No Student Loan Forgiveness? Take a Look at Loan Refinancing Before Rates Rise
What's happening
President Biden recently announced $10,000 to $20,000 in federal loan forgiveness. If you have private student debt, you're not eligible for this forgiveness, but refinancing may help you save money.
Why it matters
Refinancing student loans can help you lock in a lower or fixed interest rate. With rates expected to continue rising, refinancing sooner may make sense.
While borrowers holding federal student loans got big news last week — $10,000 to $20,000 in forgiveness for eligible recipients and an extended pause on payments and interest until 2023 — those who owe money on private student loans are still faced with their same burdens of debt and payments. Private loans account for a little more than 7%, or $148 billion, of existing student loan debt.
Not only are private student loan holders ineligible for loan cancellation, those with loans at variable interest rates are facing the possibility of increased payments. The Federal Reserve has raised interest rates to 2.25% in 2022 via four rate hikes, and the agency likely isn't done yet. New minutes from the Fed's last meeting indicate that another 0.5% increase is coming when the board meets in September.
If you're holding student loans with a high annual percentage rate, you might want to consider refinancing your student loans before interest rates rise any further. Here's everything you need to know to get started with student loan refinancing. For more on student loans, learn how the Public Service Loan Forgiveness program can cancel all federal student loans and how some employers are helping workers with student loan debt.
Refinancing private vs. federal loans
Refinancing student loans means that you take out a new loan that pays off your existing debts. Refinancing only makes sense if you can find a lower interest rate than you are currently paying or a good fixed rate that you can lock in for the loan's duration. You might also choose a longer loan term to reduce your monthly payment, though you'll end up paying more overall.
If you have student loan debt, you either have a private or federal loan — private loans are made by a lender such as a bank, state agency or school, while federal loans are funded by the federal government. It's estimated that 90% of the student loan debt held is in federal loans. It makes most sense to refinance private loans, which tend to have higher interest rates, rather than federal loans, which tend to have lower interest rates and more regulation.
When you refinance a private loan, you'll do so with another private lender. You cannot refinance a private loan with a federal loan. Student loan expert Mark Kantrowitz, author of How to Appeal for More College Financial Aid, says if you have a private loan, it's advisable to refinance to a fixed-rate loan before interest rates rise.
Though payments remain paused through the end of 2022, if you hold federal student loans, you may be considering refinancing if you're worried about affording the monthly payment when the freeze is lifted. In this case, there are other options you should explore first, such as an income-driven repayment plan, which can help make monthly payments more affordable. You should also check your eligibility for additional loan forgiveness programs like Public Service Loan Forgiveness and the Teacher Loan Forgiveness Program.
If you have a federal loan, the only way to refinance is through a private lender — unless you're refinancing federal loans through the PSLF program — which will eliminate some of the benefits that come along with government loans. Because of this, refinancing your federal student loans is often discouraged, but if you still think it's the right choice, wait until you receive any eligible loan forgiveness before refinancing, so you don't miss out on this benefit.
What to consider before refinancing
1. Check your credit score and improve it if necessary
In order to qualify for a lower interest rate than your current loan, you'll need a good credit score. A FICO score of at least 670 is considered "good" and can help you qualify for student loan refinancing — a higher credit score can also qualify you for even lower rates.
Your current loan payment history will also impact your credit score: If you're having trouble affording your current student loans and have missed payments, lenders may hesitate to sign you a new one.
If your credit is "poor" — a FICO score under 580 — talk to your lender about adjusting your payment plan so you can get back on track. Work on improving your credit by paying down your debt and making your payments on time.
Before refinancing, Kantrowitz advises checking your credit reports (which is completely free in 2022) and looking for errors. If you find items that don't apply to you or have wrong information, you can dispute them — your creditor will have 30 days to confirm the accuracy of your report or remove the errors, so it is best to check your credit report at least 30 days before refinancing.
2. Evaluate your debt-to-income ratio
Lenders will likely look at your income, the income of your co-signer (if you have one) and your debt-to-income ratio, which is your total monthly debt payments divided by your total gross monthly income.
Your income level demonstrates to lenders that you earn enough money to repay your loans and keep up with your payments. Kantrowitz suggests taking a look at refinancing minimum income thresholds, which usually hover around $30,000.
Your DTI ratio represents the debt you hold compared to the amount of money you earn. A high DTI, which shows you carry a large amount of debt, could be a red flag for lenders. For example, if you carry $1,000 in debt monthly and make $4,000 a month, your DTI would be 25% ($1,000 divided by $4,000). However, if you carry $2,500 in debt monthly and make $4,000 a month, your DTI will be much higher — 62.5% — which could impact your ability to secure a new loan.
