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How to Set Up IBR, PAYE, and ICR Student Loan Repayment Plans

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

How to Set Up IBR, PAYE, and ICR Student Loan Repayment Plans

Does the amount you earn on a yearly basis pale in comparison to your monthly student loan payments? Do you have federal student loans? Then you might benefit from setting up an income-based repayment (IBR) plan, income-contingent repayment (ICR) plan, pay as you earn (PAYE) repayment plan or revised pay as you earn (REPAYE) repayment plan.

These repayment programs are only available to those with federal student loans, and they’re collectively referred to as income-driven repayment plans. Setting your federal loans up under an income-driven repayment plan reduces your monthly payment amount because your payment is based on your income and family size. Your payment adjusts annually according to these factors.

Payment amounts are calculated from a percentage of your discretionary income. According to studentaid.ed.gov, for IBR and PAYE, discretionary income is “the difference between your income and 150% of the poverty guideline for your family size and state of residence.” For ICR, it’s 100% of the poverty guideline. (If you’re interested in looking at the poverty guidelines, those can be found here.)

Want to find out how to apply for an income-driven repayment plan? Read on for information on how the process works.

[Learn how to track down all your student loans here.]

Getting Started With Income-Driven Repayment Plans

Generally, if you want to set your student loan account up with an income-driven repayment plan, your best bet is to first contact your student loan servicer. (Not sure which loan servicer you have? You can check in the National Student Loan Data System.)

If you log into your account online, you should see a section for changing your repayment plan. At the very least, your servicer should address the issue in a FAQ section of its site.

It’s your loan servicers job to help you find the best plan for your situation, but you need to contact them as soon as you know you’re experiencing difficulty in making payments. You don’t want to miss any payments and end up delinquent (or worse, in default) because you couldn’t pay. Plus, loans that are in default aren’t eligible for income-driven repayment plans.

The application process is actually very simple and straightforward.

Income-Driven Repayment Application Process

The first step of the process is to request an income-driven repayment plan. You need to fill out the “Income-Driven Payment Request” form to do that. This can be done online by yourself, or you can apply with a paper application supplied by your student loan servicer.

When you make your request, you have to choose the specific plan you’d like to go with. You can select one yourself, or you can ask your loan servicer to choose the best plan for you. It will choose the one with the lowest monthly payment amount.

Since you’re applying for a repayment plan based on your taxable income, you do need to provide proof of income.

The easiest way to provide proof of your adjusted gross income (AGI) is with your most recent tax return, as long as your income hasn’t changed significantly from the last date you filed. You also need to have filed a federal income tax return for the past two years.

The online application makes it easy to find your AGI. You can just use the IRS Data Retrieval Tool to import your income information.

If you apply with the paper application, you’ll need to supply a paper copy of your most recent federal tax return, or an IRS tax return transcript.

If your income has changed a lot since you last filed, or if you haven’t filed two federal tax returns yet, there are other ways of proving your income.

First, if you don’t have any source of income at all, you just need to indicate that on your application. Only taxable income counts, so if you receive any government assistance or any other income that’s not considered taxable, you don’t need to report it here.

If you do earn an income, you’ll need to provide your most recent pay stubs or other alternative documentation that shows your salary.

Additionally, if you have federal loans with multiple loan servicers, you must request income-driven repayment for each individually. There’s a section of the application that asks if you have eligible loans with more than one servicer, so you can indicate that there.

Wondering how your payments are determined when you owe multiple lenders? First, your income-driven repayment plan amount is calculated. This amount is then multiplied by the percentage of total debt with each servicer.

For example, if you have loans with two servicers, and your income-driven repayment amount is $120, and 50% of your outstanding debt is with Loan Servicer 1, and the other half is with Loan Servicer 2, then you’d have to pay $60 toward each. (50% of $120 is $60.)

The application shouldn’t take very long to complete, but the entire process can take a few weeks depending on which loan servicer you have.

If you have an immediate need to lessen your payments, your loan servicer may apply a forbearance to your federal loans while the process wraps up. That’s why it’s important to contact your servicer as soon as you can’t make your payments.

