Best Refinancing Options For Student Loans

Refinance your student loans

If you’re currently repaying your student loan debt, refinance your payments. If you have federal student loans, some private lenders offer lower interest rates than the government-backed Stafford Loan program. You may also want to consider refinancing if you’re making less money than you did while attending school. When you refinance, you’ll get a new loan with a lower monthly payment. So what’s the catch? Here are three things to keep in mind:

Your current lender may not participate in any refinancing programs. Be sure to ask about the possibility when applying for the loan.

Your credit score might affect whether you qualify for a lower rate. A low credit score could mean paying higher rates for a longer period of time. And remember to check your credit report regularly so you know where you stand.

You may need to pay closing costs. Be sure to factor those into your calculations.

Take advantage of consolidation

Consolidation means combining several types of debts into one. Consolidating your student loan debt could save you money over the long run. The Department of Education offers financial counseling designed to help people manage their student loans. Visit www.nslds.ed.gov for more information about consolidating your loans.

Consider income-based repayment

There are two types of income-based repayment plans: Income-Contingent Repayment (ICR) and Income-Sensitive Repayment (ISR). While both require a minimum monthly payment based on your income, ICR requires you to start repaying sooner and ISR requires you to make larger payments back to the government. Both require you to repay the entire balance of your loan faster than standard repayment plans. This plan helps borrowers who spend a majority of their income on housing and food. See the Department of Education’s website for details about IBR.

Best Refinancing Options For Student Loans

Federal Direct Loan Program

The federal direct loan program was established back in July 2007 under the direct lending authority granted by Congress to the U.S. Department of Education. To qualify for these loans, borrowers need not demonstrate financial need nor should they have access to any other type of government-backed student loan. Borrowers receive their loans via the same lenders who provide private student loan programs under the Federal Family Educational Loan (FFEL) program. The interest rate and repayment period are regulated by the U.S. Treasury Department. While the maximum amount of money borrowed is $31,500, the cost of borrowing varies depending upon the borrower’s income level.

Stafford Loan Program

Stafford loans were first authorized under  IV of the Higher Education Act of 1965. By establishing this program, Congress intended to make higher education affordable by guaranteeing payments for students meeting certain requirements. As the name suggests, these loans are administered by the U.S Department of Education and funded by the U.S Treasury Department. At present, the maximum sum borrowed by undergraduates is currently $23,000. Although the interest rates and payment terms vary based on the borrower’s eligibility, borrowers may pay off their debt over 10 years, 15 years, or even 20 years.

Perkins Loan Program

Perkins loans were originally created to assist low-income students who could not afford to attend college. These loans are similar to the Stafford loan program, except for two major differences. First, Perkins loans do not require students to have access to a parent’s income or assets to obtain funding. Second, Perkins loans are only available to undergraduate students who attend participating schools affiliated with the National Christian League for Campus Ministries. Students can borrow up to $16,500 per year. Like Stafford loans, Perkins loans carry variable interest rates and stipulate varying repayment options. However, unlike Stafford loans, Perkins loans generally offer fewer repayment plans and a longer repayment schedule.

PLUS Loan Program

PLUS loans were initially developed to allow parents and guardians to help their children finance their postsecondary education. Parents can use the funds borrowed to cover tuition, books, fees, room and board, transportation, childcare expenses, and other related costs associated with attending school. According to the U.S Department Of Education, PLUS loans are the largest source of financing for higher education loans and total approximately $100 billion annually. Eligibility criteria includes having at least half time enrollment and being enrolled full time. In addition, applicants must meet standard credit check guidelines. The maximum amount of money borrowed by students is currently $32,500. Depending on the student’s income level and family size, the interest rates range between 6% and 8%. Repayment schedules last anywhere from 5 years to 30 years. Both federal and private lenders issue PLUS loans.

Parent Plus Loan Program

Parents who want to help their child financially while attending college can apply for a Parent Plus loan. Unlike the previously mentioned programs, parents do not have to prove financial hardship in order to qualify for Parent Plus loans. Instead, parents must complete specific forms and file them with the lender in order to get approved. If approved, the loan must then be repaid in installments throughout the duration of the student’s school career. The maximum sum borrowed by each borrower is $10,500 and the interest rate ranges between 4% to 6%. Payments must begin after the student graduates and reaches age 24. In addition to providing for the educational needs of its borrowers, Parent Plus loans also provide assistance to families facing financial hardships due to unexpected medical bills and/or death in the family.

Private Student Loan Programs

Private student loans differ from public ones in several ways. One major difference is that private student loans do not fall under the jurisdiction of the federal government. Another distinction is that private lenders do not have to guarantee the repayment of the loans they issue. Lastly, private student loans do not have the same regulations regarding eligibility, income restrictions, and interest rates. Most private lenders offer fixed interest rates and a set number of repayment plan options.

