Student loan refinancing is something that I am a big advocate of, especially since the results of the recent election. Before the election, I recommended that people wait to see if Hillary was elected - as that would make federal student loan refinancing much more plausible. Now that Trump was elected, however, this is very unlikely.
About a year ago I refinanced my federal and private student loans and should save about $11,000 over the life of my loans. I cut my 6.8% interest rate all the way down to 3.2%! I was also able to change my repayment length to better fit my personal situation.
Below I will go over the difference between federal student loan consolidation and private student loan refinancing/consolidation. Each has its own advantages and disadvantages, and my suggestion changes based on your situation.
While I am no student loan expert by any stretch of the imagination, I do have a pretty good grasp on refinancing and consolidation and can help you out if you need it. Feel free to contact me if you have any questions!
What is Student Loan Refinancing?
Student loan refinancing is slowly becoming more of a need for consumers, especially for those people who have taken out private loans. They often offer borrowers greater flexibility, and better safety nets that are hard to find with private student loans. In many cases, refinancing their loans also allows them to consolidate the loans as well, allowing them to pay lower interest rates, thereby saving money. However, there are still many people that do not understand what loan refinancing entails.
Loan refinancing is the act of repaying an older debt by taking out a new loan. The new loan will usually come with new payment terms that may include changing the term of your loan as well as the interest rate. Most of the time, private loan refinancing involves the consolidation of different loans, allowing borrowers to enjoy lower interest rates.
Private student loan refinancing is usually done through a student loan servicer. Choosing the right institution to handle your new loan can be a challenge. This is especially true with the growing market, as new institutions seem to pop up every day. Many of these institutions are backed by traditional banks, but an increasing number are investor-funded startups.
Many people who graduate from college leave school with a wide range of student loans, both private and federal. Most of these loans will have different terms, payments, servicers, and statements, which can make accounting difficult. For those that feel overwhelmed with trying to track their student loan debt, there are two basic options they can choose from to help make things easier.
Federal Student Loan Consolidation
The first is federal student loan debt consolidation. This is when you combine all of your federal loans into a new federal loan. This is most commonly done by taking out a new loan to repay all the old ones, then repaying the new loan. Doing this helps to make keeping track of loan terms, payments and any other information easier. Federal consolidation often allows you to extend your repayment term, giving you lower, easier to manage monthly payments.
Should you choose to consolidate your federal loans, the government will put them all into a new loan called a Direct Consolidation Loan. Many of the federal loans that are available can be consolidated into this loan. This includes Federal Perkins Loans, Federal Nursing Loans, Supplemental Loans for Students, all Direct Loans, whether subsidized or otherwise, all Federal Stafford Loans, and Health Education Assistance Loans.
However, if you have taken out a PLUS loan in your parent’s name, that particular loan will not be eligible for consolidation. In addition, you cannot consolidate any loan on which you have defaulted until you reach a repayment agreement with the servicer of the loan. The only exception to this is if you can repay the new consolidated loan using one of the repayment plans that the government finds suitable.
The ability to access these repayment plans is one of the benefits of having a Direct Consolidated Loan. The new loan could also make borrowers eligible for plans and programs that they could not access before, including income-driven payment plans and forgiveness programs.
Another great thing about Direct Consolidated Loans is that you make one single payment every month. In addition, many of these loans offer borrowers lower monthly payments. However, it is important to note that Direct Consolidated Loans do not improve your interest rate, and in many cases actually make it worse. This is because the new interest rate that you are given is a weighted average of the interest rates of the consolidated loans, with a little percentage added.
Before you decide to consolidate your loans, you will need to take a step back and decide if this is the best course of action. Though it may seem like a good idea, it is not a solution that works for everybody, even if you do have a huge number of loans to manage. Just because you have consolidated your loans it does not mean that you will receive a lower monthly interest rate. In addition, extending your loan term may mean that you actually lose money in the long term as you will have to pay interest for a longer time.
Benefits of Federal Student Loan Consolidation
Just like anything else, there are both benefits and drawbacks to federal student loan consolidation. Here are some of the main advantages:
- Convenience: It is obviously more convenient to have only one federal student loan monthly payment.
- Lower Monthly Payments: By consolidating student loans you’re sometimes able to access repayment plans that allow you to pay a lower monthly rate. These plans extend the length of your repayment over a longer period of years.