You Have to Reapply Annually

You’ll be required to submit your proof of income on an annual basis after you apply the first time. As your income changes, so does your payment, so you need to provide this information continuously.

However, there’s no income limit for income-driven repayment plans. If you start earning more, your payment amount is simply capped at the amount you’d be paying under the standard 10-year repayment plan. It will never exceed that amount.

Technically, your loans will still be under your chosen income-driven repayment plan, but your monthly payment is no longer based on your income. You can still have your outstanding loan balance forgiven after your repayment term ends (if you don’t pay your loan off before then).

Who’s Income is Taken Into Consideration?

If you’re married and wondering if your spouses income will be taken into consideration, it depends on how you file your taxes.

Filing separately means only your income and loans will matter.

Filing jointly means your monthly payment will be based off of your joint income.

If you and your spouse file jointly and both have eligible federal student loans, both loans will be taken into consideration, but your spouse doesn’t have to choose to enter into an income-driven repayment plan.

Income-Based Repayment Plan Overview

You don’t qualify for IBR unless your payment amount will be less than what you’re paying under the standard 10-year repayment plan.

A good baseline for determining whether or not you’ll qualify is if your total student loan debt is much higher than your annual discretionary income. If your debt-to-income ratio is really high, you’ll probably qualify.

New borrowers (those that borrowed after July 1st, 2014, and didn’t have any loans outstanding prior to that) have a maximum of 20 years to pay back their loans, while old borrowers (those that had outstanding loan balances after July 1st, 2014) have a maximum of 25 years to pay back their loans.

Pay As You Earn Plan Overview

For PAYE, your monthly payment will be around 10% of your discretionary income, and never more than what you’re paying under the standard 10-year payment plan.

You have a maximum of 20 years to pay back your loans under this plan.

The qualifications for PAYE are the same as IBR – you must be paying less under PAYE than you were under the standard 10-year plan.

However, PAYE is only available to those who were new, first-time borrowers as of October 1st, 2007, and they also must have received a disbursement in the form of a Direct Loan on or after October 1st, 2011.

Income-Contingent Repayment Plan Overview

From studentaid.ed.gov, your monthly payment is the lesser of these two: 20% of your discretionary income, or “what you would pay on a repayment plan with a fixed payment over the course of 12 years, adjusted according to your income.”

Under this plan, you have a maximum of 25 years to pay back your loans. There are actually no initial guidelines you must qualify under – anyone can choose to repay their student loans under this plan.

However, the Federal Student Aid office warns that payments tend to be more expensive under this plan than IBR and PAYE – and possibly even more than the 10-year repayment plan. Make sure you’re going to be paying less if you want to go this route.

Benefits of Income-Driven Repayment Plans

A big bonus for all three of these repayment plans is that your outstanding balance is forgiven after your repayment term is complete. The Federal Student Aid office notes that if you qualify for forgiveness after 10 years through the Public Service Loan Forgiveness program, that takes precedence.

How can you still have an outstanding balance at the end of your repayment period? The monthly amount you owe will fluctuate with your income. You could end up repaying your loans before your term is up, or you could end up with a balance.

Under IBR and PAYE, if your monthly payment isn’t enough to cover any interest that accrues monthly on your subsidized loan, the government will pay the difference for the first three years. So if $30 in interest accrues every month, and your monthly payment under IBR and PAYE only pays for $15 of that, the government will cover the other $15.

You might want to use the estimated repayment calculator to see which plans offer you the lowest monthly payment. Income-driven plans aren’t guaranteed to give you the lowest monthly payment – all situations are different. There are still other repayment plans that aren’t reliant upon your income that could lower your monthly payment, such as the graduated or extended repayment plans.

Check With Your Loan Servicer First

Before applying for an income-driven repayment plan, it’s best to check with your loan servicer to get its input. You don’t want to end up owing more per month than you do now. These repayment plans are designed to help you, not hurt you. You may find that forbearance or deferment is a better option for you, especially if you’re only experiencing a temporary economic hardship.

 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Millard
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Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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College Students and Recent Grads

How to Refinance Student Loans With a Cosigner

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

If you thought you were too grown up for a cosigner, think again.

