What Is The Difference Between Student Loan Refinancing And Student Loan Consolidation
Although refinancing can simplify your debt by combining multiple loans into one, its different from federal student loan consolidation. You refinance student loans with a private lender, but you consolidate loans by taking out a direct consolidation loan from the federal government.
Federal consolidation combines federal student loans into one new loan, and it lets you choose new repayment terms. But it doesnt lower your interest rate, so you wont save money on interest-only student loan refinancing helps you lower your rate, if you qualify. You can compare the two with our student loan consolidation vs. refinancing calculator.
How To Pay Off Your Student Loan
Paying off student loans isn’t easy. National student loan debt stands at $1.6 trillion, an overwhelming debt burden that millions of students will most likely never repay in their lifetime.
Ill-informed recommendations for paying off student loans include credit card balance transfers or filing for bankruptcy, but these can worsen your financial situation.
Many consider student loan forgiveness as the only viable option for student debt relief, but that is still an ongoing debate with no guarantees.
With this in mind, we have outlined some of the best practices to help you stay on top of your student loan debt:
Start repayment while youre still in school
Private student loans begin accruing interest while youre still in school. To keep interests down, begin repayment as early as possible. You can save thousands of dollars over the life of the loan by keeping up with interest payments while you finish your degree.
Take advantage of loan forgiveness programs
President Biden announced a student loan forgiveness program for federal student loan borrowers. The program establishes that student loan borrowers earning less than $125,000 will receive $10,000 in debt cancellation, while borrowers who received Pell Grants during college will be eligible for $20,000 in forgiveness. The income cutoff will be based on annual income during the pandemic.
Keep in mind that you will need to make payments under an eligible repayment plan before you can apply.
Create a budget
How Do I Refinance My Student Loans
Many lenders offer student loan refinancing, from traditional banks, to credit unions to online lenders. Before choosing one, shop around and compare your offers. Several lenders make it easy to get an instant rate quote online with no impact on your credit score. By checking your rates with a variety of providers, you can find a refinanced student loan with your best possible terms.
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How Student Loan Interest Is Calculated
While browsing interest rates, you can calculate your student loan interest to estimate how much you will pay each month. Here’s how to do it:
If you have $10,000 in student loans and a 6 percent interest rate, with a 30-day billing cycle, you would pay a little over $49 in interest monthly.
You can also calculate how much interest you’ll pay over the life of your student loan by using a student loan calculator.
Learn more: How to calculate student loan interest
Average Private Student Loan Interest Rate
The average interest rate on private student loans is difficult to calculate as it depends on several factors such as the loan lender, minimum credit score, private loan terms, current market trends, and length of the loan. Even with these existing variables, the lowest advertised private student loan interest rate may be lower than the fixed rate student loans offered by the federal government. But the rate you receive could also be higher than federal student loans at any specific time, depending on the current market trends and your credit worthiness. Private student loan rates may be fixed or variable and fluctuating with modern market trends. To receive the best possible student loan interest rates, it is vital to apply for your loan with a cosigner that maintains a high credit score. For a historical view of average private student loan interest rates, we break down the numbers here.
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Best Private Student Loans For Special Situation
If you peruse a list of the best private student loans that are general in nature, you could miss out on lenders that cater specifically to your needs. Different lenders serve students attending certain types of schools, for example, or those pursuing specialized degrees.
To check out the banks, credit unions and online companies that we think could be one of the best for your situation, click away here:
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| For more details, see our federal vs. private loan comparison |
Federal student loans offer income-driven repayment plans, deferment and forbearance, as well as forgiveness program options. Some private school loans will offer hardship options in case your income hits a snag, but not all have them available.
Plus, private loans for college much like federal direct unsubsidized loans start accruing interest immediately. This contrasts with subsidized federal student loans with those loans, the Department of Education will pay the interest until you graduate and during any deferment.
Keep in mind, too, that youll likely need a cosigner thats because private student loan offers are based on your creditworthiness, and most college students are too young to have much of a credit history.
If you do get a loan with a cosigner, make sure all your payments are on time. If not, your cosigner will be responsible and missing payments or going into default can damage their credit as well as yours.
How To Decide Which Lender Is Best For You
A variety of factors differentiate the best private student loans, though the main ones to focus on are interest rates and fees.