- Fixed Rate: For those who borrowed money before student loans switched to fixed interest rates, consolidating your student loans will mean that you will have a fixed interest rate. As we currently have relatively low interest rates, it makes sense for such borrowers to consolidate.
Disadvantages of Federal Student Loan Consolidation:
If you are interested in just making your life easier, and are not interested in taking advantage of any new payment plans, then debt consolidation may not be for you. This is because despite all its benefits, it does have a few drawbacks.
One of the most glaring drawbacks is that you may actually end up paying more in the long term. Making lower monthly payments may be good in the short term, but they inevitably lead to you paying more as you pay interest for a longer amount of time. Here are the main drawbacks of federal student loan consolidation:
- You’ll Pay More Interest: If you consolidate your loans to decrease your monthly payment, you’ll pay more interest over the life of your loan.
- Loss of Benefits: You might lose some of the benefits from your original student loan including interest rate discounts, principal rebates and loan cancellation benefits.
Private Student Loan Consolidation & Refinancing
The process of refinancing and consolidating federal and private student loans is very different. You may be lucky to find a private lender that is willing to consolidate each of those loans into one, but you will not be able to consolidate federal and private loans into one new federal Direct Consolidation Loan.
If you do manage to find a private lender that will consolidate your federal loan as well, you will still have to consider whether you would like to give up the benefits that come with federal loans. Many private student loan consolidation programs do not offer things such as loan forgiveness or income based payment plans.
As private loans are not covered by Direct Consolidation Loans, you will need to find a private lender that deals with private student loan consolidation. The criteria for your eligibility for consolidation, and very often refinancing, will change depending on the institution that you approach.
There are some private lenders that insist on customers borrowing a minimum amount, while there are others that will check your creditworthiness and financial habits. Therefore, it is best to approach each institution individually when trying to find out their rules on eligibility. In this way, you can compare the different institutions to choose which one would be the best fit for you.
The pros and cons to consolidating your private student loans are much the same as the ones for consolidating your federal loans. However, unlike federal loans, when you consolidate private student loans you have the chance to refinance the loans.
Refinancing private student loans gives you the chance to secure a lower interest rate. In most cases, the interest rate that you receive will be based on your credit score rather than the weighted average used for Direct Consolidation Loans.
This means, if you have managed to improve your credit score from the time you first took out your student loans, or you have managed to gain a solid employment history and income, then you will most likely get a lower interest rate, making consolidation and refinancing a good financial decision.
However, it is important to note that just as with Direct Consolidation Loans, if you extend your payment terms, you may end up losing money rather than making savings. In addition, you will also lose any benefits that you got while you were with your original loan servicer.
You may have noticed that there are quite a few differences between consolidation and refinancing. However, one glaring difference between the two is that you do not need to consolidate a number of loans in order to refinance. There are multiple lenders who are willing to refinance a single loan. Refinancing a single loan may allow you to reduce the interest rate on just one loan, which is a good idea if you have a few loans and only one has a high interest rate.
Deciding if Private Student Loan Refinancing & Consolidation is Right for You
When going through your different options, it is important that you always ask yourself if loan refinancing and consolidation is the right thing for you to do. There are many reasons why people refinance and consolidate their loans, but there are also some major downsides that can become apparent when it is too late. To help you decide if you are making the right choice, you should ask yourself the following questions:
1. Why Am I Refinancing?
One of the major reasons why people choose to refinance their loans is to take advantage of lower interest rates. Consolidating and refinancing a loan can help reduce your interest rate by up to 4% in some cases. This can make a lot of sense in some cases, as it can help you save a lot of money.
For instance, if you have a $15,000 loan that has a 10 year term and a 10% interest rate, you will end up paying about $8,800 in interest if you keep the loan going for its full term. However, if you were to refinance the loan after 2 years, assuming that you paid the minimum monthly payment for those two years, you could be awarded a lower interest rate, which would save you money.
If you were to refinance the loan for 8 years at a 6% interest rate, you would still have a $13,000 loan to pay, but it would now be at a lower interest rate. This would bring down your monthly charges, and save you about $2,500 by the end of the loan term. To make it even better, you can save even more if you maintain your original minimum monthly payment, rather than the new rate that is being offered.
There are those people that decide to refinance their loans because they are looking for a better customer service experience, or they are looking to change the cosigner on their loan.