Even if you’re already living on your own and making some money, a cosigner could help you score a lower interest rate on a refinanced student loan. Here are five steps to follow if you’re looking to refinance student loans with a cosigner:

1. Confirm that you’d benefit from a cosigner

If you’ve been nudged to find a cosigner after getting rejected on your student loan refinancing application, you might already understand why. Maybe your credit score is too low, or perhaps your debt-to-income (DTI) ratio tilts in the wrong direction.

Regardless of where you are in the application process, the first step is to consider the holes in your background that could be filled by a cosigner. Examples include:

Credit score

Most top-rated lenders require a minimum score in the high 600s, although you’d need an even stronger score to unlock their lowest rate offerings.

Also, you might need a higher score if you’re applying solo. Splash Financial, for example, requires a 700 if you’re applying on your own, but 670 if you’re piggybacking on another borrower.

Income

Lenders might also set a baseline for your income before even considering your application. EdvestinU, for example, requires that you bring in at least $30,000 per year.

DTI

Refinancing companies eye borrowers with a DTI of less than 40%. You can calculate your ratio by dividing your monthly debt payments by your monthly gross income.

If you have credit card debt weighing you down, for example, your DTI could take a big hit. Compare your numbers with lenders’ requirements to see where you might be falling short. If you need a cosigner to help you qualify — or lower your rate further — then move onto the next step…

2. Find lenders that fit your needs

Think about what you most want in a student loan refinance company. If you’re fed up with the customer service of your current lenders, for example, you might prioritize an online lender that’s known for its helpfulness, or a brick-and-mortar bank that offers in-person assistance.

Here are other questions to weigh when imagining your ideal lender:

  • Does it advertise competitive interest rates?
  • Does it have repayment term lengths that fit your future budget?
  • Does it charge excessive loan fees or impose unnecessary penalties?
  • Does it offer forbearance if you were to lose your job?
  • Does it feature any additional perks, such as rate discounts or community borrower programs?

Once you’ve found one or more lenders that check off these boxes, ensure that they check off one more: Does it allow cosigners? If it doesn’t, move to the next lender on your list. Ideally, you’ll identify at least a few that meet most or all of your needs.

3. Lock in your cosigner

A good cosigner is someone you’re comfortable talking to about money. You can put a cosigner candidate to the test by asking about their credit score and income. You’ll need to know these numbers anyway to ensure they’re creditworthy enough to serve in a cosigning capacity.

Once you’ve found someone with the financial chops to be your cosigner — it could be a parent or even a friend — ensure they understand the responsibilities of the role. Chiefly, they should know they’d be on the hook for repayment if you default on the loan. They might also want to understand how serving as your cosigner could affect their ability to borrow for their own financial goals.

To get your cosigner on board, you might lay out a potential repayment schedule, proving your ability to repay the loan on your own and keeping them in the background. Alternatively, if your cosigner has agreed to help more directly with payments, it’s best to make these plans in advance.

With the more difficult talks out of the way, you might also explain the concept of cosigner release. This feature, which is offered by some (but not all) top-rated lenders, allows you to remove the cosigner from your loan agreement once you’ve made a specified number of prompt payments. If you refinance with LendKey, for example, you might be able to release your cosigner after 12 to 36 months of payments.

4. Ready your cosigner for applications

Be aware that student loan refinancing companies have different application processes for borrowers and their cosigners.

Some lenders, such as Laurel Road Bank and ELFI, ask you and your cosigner to apply in succession. You would note on your application that you’re applying with this de facto sponsor. Then you’d add their name and email address to the application.

Your cosigner would be notified via email and asked to complete their end of the application. At Laurel Road, for example, your cosigner might be asked to upload digital copies of two recent pay stubs and their driver’s license or state ID, as well as a copy of their social security card.

Others lenders, including SoFi, encourages you to apply on your own before including a cosigner the second time around. SoFi says on its website that applications which include cosigners could take one to two weeks longer to process.

Watch out for your chosen lender’s application rules. At Education Loan Refinance, for instance, you and your cosigner must apply with different email addresses. And at SoFi, your cosigner has to consent to cosign before either of you can see the interest rates for which you’ve qualified.