The amount of money you take out on your private school loans is only the beginning. Give yourself the best chance of maintaining a manageable level of debt by keeping your rates and fees as low as possible.
As you review different interest rates, remember that you can apply for more than one loan to see which one will give you your best deal. There are two ways you can do so without your credit score taking a hit:
- Many private student loan lenders do a soft pull on your credit, which enables you to see what you might be approved for without negatively impacting your credit score.
- If you were to file a formal application with more than one lender, you could avoid dinging your credit by rate shopping within a two-week window.
Besides looking for offers for the best private loans for college, also look out for beneficial perks. For example, some lenders offer college students a lower rate for good grades, while others provide the ability to release your cosigner.
Once youve narrowed down your list of options, use a monthly payment calculator to estimate what your regular dues might be.
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Comparing Student Loan Interest Rates To The Lowest One For Your Situation
Because student loan interest is always accruing, it can make it tough to pay off debt. But the way to save yourself this financial headache is to learn how to get the lowest student loan interest rates. Shop around for your best terms, especially if youre looking for low-rate private student loans.
And dont forget about other considerations, such as student loan repayment plans and forgiveness programs. By weighing all the short- and long-term costs, you can find the right loan to finance your education.
How Do I Get Low
To get a low-interest student loan without the help of a co-signer, youll have to qualify on your own. Youll need a high credit score and a consistent income that comfortably covers your other debt obligations to be eligible for the lowest rates on private loans.
If you cant qualify for desirable rates on private loans, federal student loans may still offer you a relatively low interest rate. The rates on federal loans are standardized, and most are not based on your credit or incomethat means you could get competitive rates even if you dont have much of a credit history.
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How To Get The Best Student Loan Rates
When youre taking out a student loan, the interest rate you pay can have a big impact on your financial future. The average borrower takes two decades to pay off their education debt, so getting even a slightly lower rate can add up to thousands of dollars in savings over the years.
If you opt for a federal student loan, you dont have much say in your interest rate. Congress sets federal student loan interest rates on an annual basis, and they are fixed for the life of your loan. But if youre pursuing a private student loan, youll find that rates vary by lender.
To get the best possible rate on a student loan or student loan refinance, borrowers really need to pound the pavement, says Michael Lux, attorney and founder of the Student Loan Sherpa. That means getting rates from different types of lenders, as well as other potential steps, such as improving your credit, rooting out rate discounts and applying with a cosigner.
Read on to find all the ways you can get the lowest possible student loan interest rate.
The Right Time To Refinance Student Loans
Lenders generally require you to complete your degree before refinancing. Though its possible to find a lender without this requirement, in most cases, youll want to wait to refinance until after youve graduated.
Keep in mind that to get the lowest interest rates, youll need a good or excellent credit score.
Using a co-signer is one option for those who dont have strong enough credit or income to qualify for a refinance loan. Alternatively, you could wait until your credit and income are stronger. If you decide to use a co-signer, make sure theyre aware that theyll be responsible for payments if youre not able to for some reason. The loan will also appear on their credit report.
Finally, make sure you can save enough money to justify refinancing. At today’s rates, most borrowers with high credit scores can benefit from refinancing. But those with less-than-great credit who won’t receive the lowest fixed or variable interest rates may not. Start by exploring rates you could prequalify for via multiple lenders, then calculate your potential savings.
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Pros And Cons Of Private Student Loans
Private student loans arent a perfect solution for all borrowers, so its good to consider the pros and cons. For instance, the fact that theyre credit-based makes them inherently more accessible and beneficial to borrowers with at least good credit or a cosigner with good credit.
The vast majority of private loans are cosigned, which also adds risk to the borrowing process. As mentioned above, if you attach a cosigner to your undergraduate loan, they would be held as responsible as you would be for repayment. So if you miss payments, for example, their credit report and score will reflect that.
Defaulting on private loan debt is also a much easier trap to fall into. Some private lenders consider your debt in default after just one payment this can bring potentially serious consequences, starting with debt collections proceedings. By comparison, a delinquent federal loan isnt considered in default until at least 270 days since you missed payment date.
Private loans also carry far fewer repayment protections to prevent delinquency and default. Top-rated lenders offer customers the ability to postpone payments via deferment and forbearance for reasons such as unemployment or financial hardship. But dont expect to be able to modify your repayment terms after your loan has been disbursed.