2. What Can Each Lender Offer Me?
There are some companies that are well known including banks such as Wells Fargo, who take pride in their student loan initiatives. The bank offers both new student loans and refinancing, meaning that existing Wells Fargo customers can refinance their loans without having to leave the bank.
There are other lenders such as SoFi, an investor based startup that despite being relatively new, has become a household name in the student loan refinancing industry. The company draws funds from alumni and other investors, who in turn, expect to see favorable returns on their investments. The institution provides its members with special privileges including job search assistance for borrowers who find themselves unemployed, temporary repayment reprieve, and mentorship programs for aspiring entrepreneurs.
Depending on what you are looking for, different lenders will offer you different services. Some may offer you more flexible terms and rates, while others may offer low interest rates but longer terms. There are others that will require you to borrow a minimum amount of money for a fixed period of time.
3. What Rates Can I Get?
Regardless of the model used by the lender that you finally choose, the perks that they offer, or their history, it is important to remember that if you are eligible your loans will be paid. Therefore, one of the most important things you can consider is the interest rate you shall be paying on your loan.
The competition between different lenders can be tough, and so can the rates. These will mostly depend on the length of the term that you choose, and your credit rating. There are two types of interest rates, fixed rates, and variable rates. Fixed interest rates, as the name suggests, do not fluctuate with the market, and remain the same throughout the life of your loan term. This means that there are no fluctuations in the amount needed to pay off monthly payments, however, it does mean that interest rates are higher with fixed rate loans.
Variable interest rate loans are different because the rate fluctuates with the market. The rates are usually determined by the LIBOR, or London Inter Bank Offered Rate, which is a rate that large international banks charge each other for short-term loans. This usually means that your interest rate can rise or fall depending on the LIBOR rate. However, variable rate loans usually have lower interest rates, though borrowers have to ensure that their loans have a maximum rate should the LIBOR rate rise astronomically.
Typically, regardless of the type of rate you choose, the shorter the term that you choose the lower your interest rate, but the higher your monthly payments. Depending on your situation, this can actually help you save money, or could help you spend more than you intended.
Other Reasons to Refinance & Consolidate Your Loans
There are many other reasons why it would be a good idea to consolidate your loans. For instance, you could choose to refinance or consolidate your loans because you would like to change the terms from a variable interest rate loan to a fixed rate loan or vice versa. Changing your terms may serve as a huge advantage to you. You could enjoy the lower interest rates offered by a variable rate loan, especially if you know you can deal with the volatility of the monthly payments.However, you may also want to take advantage of the stability of the payments on a fixed rate loan.
The fact that many consolidation and refinance plans come with very flexible repayment terms means that it may be a good idea to refinance your loan if you anticipate getting a pay rise. The flexibility on many of these plans is even open to those that are tied to your current income, and plans where the payments gradually increase over time.
Refinancing and consolidating your loan may also be a good idea if you would like to release a cosigner from your lease. Many people qualify for student loans because they have a cosigner, as they have little or no credit history, and no steady income.
However, once they have managed to gain employment and have built a strong credit record, many people find that they no longer need a cosigner. There are also those that realize that by releasing their cosigner from their loan, they free them from any risks and give them a better chance to qualify for better opportunities in the future.
There are a few banks and other financial institutions that will allow borrowers to release their cosigners. However, with majority of institutions, it is easier to move the loan to release the cosigner. Before you consolidate your loans though, check to ensure that any potential lenders allow the cosigner to be released from their obligation.
Advantages of Private Loan Consolidation & Refinancing
Refinancing and consolidating student loans isn't always the best case for everyone, but it is for many people. Here are some of the main advantages:
- Convenience: Just like with federal loans, it can be helpful to only have one lender to deal with and one bill to pay.
- Lower Your Interest Rate: As student loans are often given out to students with no credit history, there is a good chance that once you’ve built a good credit history you will qualify for a better interest rate. Also, perhaps interest rates have fallen since you first took out your loan. Consolidation can help you take advantage of this.
- Get a Fixed Rate: If your original student loans had variable interest rates, it might make sense to consolidate to get a fixed interest rate. As interest rates tend to be low at the moment, now is a good time to consolidate if you have a high rate.
- Extending Your Payment Terms: When you consolidate you can choose a longer repayment term for your loan which will decrease your monthly payments.