5. Make a final decision alongside your cosigner

Hopefully, you and your cosigner found multiple lenders offering the loan terms that fit your borrowing situation. It’s best to apply to at least a few lenders so that you can compare offers.

Although interest rate will be a top factor when choosing a lender, don’t forget about other elements. It might be important to your cosigner that the lender offers a pathway to forbearance in case you need to pause your repayment. They might also be interested in lenders offering cosigner release.

Both you and your cosigner will need to be on board with the choice of lender. Be prepared to face a decision between a lender offering the lowest rate and a lender offering greater loan protections. It might not be an easy decision, but, hey, you now have a teammate with whom you can talk it through.

What lenders look for in a cosigner

When it comes to cosigners, lenders are seeking exceptionally reliable borrowers. They’re also looking for someone who has what you lack, whether it’s a thicker credit file or more cash coming in every month.

More specifically, here are three things that lenders want to see from your cosigner:

Strong credit history and credit score

Aside from not sporting black marks like a prior bankruptcy, your cosigner should have a history of repaying their debt on time. A credit score in the 700s goes a long way, too — it might even be a necessity.

If you’re refinancing up to $150,000 at Splash Financial, for example, your cosigner must have a score of at least 720 (plus an income of $42,000 or more).

A debt-to-income ratio that’s not out of whack

It’s OK if your cosigner has debt of their own — but having too much debt is another story.

Lenders like to see a DTI of less than 40%. You can calculate your cosigner’s DTI by dividing their monthly debt payments by their monthly gross income.

Stable employment history

High income could be keeping your cosigner’s DTI in check, but that’s not the only employment factor under consideration. Lenders also want to see that your cosigner has held jobs for consistent periods and isn’t a huge risk to suddenly find themselves out of a paycheck.

Lenders need to know that if your cosigner is called upon, they could repay your debt without trouble. They also want to ensure the cosigner would be willing to do so. Your cosigner can expect to sign a host of loan documents explaining their responsibilities.

On your end, you still might be taken aback by your need for a cosigner. After all, student loan refinancing typically offers borrowers reduced interest rates and the ability to remove cosigners from old loans.

The truth is that it’s possible you’ll need this new cosigner — or another assist from your original one — to unlock the lowest of low rates. But don’t worry, even grownups need a hand once in a while.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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College Students and Recent Grads

Can You Settle Student Loan Debt for Less Than You Owe?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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If you fail to qualify for student loan forgiveness, discharge or cancellation, you might have already considered what might seem like the next best strategy: offering your lender less than what you owe and hope that suffices.

However, student loan settlement isn’t easy, and it isn’t right for every borrower.

Can you settle student loans?

Unlike loan forgiveness, no forms of debt settlement erase your balance. By settling, you’d negotiate with your lender, loan servicer or collection agency to pay a majority percentage of your outstanding dues.

You would also typically have to be in default — that is, 270 days late on federal loans, or usually 120 on private loans — to be eligible for settlement. If you’re not in default, it’s wise to consider better alternatives, such as:

  • If you have federal loans: Switch your federal loans to an income-driven repayment plan.
  • If you’ve fallen on hard times: Apply for deferment or forbearance to pause payments.
  • If you have good credit: Refinance your total education debt into a consolidated loan with a lower interest rate.

But if you’re already in default, then the short answer is yes, you can settle student loans. You’ll need a willing negotiating partner on the other side of the table, however.

When you can’t settle student loan debt

Settling student loan debt becomes impossible if you’re ineligible. Here are three circumstances that could disqualify you right off the bat:

  1. You’re attempting a “strategic default” — that is, you’re defaulting purposely in hopes of settling. It’s a risky move and could harm your credit score. Plus, your lender or collection agent will likely discover your ploy when they review your finances.
  2. You’ve already been taken to court, either by the Department of Justice or your private lender. At that point, hiring a student loan lawyer could help you review your options, bankruptcy being among them.
  3. You have enough cash to pay off your debt in one fell swoop. It’s an unlikely scenario if you’re in default, and as with a strategic default, your lender or collections agency will learn about your wherewithal to repay your debt when reviewing your settlement offer.