To refinance your student loans you generally want to have a DTI of 50% or less.
3. Compare student loan lenders
It's important to shop different lenders to make sure you're getting the best rates and terms. The whole point of refinancing is to pay less, either in lower interest from a reduced rate or more affordable monthly payments from a longer term.
Kantrowitz stresses that borrowers should consider monthly loan payments, total repayment terms and interest rates. "Remember that longer repayment terms mean lower monthly payments, but more interest over the life of a loan. Try to avoid repayment terms longer than 10 years, and make sure to choose a plan that offers the highest monthly payment you can afford."
4. Check to see if you prequalify for a new loan
As you shop around for lenders, many may offer the option to prequalify, allowing you to see what your potential interest rates and monthly payments would look like. Based on the change from your current loan terms, you can decide if refinancing makes sense for you. Prequalification requires a soft credit pull, so it won't impact your credit score. Keep in mind, prequalification does not guarantee loan approval or specific rates.
5. Consider a co-signer for your student loan
Student loan refinancing lenders often allow you to add a co-signer to your loan — or to release one. If you don't have a longstanding credit history, you may need someone with a good or excellent credit score to co-sign your loan. When you add a co-signer, they are taking on the loan responsibility with you. This means your co-signer will be required to make payments if you can't, and your repayment history will impact their credit score as well as yours.
Conversely, if you want to release a current co-signer, you can refinance a private student loan in your name alone. In order to do so, make sure you meet the credit and consecutive on-time payments criteria.
Next steps to refinance
Once you've committed to refinancing your student loans, there are steps you can take to secure the interest rate and payment plan you want.
First, begin shopping around with other student lenders. Compare rates and terms and get prequalified to browse your options and decide which loan term and lender best fits your budget. Once you decide on a lender, you'll submit a formal application and wait for approval, which usually takes two to three weeks. After your new lender approves your application, they'll pay off your old loan directly and you'll start making regular payments to your new lender.
For more student loan news, read more about President Biden's widespread student loan forgiveness plan, find out if forgiven student loans will increase your tax bill and understand how loan forgiveness may impact your credit score.
Source
Tags:
Blog Archive
-
▼
2023
(218)
-
▼
January
(95)
- Why I Was Completely Wrong About Fortnite
- Facebook And Instagram Turn Off AR Filters In Texa...
- Amazon Just Cut $80 Off The Price Of This HP Touch...
- Sony Vaio T13 Touch Review: Sony's Solid Ultrabook...
- Gamescom Opening Night Live: How To Watch Online, ...
- Samsung Galaxy S10 Plus Review: Killer Cameras And...
- MTV VMAs: Eminem And Snoop Dogg Perform As Bored A...
- Shop A Selection Of Refurb Samsung Smartphones Sta...
- Laptop Buying Guide
- Ocean Drone Caught Inside Hurricane Sam Captures H...
- Best AirPods Deals: $69 Off AirPods Pro, $100 AirP...
- Tesla Recalls Nearly 600,000 EVs Over Boombox Feat...
- Dusty NASA Mars Lander Snaps What Will Likely Be I...
- Check Your Capri Sun: Thousands Of Cases Recalled ...
- The HP Chromebook X2 11 Is On Sale For $399 At Bes...
- Motorola Moto G Review: The Price You Want, But No...
- Spotify's Car Thing Is About To Face The Music
- 'Stranger Things 4' Beats 'Bridgerton' In Netflix'...
- WeChat Ban On Hold For Now, But You Can Still Try ...
- Microsoft Spring Sale: Big Discounts On Laptops, K...
- It's 2022, And I'm Still Losing My Apple TV Remote
- OnePlus 10T Scraps Alert Slider, Adds 'Crater' Cam...
- Oppo Unveils 5G Phone, 48-megapixel Camera Phone W...
- GM Announces Chevy Equinox EV, Blazer EV At CES 2022
- Lightroom Masking Arrives, Bringing A Major Upgrad...
- Facebook Pay Will Let You Send Money On Messenger,...
- What To Expect From The Housing Market In 2022: An...
- Think You're A Wordle Badass? Octordle Will Humble...
- This Week's Top Bitcoin And Crypto News: NFT Of Ja...
- Huawei CFO Meng Wanzhou Enters Agreement With Just...
- Phone Won't Charge? Try This Easy DIY Toothpick Tr...
- Save $350 On The DJI Mavic Air Drone (Update: Sold...
- Scientists Are Building The Ultimate Milky Way Map...