- Getting Better Repayment Options: You can potentially consolidate your student loans with a loan provider that has more flexibility and programs to help you if you lose your job, make a low-income, or have another issue come up that prevents you from paying your monthly payment for a short or long length of time.
Disadvantages of Private Loan Consolidation & Refinancing
There are times when debt consolidation may actually serve as a disadvantage. For instance, if you are close to paying off your loans, then it may not be a good idea to consolidate your loan. This is especially true if you have 5 years or less to pay back your loan, as many loan refinancing or consolidation terms run for a minimum of 5 years.
It may also not be a good idea to get your loan refinanced if you do not have that much debt. As long as you can make your monthly payments, refinancing may not be worth the hassle. In fact, it may actually put you under more financial strain.
There are many student loans out there that offer borrowers a host of benefits when they receive a loan. These benefits include principal rebates, interest rate discounts, loan cancellation benefits and deferral plans. These benefits usually help to reduce the overall cost of the loan. When you consolidate a loan, most of the time you will have to forfeit these benefits.
However, there are those consolidation and refinance plans that come with alternative repayment options. Therefore, it is important that you do your research so that you know what you are getting yourself into. Here are some of the other main disadvantages:
- You Might Lose Benefits: Just as getting a new loan provider might allow you access to benefits and repayment options you might not currently have, you could also lose benefits and repayment options you do have. Be sure to check the benefits on your current loan and the consolidated loan benefits.
- Repaying Borrower Benefits: Check the fine print as consolidating your private loans could mean you have to repay certain benefits you’ve already gotten like rebates or fee waivers.
- Losing Your Grace Period: If you consolidate your loans while you’re in your 6 month grace period after graduating, this can often result in you losing your grace period.
Who Offers Student Loan Refinancing?
The student Loan refinancing industry is one of the fastest growing industries in the economic sector. There are new companies coming up every month, and more banks and financial institutions are beginning to open subsidiaries that deal specifically with student loans and refinancing. Many of the new companies that are now entering the student loan refinancing market are privately funded organizations or companies like SoFi that rely on a model that resembles crowd funding initiatives.
Many lenders and student loan institutions are now offering their customers with the option to refinance their federal and private loans. This allows borrowers who have improved their credit ratings and gained a higher income to take advantage of lower interest rates and monthly payments for all their loans.
Who is Eligible for Student Loan Refinancing?
The easiest way to find out if you are eligible for student loan refinancing is if you contact the individual lenders, and find out their rules and regulations. However, there are a couple of things that most of these companies look for which will help you move one step closer to being eligible.
For instance, those who wish to have their student loans refinanced will usually have to be US citizens or permanent residents, and will also have to be over the age of majority, which in most cases is 18 years old. In addition, many loan refinancing institutions will want to see some form of credit report or history to ensure that you can actually repay your loans. For those who do not have good credit, or a credit history that is long enough, they will usually be asked to sign their loan with a cosigner, who will then take on the risk should you default on your loan.
It is important to remember that at the end of the day, most of these lending institutions will offer you a loan depending on how much risk they have to take on, which is why your credit score, or your cosigner’s credit report, is so important. This means that in the months before you even apply for the loan, you are going to have to do a couple of things such as:
· Ensure that all you identifying information is correct
· Sort out any errors or disputes you may have with your credit report
· Address any imperfections in your credit score.
If your accounts are not in good standing, you run the risk of getting a high interest rate on your loan, or being rejected for refinancing all together. For this reason, it may actually be a good idea for you to consider postponing refinancing your loan, especially if it means that you get a better interest rate, as securing a lower interest rate will help you save money.
How to Apply for Student Loan Refinancing
Applying for student loan refinancing is easier than most people think. For many of the lenders out there, once you have proven that you are eligible, you will be required to complete an application form that the lenders will then analyze to determine your eligibility. They will also use the information received to calculate the rates that you are eligible for, and the monthly payments that best suit your lifestyle or financial habits.
When you are applying for student loan consolidation and refinancing, you must keep in mind that despite the fact that private and federal loans can be consolidated, they can only be consolidated by private lenders. In addition, you must also remember that Direct Consolidation Loans cannot be refinanced, and that depending on your federal interest rate, you may not actually be eligible for an interest rate reduction once you consolidate your loans. Only those people who have higher-interest federal loans such as the Stafford Unsubsidized Loan or the Parent PLUS Loan may end up with lower interest rates once they consolidate them.