How to settle student loan debt

When you’re attempting to settle student loan debt, start gathering all records connected to your repayment. If you receive a threatening letter from a collection agency, for example, file it away for safekeeping.

Once you have all your documents, you might consider hiring a student loan lawyer to help negotiate a settlement or look at other options. A professional would tell you there are very different processes for settling federal and private loans.

Federal loan settlement

If you have defaulted on your loans, the government probably won’t be inclined to offer you a settlement or accept your proposal for one. That’s because it could take a variety of steps to collect your dues anyway, including:

  • Garnishing your wages or Social Security benefits
  • Withholding your income tax return
  • Revoking your professional licenses

The Department of Education (DOE) considers settlement to be a “last resort,” publishing little guidance on how to qualify.

That said, the DOE does empower its 18 collection agencies to settle or compromise on your balance, and even to waive collection fees.

Three types of standard compromises include:

  1. Pay the principal balance, plus outstanding interest, minus collection fees
  2. Pay the principal balance and half of any outstanding interest
  3. Pay at least 90% of the principal and any outstanding interest

For a nonstandard compromise of anything less — say, 70% of the balance plus interest — the agency might have to run your offer by the Department of Education. Also consider that collections agencies work on commission, so they aren’t motivated to offer discounts.

If you’re able to swing a settlement, expect to pay the agreed-upon lump-sum amount within 90 days. You might be able to repay it in installments, but you would have to do so before the end of the government’s fiscal year on Sept. 30, according to FinAid.

A good place to get started is the DOE’s Default Resolution Group, which can connect you with your collection agency. If you’re seeking clarification before pursuing a settlement, consult the Federal Student Aid Ombudsman Group first.

Private loan settlement

If you’re hoping to settle private student loans, keep in mind that your lender can’t get its hands on your paycheck or other funds as easily as the government can. It must first drag you into the courtroom.

Still, private lenders hold leverage in settlement negotiations. Knowing that your debt would be difficult to discharge via bankruptcy, they likely won’t settle for less than a significant percentage of your outstanding balance.

You could tilt the leverage in your favor if your debt is far from new. Your state’s statute of limitations for the collection of unpaid debts might have already passed, for example.

“Once the statute of limitations passes, the borrower can’t be held legally liable for repayment of the debt through the court system,” said Jay Fleischman, a lawyer specializing in education debt. “In some states, expiration of the statute of limitations is a defense to a collection action. In other states, expiration of the statute of limitations is a bar to filing a collections case.”

You can learn more about your state’s statutes of limitation in this MagnifyMoney post.

If your collection agency is receptive to a settlement, Fleischman recommends you make the first dollar-and-cents offer. This way, you control the “timing” of the process. Some experts, however, argue that you should wait to hear your lender’s initial number, especially if you’re negotiating with little experience. You could make the mistake of offering too little, or worse, offering too much.

Whether you’re looking to settle federal or private loans, keep in mind that falling short of a final agreement might not be a total failure. You and your lender, servicer or agency might at least agree on adjusting your repayment plan to make it more affordable. Then you can start to work your way out of default.

Consider the costs of student loan settlement against the reward

Knowing what you know now, student loan settlement might sound a lot less appealing. Even if you’re successful, you’ll have to go through the painstaking process of negotiating with your creditor — and handing over a significant percentage, if not all, of what you owe.

If settling your student loan debt still sounds like the best step for your situation, however, consider two more potential drawbacks:

  • It could harm your credit: By defaulting and potentially having a loan in collections, your credit report was already impacted. By settling your debt, your credit score could fall further — unless you negotiate with your creditor to report your payoff as “paid as agreed” or, better yet, to remove your late payment history altogether.
  • It could increase your income tax: Uness your remaining debt still outnumbers your assets, expect to receive IRS Form 1099-C for any settlement of $600 or more. And it never goes without saying: It’s always wise to consult a tax professional before making a decision.

If you can tolerate all that, you’re left with the main attraction of student loan settlement — zeroing out your balance once and for all.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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College Students and Recent Grads

Sallie Mae Loan Consolidation Is Over, But Here Are Some Options

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Sallie Mae has a long history in the student loan world. Since the 1970s, this student loan giant has provided or serviced loans for college and graduate school students, as well as their parents.