These and other cons of private loans should be weighed before you decide to borrow.
Working While Youre In School
Instead of taking out a loan to cover the cost of your housing, food, and books during the semester, take up a part-time job. Some colleges offer work-study positions on campus or you can find a business near campus looking for part-time workers. There are a lot of good jobs for college students out there.
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What Is A Cosigner Release
A cosigner release occurs when a cosigner is removed from an existing loan, making the cosigner no longer responsible for the loans repayment. A borrower must meet certain eligibility requirements to prove to the lender that theyre financially stable to qualify for cosigner release, such as:
- On-time payments: Many private student loan lenders require a certain amount of consecutive, on-time monthly payments to qualify for cosigner release.
- Income and credit score requirements: Lenders usually require borrowers to meet certain credit score and income standards to qualify to repay a student loan without a cosigner. This may consist of undergoing a credit check and submitting pay stubs or tax returns to verify your income.
- Submit a cosigner release application: You can typically find a cosigner release application on a lenders website, though some lenders may offer the option to submit a paper form. Follow the instructions provided and include all necessary documents to make sure your application is complete.
Using a cosigner could get you a lower interest rate, and potential cosigners may be more willing to help you out if they know they can later be released from the loan.
Here are Credibles partner lenders that offer cosigner release:
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Find Out: How to Get a Cosigner
How Does Student Loan Interest Work
Student loan interest usually begins accruing as soon as the loan is distributed to you or your school. If you dont make any payments while youre a student, your loan balance will grow during your time in school. The exception to this rule is federal subsidized loans. If you qualify for this type of loan, the government will pay your interest when your loan isnt in active repayment.
Also keep in mind that the interest on your loans will capitalize, meaning that the accrued interest will be added to your loan balance. Essentially, you will begin accruing interest on your interest. Capitalized interest only occurs at certain times, and exactly when this will happen varies based on your loan. Often, interest capitalizes when your loan first enters repayment and after periods of deferment or forbearance.
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Do Private Student Loans Have Fees
Many of the best private student loans carry no fees for application, origination or prepayment. A select few lenders even waive common and arguably fair extra charges, such as late payments or returned checks. Generally, however, many private student loan lenders and companies do still impose fees.
Its important to ask lenders customer service teams about these fees before choosing a loan. Youll want to avoid lenders that punish you with federal loan-like origination fees, which can eat into your balance, and prepayment penalties, which could dissuade you from paying down your debt ahead of schedule.
What Is Capitalized Interest On A Student Loan
Capitalized interest refers to the process of adding any accrued interest to your loans principal balance. When this happens, your loan balance grows and you begin accruing interest on the new, larger amount. Essentially, you are charged interest on your interest.
Interest only capitalizes during certain periods of your loans lifeexactly when that happens varies based on your loan. However, its common for interest to capitalize when you first begin repayment and after any temporary deferment or forbearance.
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Should I Refinance My Student Loans Now
This answer comes down to whether you are eligible for a lower interest rate than you are paying right now.
Youre able to apply for refinancing as soon as you graduate – however most people wait until the deferment period is over and they have a monthly payment every month.
The primary consideration when refinancing, for many, is lowering their monthly payments. If you have high-interest loans, it is often possible to achieve this.
How To Take Advantage Of These Low Rates
The path to financial aid success starts with the FAFSA, the Free Application For Federal Student Aid. If you want to secure a federal loanor even more preferably, a grantthen you need to have your FAFSA submitted by March 2 of the year in which you plan to begin the fall semester. Once your FAFSA is processed, you will receive a Student Aid Report or SAR, outlining how much money you and/or your family are required to contribute to your education.. A few weeks after that an award letter should arrive in the mail detailing what types of financial aid you have eligible for and how much money you can or will receive. You will then need to return this award letter indicating what financial aid you are accepting.
From there, you will need to follow the specific instructions for securing the type of low interest loan you’ve been offered. A Stafford loan requires that you sign and submit a promissory note, while a Perkins loan requires you to fill out paperwork and submit it directly to your school, as your college of choice will be the lender.
Regardless of the type of loan you end up getting, you should always note the interest rate. Even though you may be new to the world of finances and credit, lenders expect you to make responsible and informed decisions. Always educate yourself about a potential loan, even if it does have an enticing low interest rate, before you sign on the dotted line.
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