Options For Refinancing Student Loans

Federal Direct Loan Program (Direct Loan): A student may borrow funds under  IV of the Higher Education Act of 1965, formerly known as the Guaranteed Student Loan Program, to pay for education expenses at any school or college.

The program is administered by the U.S. Department of Education’s Office of Servicers, Examiners and Collection Agencies. You can apply for loans online or over the phone at 1-800-PAY-FROM. More information about the program is available at www.studentaid.ed.gov.

National Health Service Corps (NHSC): NHSC is designed to help match community service physicians who have completed their residency training with underserved communities. Volunteers serve at least two years after training. There are currently four types of placements available: primary care, family medicine, mental health/substance abuse, and emergency medicine. Your state medical society can provide additional information and eligibility requirements. In addition, contact your local federally qualified health center to learn if they offer NHSC opportunities.

Public Service Loan Forgiveness (PSLF): Under this program, eligible borrowers make 120 qualifying payments while enrolled in certain public service programs. If your loan balance remains less than $17,500 at the end of 10 years, your remaining debt will be forgiven. 4) Income Based Repayment (IBR): IBR is a plan developed by the federal government to assist students with low incomes and high costs attend college. IBR can lower monthly payments by up to $50 per month, depending on income and cost of attendance. Eligibility is based on adjusted gross income, total household size, number of children, and payment status. To qualify for IBR, income cannot exceed 150% of the poverty line. Payment amounts vary depending on income level and the type of program you choose. gov/repayment/incomebasedrepayment.

Options For Refinancing Student Loans

Federal Stafford Loan Consolidation

The federal student loan consolidation program provides eligible students with the opportunity to have their loans consolidated into one stream of monthly payments while still maintaining the same interest rate. The loan consolidation program offers borrowers who qualify several repayment options including standard 10-year repayment plans or longer terms, making them easier to manage. In order to qualify for consolidation, borrowers need to be current on their payments and have no outstanding fees, charges, or debts associated with the original loan. Students may consolidate their loans after they graduate and before they begin repaying the debt. If borrowers choose not to consolidate their loans upon graduation they could end up paying higher rates if they default on any portion of their loans.

Private Student Loan Consolidations

Private loan consolidators offer similar programs to those offered by the federal government, however, these private companies often charge higher upfront costs than the federal program. These costs include application fees and closing costs, but borrowers should consider whether they are willing to pay these additional fees and how much money they would save over time. Borrowers should also research the specific loan consolidation company prior to choosing one since some may provide lower rates than others. Many private lenders require borrowers to put down as little as 5% of a loan’s value when applying for a consolidation loan. Lenders may also require borrowers to wait between six months to two years before receiving approval.

Home Equity Lines Of Credit (HELOC)

A home equity line of credit is a type of personal loan that uses the borrower’s existing home as collateral. When taking out a HELOC, borrowers are issued revolving credit, meaning they do not have to repay the full amount at once. Instead, they receive a certain number of installments each month, depending on the loan’s term. Once the term of the loan expires, the borrower will then make a lump sum payment equal to what was borrowed plus any accrued interest. Borrowers must use the proceeds responsibly; failing to repay the whole balance or use only the funds for approved purposes could result in losing the house as collateral. The benefit of a home equity line of credit comes at a price; borrowers must pay interest on the principal balance each month. Also, once the borrower begins amortizing his/her loan, he/she must continue paying off the entire principal every month until the entire balance is paid off.

Personal Loans

Borrowers may choose to obtain a personal loan instead of using a home equity line of credits. Unlike a home equity line of loan, borrowers do not have to put down a security deposit, and the interest charged is typically lower. However, borrowers must take care of any outstanding fees and interest in order to avoid incurring further penalties. Borrowers may want to compare different types of loans in order to determine which best meets their individual financial situation.

Debt Management Plans

Debt management plans allow borrowers to set aside money toward paying back their loans automatically. Borrowers may choose to enroll in a debt management plan either online or by contacting their lender directly. A borrower’s eligibility for enrollment in a debt management plan varies by lender. Once enrolled, a borrower’s income and expenses will be monitored regularly to ensure that they meet certain criteria necessary to remain eligible. Eligible borrowers will then be able to submit automatic payments to cover the entirety or a portion of their loan. If borrowers fail to make a payment within the allotted time period, they risk being held accountable for late fees and potentially having their total balances increase.

Options For Refinancing Student Loans

Bankruptcy

Banks have certain rules regarding student loans that they cannot refinance. If you were to go bankrupt, the lender would take back full ownership of the loan and all payments would stop. You will likely lose any interest payments you may have been receiving while your case was pending. However, if you do not file bankruptcy, you could end up paying much higher rates than originally agreed upon.

