of consolidation carefully before committing to a new loan.

Using your savings to pay off student loans

Don’t just use your money to pay bills; put your extra cash towards paying down your student loan balances instead. Not only will this help you build up a substantial sum faster, but you’ll also have more money left over to spend on something else. Remember, though, that your savings account is technically not yours—it belongs to someone else, and you need permission to withdraw funds. But since you’re using the money for educational purposes, you probably own the account anyway. Ask your bank to let you access the funds whenever you want.

Best Refinance Options For Student Loans

Direct Consolidation Loan

A direct consolidation loan consolidates several different types of loans into one. You would use this type of loan if you had federal student loans, private student loans, and possibly even some kind of government-backed loans. When done properly, it can reduce the interest rate on various debts while leaving them in good standing. There are many lenders who specialize in providing these kinds of loans; however, they do not provide any guarantees. But, the risk is always yours. If you go bankrupt or default on the payment of your debt, you could lose everything and have to start over again. Many credit unions offer these kinds of products to their members.

Private Debt Consolidation

When you consolidate your debt, it is like taking out a mortgage on your current debt. It is similar to going into debt because you are borrowing money from yourself. By doing this, you lower the amount of interest paid each month. However, you still pay interest on the total amount borrowed. This is why you need to carefully consider how much you borrow before making your decision, especially since you may end up paying more than what you originally owed.

Income Based Repayment (IBR)

An IBR plan requires a borrower to make monthly payments based upon his/her income. You will be able to continue making payments throughout your repayment period without having to worry about being late. However, you will still pay interest on the original balance plus whatever additional charges were applied at the time of refinancing.

Public Service Loan Forgiveness Program (PSLF)

This program was established by President Obama in 2007. It helps people who qualify by reducing the outstanding balance on their student loans. It does this by giving borrowers a 10 year period where your balances are forgiven after 120 monthly payments have been made.

Pay As You Earn (PAYE)

You repay your student loans based on a percentage of your income. So, if you earn $50,000 per year, then your monthly payment will range anywhere between $100-$300 depending on your income and loan amounts.

Income Contingent Repayment (ICR)

If you fall under this plan, then you only make payments if you exceed 25% of your discretionary income. Your payment will automatically increase once you reach this threshold. At the same time, your interest rate may decrease.

Federal Perkins Loan

With a Perkins loan, you receive a fixed interest rate and low-cost financing. These loans are available for undergraduate students pursuing a degree in arts and sciences, business, education, engineering, mathematics, medicine, nursing, physical science, social services, veterinary science, and theology. In order to apply for this loan, you should submit a FAFSA application.

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