Top Student Loan Refinancing & Consolidation Companies
One thing you will have to consider when choosing the right refinancing institution is the benefits that the particular company offers. For instance:
· Does the institution offer bonuses for new customers?
· Are you eligible for a principal balance reduction?
· Will you be able to make interest only payments on your loan before you begin making payments on your principal balance?
Asking yourself such questions will enable you to better understand how a company can help you, and whether you will be forfeiting any benefits that you may have with your existing lender.
Listed below are seven of the best loan refinancing institutions that you can find right now. These institutions are known for their flexible rates and terms, and for the different benefits that they give to borrowers. Most of them will also be able to consolidate your federal and private loans.
SoFi is a California based institution that was originally created to help the students of Sanford university gain access to financial aid. It was created to allow alumni of the university to donate funds to needy students of the next generation. The name SoFi is derived from Social Finance, a principle that the institution takes very seriously. When it was first conceived, the idea was revolutionary, and was quickly picked up by other elite universities and educational institutions. In time, it grew to the point where they can now fund students from all over the country, and they now provide student loans to borrowers from over 2200 colleges and universities.
Since its inception, SoFi has provided borrowers with over $5 billion in student loans, making it the largest lender in the loan refinance industry. One of the reasons why SoFi can be so successful is its low interest rates, which can be as low as 2.15% for variable rate loans.
Rates & Terms
They offer both fixed rate and variable rate loans, the rates of which are determined primarily by the term of your loan. Some of the rates are listed below:
|SoFi||Fixed Rate||Variable Rate|
|Term Length||Interest Rate||Interest Rate|
|5 years||3.5% - 5.99%||2.23% - 5.03%|
|7 years||4% - 6.49%||2.53% - 5.16%|
|10 years||4.62% - 7%||3.03% - 5.41%|
|15 years||5.13% - 7.49%||3.41% - 5.78%|
|20 years||5.38% - 7.74%||3.66% - 6.03%|
It is important to note that the rates quoted above are inclusive of the 0.25% auto-pay discount that SoFi offers all its members. Additionally, all variable interest rates are linked to the one-month LIBOR index. This means that your monthly payments will fluctuate according to the level of the index, though in most cases it means that your interest rate will rise steadily throughout the life of your loan term.
To be eligible for a SoFi loan, you must be at least 18 years old, or the age of majority in your state. You must also be a US Citizen or a permanent resident of the country, and you must be employed. Those who are not employed will have to show that they gain a satisfactory income from other sources, or that they have an offer for employment that begins no longer than 90 days after they have applied for the loan. Loan eligibility will also be determined by your financial history, your career experience, and the difference between your monthly income and expenses.
People who are interested in applying for a SoFi loan is simple, as they do not look at your credit score, but rather, focus more on your financial habits. In addition, pre-approval for SoFi refinancing takes less than 15 minutes to complete, however, once you are done you will need to have a couple of documents at hand including:
· Your current student loan information
· Employment information
· Your most recent pay stubs (for those who are employed)
· A copy of your diploma or transcript, should SoFi need to verify your graduation.
Pros & Cons of Refinancing with SoFi
There are quite a few benefits to becoming a SoFi member. For instance, members do not only get some of the lowest rates around, they also get to enjoy career coaching, unemployment protection, and networking opportunities. The company even has an entrepreneurship program that gives applicants the chance to receive loan deferrals and mentorship from industry leaders.
However, despite all these benefits, there are a couple of downsides to getting a SoFi loan. The most obvious downside is that if you consolidate your federal and private loans, then you will lose many of the protections you get with your federal loans. In addition, despite the fact that the company offers various protections to those who find themselves unemployed, they do so for only a maximum of 12 months, in intervals of 3 months each. There are other lenders that will provide you with better protections should the need arise.
2. College Ave Student Loans
College Ave Student Loans is a company that was started by former Sallie Mae executives who wanted to create a better loan process for their customers. One of their main goals is to help borrowers save money on their loans by refinancing the loans and bringing down the borrowers’ interest rates.