Payday Loan

Payday lenders offer short-term cash advances at high interest rates. These loans often carry fees ranging between $10-$45 along with additional charges. While these loans may seem convenient in the moment, they can become difficult to pay back once the initial period is over. Furthermore, these types of loans are illegal in some states, so make sure you research thoroughly before agreeing to any type of loan agreement.

Consolidation Loan

Consolidating your student loan debt can help save money in the long run by lowering your monthly payment amount and extending the length of time you have to repay. When consolidating, each individual loan is combined into one new loan with a single repayment term. When taking out a consolidation loan, you will need to provide proof of income and assets, and it will not always be possible to lower your rate further due to the number of existing debts being consolidated.

Options For Refinancing Student Loans

Private Funding Sources

Private funding sources provide financing for students who do not qualify for traditional federal student loan programs. These private lenders specialize in providing loans for low-income students. There are two primary types of private lending: equity and debt. Many private lenders offer both options. Equity financing lets borrowers pay back their loan over time with interest. Debt financing forces borrowers to make payments immediately and take out a larger amount than would normally be covered under a federal program. Both forms of finance require applicants to have good credit scores and financial qualifications.

Federal Student Loan Programs

The U.S. Department of Education offers several different types of student loans. Most people choose between subsidized and unsubsidized loans, based upon their personal budget. Subsidized loans are offered at lower interest rates and allow borrowers to avoid paying some of their income to repay the money. Unsubsidized loans are less expensive, but they require borrowers to cover all costs associated with repayment. Borrowers may select either fixed or variable rate plans. A fixed plan will charge consistent monthly payments throughout the duration of the loan. Variable plans adjust monthly payments according to changes in the prime interest rate. An advantage of a fixed plan is that borrowers know how much more each payment will cost. However, choosing a variable plan gives borrowers flexibility to manage their finances by adjusting the payment. If a borrower chooses to defer payments, he or she receives grace period. Each year, students must begin making minimum payments on federally-backed loans to prevent accumulating interest charges.

Income Based Repayment Program (IBR)

Under the IBR program, borrowers can cap their monthly payments at 10 percent of discretionary income. Payments are automatically deducted from a borrower’s paycheck. Once a borrower completes his or her program, he or she enters repayment under the standard student loan terms. The amount of the limit varies depending on whether the borrower is enrolled in school full time or part time. Borrowers who attend schools outside the United States may apply for consolidation under the IBR program.

Pay As You Earn (PAYE) Plan

The PAYE plan is similar to the IBR plan, except that borrowers pay a portion of what they earn instead of being charged a set amount. Borrowers still receive 10 percent of their discretionary income to use for repayment, but they are responsible for calculating the percentage and then paying that amount along with any accrued interest. If borrowers exceed 10 percent of discretionary income, they may be subject to penalties. Under this plan, borrowers are allowed to consolidate their student loans into a single balance sheet if they qualify.

Graduated Payment Option (GPO)

This option is designed for borrowers whose earnings are higher than the IBR limit. GPO allows borrowers to select a graduated payment schedule to repay their loans. Payments increase gradually until the total owed becomes equal to the original loan amount. Interest continues to accrue while payments are made using the graduated schedule. While this program is meant to help borrowers save money, it does not affect the final amount owed. To qualify, borrowers must stay enrolled in school for four years after graduating.

Public Service Loan Forgiveness (PSLF)

If a borrower works for eight continuous years in public service after graduating from college, he or she will be eligible for this benefit. Eligibility requires a person to work for the government or a nonprofit organization for at least 120 hours per month. In return, the government forgives the remaining balance of the loan if certain conditions are met.

William D. Ford Direct Loan Program

Direct loans are provided by the U.S. Department Of Education to assist families in repaying undergraduate educational expenses. This type of loan is available regardless of the applicant’s household income. Borrowers are not penalized for having past-due balances or delinquent payments. Instead, they are required to meet regular deadlines to keep their status current. Students attending an institution of higher education and working toward a bachelor’s degree qualify for direct loans. Other requirements include enrollment in six or more credit hours per semester and graduation within 6 years of borrowing the funds.

Options For Refinancing Student Loans

Federal Loan Consolidation

A federal loan consolidation involves having multiple loans consolidated into just one loan at a lower interest rate. 2. Pay As You Earn (PAYE) Plan

The PAYE plan allows you to pay back the principal and interest of your loan over time instead of making minimum payments (which may not even cover the interest). If you have good credit history, you may qualify for this option.

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