Although Sallie Mae used to be government-sponsored, it’s now a private company that lends private student loans to cover education costs. And while it once offered consolidation options, you can no longer consolidate student loans through Sallie Mae.

So if you were looking for Sallie Mae loan consolidation, the bad news is that it no longer exists. But the good news is you have two other options for combining multiple loans into one.

2 alternatives to Sallie Mae student loan consolidation

While Sallie Mae loan consolidation is a thing of the past, you still have two options for consolidating debt: borrowing a direct consolidation loan from the federal government, or refinancing with a private lender. Here’s what you need to know about each.

1. Consolidate your federal student loans with a direct consolidation loan

If you’ve got federal student loans, then you can apply at StudentLoans.gov to combine them into a single direct consolidation loan.

The main benefits to federal student loan consolidation include:

  • Combining multiple loans into one: A consolidation loan can replace several loans with one new one, thereby simplifying repayment.
  • Choosing new repayment terms: You could stick with the standard 10-year term or put your loans on another plan, such as income-driven repayment or extended repayment.
  • Adjusting your monthly bills: If you’re struggling to pay bills each month, putting your consolidation loan on an income-driven or other plan could lower them. Plus, income-driven plans can end in loan forgiveness after 20 or 25 years of repayment.
  • Making certain loans eligible for income-driven repayment: Parent PLUS Loans, for example, don’t qualify for income-driven repayment unless you consolidate them first. After you do, you could put them on the income-contingent repayment plan.
  • Getting your loans out of default: Along with loan rehabilitation, consolidation is one way to get your loans out of default and back into good standing.
  • Switching to a new loan servicer: If you’ve had a bad experience with your loan servicer, you could change to a new one. Some federal loan servicers include Nelnet, Navient, and Great Lakes.

Although consolidating helps you simplify repayment and lets you choose a new repayment plan, it won’t save you money on interest. In fact, if you choose a longer term than what you have now, you’ll likely pay more interest over the life of your loan.

It’s important to note that consolidation doesn’t lower your interest rate, but rather takes the weighted average of your previous rates and rounds up to the nearest one-eighth of a percent. So, if you’re looking to save on interest, student loan refinancing could be a better option.

2. Combine federal and/or private loans through student loan refinancing

Your second option for combining several pieces of debt into one is via student loan refinancing. Unlike federal consolidation, you refinance with a private lender, such as a bank or credit union.

You can combine both federal and private student loans through refinancing. Note, however, that if you refinance federal loans, you lose access to federal programs, such as income-driven repayment and federal loan forgiveness.

Refinancing has its own benefits, however, with one of the biggest being the potential to save money by lowering your interest rate. Here are some major reasons to refinance:

  • Qualifying for a lower interest rate: If you meet a lender’s requirements for credit and income — or can apply with a cosigner who does — you could qualify for a lower rate on your refinanced student loans.
  • Choosing between a fixed and variable rate: Most lenders let you choose between a fixed rate, which never changes, and a variable rate, which is sometimes lower to begin with but can fluctuate over the life of the loan.
  • Saving money on your student loans: With a lower interest rate, you could save hundreds or even thousands of dollars.
  • Choosing new repayment terms: Private lenders often offer repayment terms between five and 20 years.
  • Adjusting your monthly payments: If you can afford higher payments, you could choose a shorter term than you have now and get out of debt more quickly. But if you’re feeling strangled by student loan bills, you might choose a longer term to reduce your monthly payments and create more breathing room in your budget.

If you’re interested in refinancing student loans, it’s easy to get a rate quote from a few lenders. By checking prequalification offers, you can see if you could snag a lower interest rate on your student debt.

Combining your loans can help simplify repayment

The average student loan borrower holds 3.7 loans, according to a 2017 report by Experian. With so many loans and loan servicers, you could have trouble keeping track of your monthly bills.

But if you consolidate your loans, you’ll only have to make one payment per month to a single loan servicer — plus, you might get the added benefit of selecting different repayment terms or even lowering your interest rate.

Even though you can’t consolidate student loans with Sallie Mae anymore, you still have the option of consolidating with the federal government or refinancing with another private lender. Before making any changes to your debt, though, make sure you understand the differences between federal consolidation and private refinancing.