Best Refinancing Options For Student Loans

StudentLoans

A student loan is a loan taken out by students before they graduate high school or attend college. There are many different types of student loans, including federal loans and private loans. Private loans are often given out by banks while federal loans are funded entirely by the U.S. Department of Education. Federal loans always have fixed interest rates, either set at 2%, 4% or 6%. In addition, they offer repayment plans without any prepayment penalties.

Federal Stafford Loan Rate:

The rate associated with a Federal Stafford Loan is two percent above the prime rate. If the current prime rate is eight percent, then the government-backed Stafford Loan will be six percent.

Interest starts accruing after graduation or dropping below half time. Payments begin once borrowers reach 120 days past due. Borrowers should make their payments directly to the lender, not the U.S. Treasury.

Private Student Loans:

Banks often give out private student loans to those who do not qualify for federal student loans. These loans may carry higher rates than federal loans (up to 15%). Unlike federally backed student loans, these do not have fixed interest rates. Instead, lenders add a percentage to the principal balance, which means that the interest rate increases each year. A borrower’s monthly payment does not change until reaching 90 days past due on the loan. After 180 days past due, borrowers will face hefty fees and late charges.

In order to pay off a private student loan faster, borrowers can refinance their debt. Because these loans are not guaranteed by the U.S., the amount disbursed is generally lower than that of federal loans. Therefore, refinancing may offer more money for students with smaller balances. When refinancing a loan, borrowers need to factor in closing costs and possibly taxes. However, they might save money in the long term if they refinance early enough.

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Best Refinancing Options For Student Loans

Income Based Repayment (IBR)

The income based repayment plan (IBR) is not considered bankruptcy since you make payments each month without having to file for bankruptcy. A payment under IBR can be as low as 0% interest while only making 1 monthly payment instead of 10-15 monthly payments with the standard 10/10 plan.

Pay As You Earn (PAYE)

This is similar to IBR except that you pay a fixed amount per year instead of paying a percentage of your income. Payments are still divided into minimum payments of 10 dollars and then calculated at varying percentages. PAYE plans are typically set up for federal loans so they are designed to help defer student loan debt. PAYE is the default option if no other options are available.

Graduated Payment Plan (GPP)

If you have private student loans that cannot be consolidated with federal loans, you may consider the graduated payment plan. Also known as the extended graduated plan, this type of plan offers varying rates of interest and monthly payments depending on how much money you owe currently. If you do not qualify for the GPP plan, then the PAYE plan would be your best option.

Best Refinancing Options For Student Loans

Federal Direct Loan Program (Direct Subsidized)

This program includes direct federal loan payments made directly to student lenders. Payments will begin after the first disbursement of funds and may require completion of financial aid paperwork. Payments of approximately $350 per month for the duration of the loan plus any interest. The repayment term varies depending on the type of loan, ranging from six years to 10 years. A portion of each payment will be reserved for taxes and insurance if they have been selected as options.

Unsubsidized Stafford Loan

Unsubsidized loans are not subsidized by the government, and borrowers must pay the entire amount back at the end of the loan or choose to defer payment until after graduation. Borrowers who qualify for unsubsidized loans do not receive the same repayment terms as those using subsidized loans. Repayments vary based on income and cost of attendance. If no interest is charged, the borrower only pays back a percentage of their monthly payments.

Parent PLUS Loan

A parent borrowing money for his/her child’s college education may borrow up to the total cost of attending school minus any other college funding, including grants, scholarships and work-study earnings. Parents should check with their lender for restrictions on what types of schools and majors are eligible. Interest rates for parents can range from 6% to 12%, depending on the creditworthiness of the individual family.

Perkins Loan

Perkins loans are funded by the U.S. Department of Education. These need-based loans are designed for students enrolled in certain career training programs, such as cosmetology, construction trades, graphic arts and allied fields; agricultural sciences; engineering technology; medical assisting services; nursing care facilities; teacher preparation; or food processing occupations. Students must meet both academic and financial eligibility requirements in order to be considered for these loans. Students must complete 120 hours of qualifying postsecondary educational work before receiving a Perkins Loan. Each year, borrowers must make either two semesters’ worth of payments or three full quarters’ worth of payments. Interest accrues during the grace period between the beginning of the semester or quarter and the due date.

Private Loan Programs

Private lending programs are offered through banks, savings and loans and other private companies. Many private lenders offer lower interest rates than federally guaranteed loans for qualified borrowers. However, these loans often come with high origination fees, prepayment penalties and stricter qualification guidelines.

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