Rates & Terms
They currently have some of the best rates that you will find from a refinancing institution, despite the fact that all their loans are provided by a third-party lender. They currently have four different terms you can choose from, which are outlined below
|College Ave||Fixed Rate||Variable Rate|
|Term Length||Interest Rate||Interest Rate|
|8 years||4.93% - 11.68%||2.31% - 9.56%|
|10 years||4.93% - 11.68%||2.31% - 9.56%|
|12 years||6.15% - 12.14%||3.53% - 10.02%|
|20 years||6.15% - 12.14%||3.53% - 10.02%|
The organization also gives borrowers the option of making interest-only payments for the first two years of their loans. This allows borrowers to reduce their interest payments before they begin making payments on their principal amounts.
To qualify for a College Ave student loan, one must have a minimum credit score in the mid-600s, and show that they make at least $35,000 a year, especially if they do not have a credit worthy cosigner. However, the typical College Ave borrower as a credit score in the mid-700s and makes about $80,000 a year.
People who are interested in applying for a College Ave loan will have to show that they are:
· 18 years or older
· A US citizen or permanent resident
· A graduate of a title IV undergraduate or graduate program.
Pros & Cons of Refinancing with College Ave
There are many benefits to applying for a College Ave loan. For instance, their website has sliding bars that will help you decide the best term, interest rate, and repayment plan for you. The loans are also highly customizable, allowing you to dictate the terms of your loan. The terms that you can choose from are also tailored to fit a wide range of lifestyles. This allows you to change the terms of your loan, making the payments that you make easier on your pocket. Alternatively, they could also help you save money in the future, especially if you choose one of the shorter loan terms.
However, there are some issues that you need to know about before you choose College Ave refinancing. For instance, there are very few protections for those that borrow from the institution. College Ave does not have any forgiveness programs for those who are finding it hard to make their loan payments. In addition, the fact that they do not service their own loans means that you will not be making payments directly to the organization, which can prove to be confusing at times.
3. Citizens Bank
Citizens bank is a Rhode Island based traditional bank that offers borrowers the chance to refinance their loans at competitive rates. In very many ways, the services they offer seem rather standard, as are their requirements. However, there are a few things about Citizens Bank’s refinancing options that are unique to the bank.
Rates & Terms
The bank currently offers lenders both fixed rate and variable rate loans, with four payment terms to choose from, as shown below:
|Citizens Bank||Fixed Rate||Variable Rate|
|Term Length||Interest Rate||Interest Rate|
|5 years||3.74% - 7.79%||2.13% - 7.59%|
|10 years||4.79% - 7.86%||2.49% - 7.74%|
|12 years||4.94% - 7.92%||2.74% - 7.84%|
|20 years||5.19% - 7.99%||2.94% - 7.92%|
As mentioned earlier, Citizens Bank has some unique eligibility requirements. For instance, the institution does not require applicants to have graduated from their courses in order for them to refinance the loans. However, they do require that all applicants for refinancing have made timely payments on their loans for at least 12 months before they are eligible for refinancing. Those who have graduated from their loans only have to show that they have made three on-time payments to their student loans to be eligible for refinancing. In addition, the bank does not require borrowers to have been employed for a minimum amount of time like most lenders.
The bank does not really have a minimum requirement when it comes to your credit score either, though most successful applicants have a credit score above 700. However, like most other institutions, you will have to be a US citizen or permanent resident to be eligible for a loan. The bank also insists that your cosigner (should you have one) have a minimum income of $24,000 annually.
The application process for a Citizens Bank loan is very simple, and can be done on the bank’s website. The application typically only takes around 15 minutes.
Citizens Bank will run an initial credit check to see if you may be eligible. If you are, they will then ask you to upload certain documents
Pros & Cons of Refinancing with Citizens Bank
One of the main advantages of refinancing your loan with Citizens Bank is that you do not have to be a graduate to be eligible. This allows borrowers who did not graduate, but who have shown that they can pay their loans on time, to refinance their loans. Another major advantage is that borrowers who have been refinanced with the help of a cosigner can release their cosigner from the loan, as long as 36 consecutive, timely payments have been made.
However, Citizens Bank refinancing options do have a few pitfalls, the largest of which is their interest rates. Though they are quite competitive, there are quite a few lenders out there that will offer better interest rates. Additionally, the bank does not offer as many benefits as some of the other lenders on the market. For instance, you cannot choose your loan terms or monthly payment amounts, something that you can do with many of the banks newer competitors.