Once you’ve thought through the pros and cons of each, you can choose an approach that will bring you one step closer to a debt-free life.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Safier
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Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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College Students and Recent Grads

5 Times Refinancing Your Student Loans Is a Bad Idea

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Is refinancing student loans a good idea?

In many cases, the answer to this question is yes. Refinancing may bring down your interest rates if you qualify, saving you money on your student loans. Plus, it gives you the chance to choose new repayment terms and adjust your monthly payments.

But there could also be downsides to refinancing student loans, so it’s crucial to weigh the pros and cons before you make any changes to your debt.

If any of the following five scenarios apply to you, you might be better off avoiding refinancing and going with a different repayment strategy for your student debt.

1. You’re relying on federal repayment plans or forgiveness programs

If you refinance government-provided federal student loans with a bank or credit union, you turn them into a private student loan. Since you won’t have federal loans anymore, you’ll no longer have access to federal repayment plans or forgiveness programs.

The government offers a variety of repayment plans to help you adjust your monthly payments, such as income-driven repayment, extended repayment, and graduated repayment. Private lenders, on the other hand, typically don’t let you change your payments once you’ve selected terms. If you want to keep the option of income-driven repayment or another federal repayment plan open, refinancing might not be the right move for you.

You could also lose eligibility for federal forgiveness programs, such as Public Service Loan Forgiveness or Federal Teacher Loan Forgiveness. These programs only forgive federal loans, not private ones, so you should likely avoid taking your debt private through refinancing if you’re working toward federal loan forgiveness of any kind.

2. You don’t have a stable source of income

Before approving you for student loan refinancing, lenders look to see if you have strong credit and a stable income. Not only does this reassure them that you have the means to repay a loan, but it also helps you avoid taking on private debt you won’t be able to pay back.

Without a stable income, you run the risk of missing payments and going into default. And as described above, private lenders don’t have as many flexible repayment options as the federal government does if you’re struggling to pay.

Private lenders typically don’t offer income-driven plans, and as mentioned, few will let you adjust your bills once you’ve selected a term (unless you refinance for a second time). Some will let you postpone payments through forbearance if you run into financial hardship or go back to school, but this varies by lender and is just a temporary solution.

So if you’re worried about your ability to pay back your college debt, you might want to wait until your income is more stable before refinancing your student loans.

3. Your interest rates are already low

One of the biggest perks of refinancing student loans is getting a lower interest rate on your debt. Reducing your rate could save you money over the life of your loans.

Let’s say you owe $25,000 at a 6.8% annual interest rate. Over 10 years, you’d pay $9,524 in interest. But if you could bring that rate down to 4.5% through refinancing, you’d pay just $6,092 in interest over 10 years — and if you could pay back the debt faster, you’d save even more on interest.

But this perk only applies if you’re able to lower your rate through refinancing. If your rates are already low, you might not derive much benefit from refinancing.

Fortunately, it’s easy to get an instant rate quote from many refinancing providers online. You’ll enter a few basic pieces of information — e.g. loan amount, school, income — and the lender will show you prequalification offers.

By shopping around a little, you can see if refinancing would bring down your interest rate and save you money on your student loans.

4. Your cosigner isn’t happy about sharing debt

If you can’t meet a lender’s requirements for credit and income, you could apply with a cosigner who does. Even if you can qualify on your own, adding a cosigner to your debt could help you get the lowest rates.

But sharing debt is a big responsibility, and your cosigner will be on the hook for your student loan in the event you can’t pay. What’s more, the debt will show up on your cosigner’s credit report and could affect their debt-to-income ratio.

This could make it harder for your cosigner to take out a loan if they need one in the future, so enlisting a cosigner shouldn’t be taken lightly. You should even be careful about talking a parent into sharing your debt if they’re reluctant to do so.

If any financial issues arise in the future, this cosigned debt could put a strain on your relationship that’s simply not worth the lower interest rates you might get from refinancing.

5. You don’t have much time left on your student loans

When you refinance student loans, you have the chance to choose new repayment terms. Most lenders offer terms between five and 20 years. Unless you’re specifically trying to lower your monthly payments, you need to be careful not to accidentally extend the life of your loans.