- Thunderstorms Delay, Cancel Thousands Of US Flight...
- SEC Expands Crypto Enforcement Unit To Combat Fraud
- The Best Comedies On Netflix You Absolutely Need T...
- Strengthen Your Heart Health With These Workouts
- Unplug These Appliances To Save $100 Each Year
- Google's Parti Generator Relies On 20 Billion Inpu...
- Facebook Pay Will Let You Send Money On Messenger,...
- Twitter Bans Sharing Photos, Video Of People Witho...
- Hyundai, Kia Set To Cancel K5, Stinger, Sonata In ...
- Back-to-School Shopping On A Budget: Where To Buy ...
- Save Big On Mattresses And Furniture With These La...
- Xiaomi Phones Briefly Appear, Disappear On US Mobi...
- Microsoft Is Building AI Antivirus Using 400 Milli...
- Nvidia GeForce RTX 3050 And 3050 Ti Promise $799 R...
- Missing IPhone Texts And Notifications Are Frustra...
- Having Trouble Feeling Alerts On The Apple Watch? ...
- Mercedes To Discontinue Metris, Gas-Powered Sprint...
- Best Buy's Flash Apple Sale Offers Huge Discounts ...
- HBO Max, Discovery Plus' New Parent To Be Named Wa...
- Asus ZenBook Pro 15 Review: A Second Screen Under ...
- Smartphones In 2018: The Biggest Winners And Losers
- 4 Things We Just Learned About The Future Of GoPro
- The Latest Android 13 Developer Preview Is Availab...
- Apartment Utilities Are Getting More Expensive: 10...
- Best HP Laptops For 2022
- Honeywell's Robust DIY Security System Has Potential
- LG C2 OLED TV Review: Early Favorite For Best High...
- Westworld Season 3 Gets Futuristic Gadgets And Tec...
- Tesla's Phantom Braking Concerns Spark Federal Inv...
- How To Get Shiny Meltan In Pokemon Go
- See Google's AI-Powered Robot At Work In A Kitchen
- The Ghost Particle: What Is A Neutrino And Could I...
- Samsung Launches Galaxy S21 Cases Made From Biodeg...
- Why You Shouldn't Take Your Indoor TV Outside For ...
- The Best Phones Of 2020
- A Typo Sent $36 Million Of Crypto Into The Ether
- 5 Tasty Kitchen Deals Under $50 Today
- Laptops Are Adapting To Our New Normal In 2022
- Tesla Wasn't Ready After Elon Musk Demanded Employ...
- Which MacBook Air M2 Charger Should I Get?
- Blue Cash Preferred Card From American Express: Ge...
- New IOS Malware Tricks Its Way Onto IPhones In Chi...
- 2022 Is The Year Of The Electric Car. Here Are The...
- Spotify's Car Thing Is About To Face The Music
- Saudi Arabia Threatens To Ban Skype, WhatsApp, And...
- Snapchat's Time Machine AR Lens Creepily Shows Wha...
- Save $40 On Ninja's Freakishly Versatile Multicook...
- Apple's IMessage Should Improve Texting To Android...
- Snapchat's Newest AR Effects Work With Apple's IPh...
- Windows 7 To 10 Upgrade: Seriously, Here's Why You...
- Best Buy Deals: Top Discounts Available This Week
- The Upgraded 2022 Moto G Stylus Is A Downgrade In ...
- New IOS Malware Tricks Its Way Onto IPhones In Chi...
- No Student Loan Forgiveness? Take A Look At Loan R...
- Bitmoji's Friendmoji Are Breaking Out Of Snapchat ...
- AMD's Ryzen 7000 Gives High-End PCs A 29% Speed Boost
- Is Caffeine Really Bad For You? A Doctor Weighs In
- US Presses British Officials To Block Huawei From ...
- WWE Hell In A Cell 2022: Start Times, How To Watch...
- How To Find And Use A Chromebook's Local Storage
- Icebergify: Here's How To Create An 'Iceberg' Of Y...
- Samsung Accused Of Misleading Customers On Galaxy ...
-
▼
January
(95)
Total Pageviews
Search This Blog
Popular Posts
-
Contoh skripsi, contoh skripsi perpajakan, contoh skripsi pdf, contoh skripsi keperawatan, contoh skripsi pgsd, contoh skripsi e learning, c...
-
Contoh discussion text about handphone samsung, contoh discussion text about handphone terbaru, contoh discussion text about handphone acces...
-
Contoh form data karyawan, contoh form data karyawan baru, contoh formulir, contoh formulir kesediaan, contoh formulir bahasa inggris, conto...