Earnest is a company that prides itself in being very different from traditional lenders. It offers its customers loans based on merit not credit, making it ideal for borrowers that are just beginning to build their credit history. Their goal is to help borrowers who show signs of being financially responsible gain access to funds without having to worry about things like credit scores.
Rates & Terms
The company offers its borrowers some of the best, personalized rates that are available at the moment. This is because they use a multitude of data points to qualify borrowers, which ultimately allows them to offer lower rates than their competitors. For instance, the company will take into account things like your employment history, your education level, and the difference between your income and expenses.
The terms that they offer their customers range from 5 to 20 years, and applicants can choose any time frame between those two parameters. For instance, applicants can choose to have a term length of six years, three months and two days, based on how much they would like to pay each month. The typical interest rates for fixed rate loans begin at 3.50%, with a maximum of 7.45% a year. Variable rate loans have a minimum interest rate of 2.22%, with a maximum of 5.82%.
Eligibility Requirements & Application Process
Earnest is only available in 36 states, so those who are interested in applying for a loan must ensure that they are in one of the eligible states. In addition, they used to require that you are a member of LinkedIn to apply for a loan. Though this is no longer a requirement, it would help as it makes the process a lot faster, as when you are filling out the online form, your education and employment history will be automatically downloaded from your LinkedIn profile.
Pros & Cons of Refinancing with Earnest
There are many benefits to having an Earnest Loan. For instance, the flexible repayment terms mean that you can choose any term you desire, as long as it is no shorter than 5 years, and no longer than 20 years from the moment the loan is disbursed. The fact that they also take into account your financial responsibility rather than your credit history means that you have a better chance of getting a low rate even if you do not have a long credit history.
However, there are a few downsides to Earnest loans. For instance, the application requires borrowers to share a lot of their private information, including online banking information, investment and retirement account information. Some people may not be comfortable with such a high level of data sharing, regardless of the assurances made by the bank that the information shall not be misused.
LendKey is not your typical lender. This is because, unlike traditional lenders, it does not directly provide borrowers with funding. Instead, it compares offers from different refinancing institutions, and directs borrowers towards the best one for them.
The eligibility requirements and application processes may be different depending on the lender that LendKey connects you with through its platform. In addition, the terms and rates may also vary. However, there are a few minimum requirements you are going to have to meet before you use the platform. For instance, you will need to have a student loan debt that is no less than $7,500, but no more than $175,000.
In addition, you will only have a choice between four loan terms, 5, 7, 10, or 15 years. Each of these loan terms will have rates that start at 3.25% for fixed rate loans, and 2.14% for variable rate loans. Like many other refinancing institutions, LendKey offers its members a 0.25% interest rate discount when they sign up for automatic debt payments.
It is important to note that you may not be eligible for all the loans that the LendKey platform finds for you. There may be lenders that require you to fit into a specific profile that includes factors like your current residence, your career, or any associations that you belong to. To ensure that you are eligible for most of them, you will need to have a credit score of at least 600, and have a minimum annual income of $24,000.
ELFi is a relatively new player in the student loan refinance industry, and is a subsidiary of SouthEast Bank, a community bank from Tennessee. Their parent institution has always prided itself in its excellent customer service, a trait that ELFi has followed to date. SouthEast Bank hopes that through ELFi, it will be able to provide student refinancing services to borrowers countrywide.
Rates & Terms
ELFi offers its members with very competitive rates, giving them the chance to pay their loans in the most effective, cost-efficient way. They offer their clients with a range of terms, from 5 to 20 years, with interest rates starting from as low as 2.33% as shown in the table below:
|ELFi||Fixed Rate||Variable Rate|
|Term Length||Interest Rate||Interest Rate|
|5 years||3.49% - 5.99%||2.19% - 4.99%|
|7 years||3.99% - 6.48%||2.51% - 5.14%|
|10 years||4.61% - 7.00%||3.01% - 5.39%|
|15 years||5.12% - 7.49%||3.39% - 5.71%|
|20 years||5.37% - 7.74%||3.64% - 6.01%|
Your eligibility for an ELFi loan will depend on a number of factors. For starters, you will need to have a minimum of $15,000 in student loan debt. In addition, you must also be a US citizen or permanent resident, and your debt to income ratio will need to show that you are able to pay back the loan. This means that the higher the loan amount, the higher your income will have to be. You will also need to be a graduate from an approved college or university, and hold a degree or higher.
Applying for an ELFi loan is relatively simple, and can take as little as 15 minutes to complete if you have all the relevant documentation. Some of the documentation you will need includes:
· A recent billing statement for each loan that you would like to consolidate
· Pay stubs for the last 30 days, or any other proof of employment
· Complete W-2 forms
· A copy of your tax returns (for those that are self-employed)
Pros & Cons of Refinancing with ELFi
There are a number of reasons why you should choose ELFi over other lenders. For instance, ELFi gives you the ability to release your cosigner from the loan once you are financially able to repay the loan yourself. They also have a number of bonus programs that award borrowers for referring new members, and a cash bonus for all new customers.
However, there are a few downsides to ELFi refinancing. One of the most glaring examples is the debt minimum, which does not allow people with less than $15,000 to apply for refinancing. In addition, those who did not graduate from their courses will also not be eligible for refinancing.
CommonBond is a financial technology startup that gives borrowers the chance to refinance their loans. This relatively new company has barely been around 5 years, but it has already proven that it can provide students with unrivalled refinancing services.
Rates & Terms
The startup offers borrowers with 5 different loan terms, 5, 7, 10, 15, and 20 year terms. There are three different interest rates that you can choose from, fixed rates, variable rates, and hybrid rates. A hybrid rate loan is a loan where the interest rate automatically changes from fixed to variable after a predetermined amount of time.
CommonBond offer a hybrid rate on their 10 year loan option. Should borrowers choose this option, they will pay a fixed rate for the first five years, and a variable rate for the remainder of their loan term. Below is a table with an overview of the institution’s rates and terms.
|CommonBond||Fixed Rate||Variable Rate||Hybrid Rate|
|Term Length||Interest Rate||Interest Rate||Interest Rate|
|5 years||3.50% - 5.99%||2.14% - 4.94%||N/A|
|7 years||4.00% – 6.49%||2.44% - 5.07%||N/A|
|10 years||4.61% - 7.00%||2.94% - 5.32%||3.79% - 6.23%|
|15 years||5.12% - 7.49%||3.3% 5.69%||N/A|
|20 years||5.37% - 7.74%||3.56% - 5.94%||N/A|
CommonBond will refinance loans that are as large as $500,000, which is much more than what many lenders are willing to undertake.
Qualifying for a CommonBond loan is quite easy. As with most refinancing institutions, CommonBond scrutinizes your credit history and your income to determine if you qualify. Those with credit scores in the high 600s and above are more likely to get approved for refinancing. In addition, though they do not have a minimum requirement when it comes to income, majority of those who have refinanced loans using CommonBond have an annual income of $100,000 or more.
Pros & Cons of Refinancing with CommonBond
CommonBond is a very good choice for those who have job security, or those with middle to higher incomes. It offers some of the lowest interest rates you can find, while giving borrowers the chance to choose from some very unique loan terms. The seven year and 10 year hybrid loan options are very good options for those who would like to pay off their loans quickly, but are still not sure if they would like to commit to a 5 year term.
However, one of the biggest downsides to taking a loan with CommonBond also has to do with the 10 year hybrid loan. As there is no way to tell what the variable rate will be when you finally have to begin paying it, you may end up paying much more than you anticipated when the alternative interest rate finally kicks in.
The drawbacks are that this puts your home at
Alternatives to Student Loan Refinancing & Consolidation
For those who would like to make their loan payments easier, but do not wish to consolidate or refinance their loans, there are a few other options they could explore. For instance, rather than consolidate their loans, they could take out a Home Equity Loan, pay off their student loan debts, and then pay off the equity loan instead.
If you own your home and you have available equity, you can often get a very
This strategy is especially useful for those people that have variable interest rate loans, as it will allow them to lock down the interest rate which may help to save money in the long term. Taking out a personal loan to do the same thing may also prove to be a good idea, but you will have to ensure that you are getting terms that are favorable to you.
Student loan refinancing and consolidation could end up saving you thousands over the life of your loan or loans. Weigh the benefits and risks and decide what your best plan of action is. If you think refinancing is right for you, check out some of the lenders above!
Remember, if you have any questions, feel free to contact me and I'll do the best that I can to help you out!