If you’ve only got a few years left on your debt, choosing a term of five years or more could leave you owing money (and making repayments) for longer than you need to. That being said, you can typically prepay your loan without penalty — but at the same time, you might not feel as motivated to pay more than you’re required to each month.

So if you’re on track to get out of debt in a short period of time, be careful you don’t refinance for an even longer repayment term.

Is it bad to refinance student loans?

So is refinancing student loans a good idea or a bad idea? In many cases, refinancing is a savvy move, but there are some scenarios when the cons could outweigh the pros.

If you’re relying on federal repayment plans or forgiveness programs, for instance, turning your debt private wouldn’t be a good move. And if you’re concerned you won’t be able to afford monthly payments, you might also wait to refinance until your finances are more secure.

But if none of these concerns are an issue, refinancing could be a smart strategy to lower your interest rate, adjust your monthly payments and choose new terms. It also lets you switch to a new loan servicer, which could have better customer service than the one to which you’re currently assigned.

When it comes to managing student loan debt, avoid making rash decisions that could cost you. Make sure you’ve educated yourself on the advantages and disadvantages of student loan refinancing, so you can feel confident you’re making the best decision for you and your finances.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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This is Why You Were Rejected for Student Loan Refinancing

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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After being rejected for student loan refinancing, you might think it’s out of your reach.

The good news is that once you diagnose why you fell short, you can improve your application and try again.

Consider these three common reasons to get rejected for student loan refinancing, plus how you can work toward acceptance.

1. Your credit report revealed a red flag

When you attempted to prequalify and then formally apply for student loan refinancing, your potential lender likely performed both “soft” and “hard” credit checks. Their underwriting team was looking for red flags, such as a subpar credit score, a history of missed debt payments or any major financial events, such as a bankruptcy.

Lenders peel back these layers to verify your reliability when it comes to repaying debt. It’s possible you were rejected out of hand because you fell short of one these basic requirements common to many lenders.

For example, many top-rated student loan refinancing companies require you to sport a credit score in the high 600s. If you applied with a lower score, you disqualified yourself immediately.

Other times, a historical note on your credit report could have killed your refinancing application. For instance, some lenders require that you be at least five years removed from bankruptcy before applying to refinance.

What to do about it

The quick fix here would be to seek out lenders who have more lenient requirements. Perhaps you could qualify with Earnest (minimum credit score of 650) if you fall short at a competing lender like EDvestinU (700).

Be sure to avoid slick lenders, however, that offer quick acceptance in exchange for gotcha-style fees, interest rates or repayment terms.

Now, say your score isn’t even in the 600s. You could accelerate your path to acceptance by bringing on a cosigner. A creditworthy parent, for example, could lift your application above the threshold. Just keep in mind that some lenders would still require you, as the primary borrower, to hit a credit score minimum, albeit a lower one.

The slower but more rewarding path to a stronger refinancing application is to work on improving your credit score.

Before all else, consider the factors affecting your credit. Your score could climb, for example, if you make on-time debt payments and lower your overall debt. Taking out a credit builder loan and repaying it in a timely fashion is one way to speed up the process.

Track your progress using a free service like My LendingTree. (Note: LendingTree is the parent company of MagnifyMoney.) You can also review your full credit report for free annually via AnnualCreditReport.com.

2. Your debt-to-income ratio is out of whack

Lenders understand that you’re going to have debt. Otherwise, you wouldn’t be knocking on their door. However, their underwriting teams want to confirm that you have the paycheck to keep up with your loan repayment, plus your other potential outstanding debt.

They consider three related factors during the underwriting process:

  • Income: What’s your annual gross income?
  • Employment history: Where does your income come from, and have you held jobs for consistent periods?
  • Debt-to-income ratio (DTI): Does your debt dwarf your income, or do you have the salary to repay your creditors?

Your refinancing application could have stalled for any of these reasons. Perhaps your credit card debt and entry-level salary are harming your DTI, for example.

Lenders typically seek applicants with DTIs below 40%. You can calculate your DTI using the following equation:

Monthly debt payments / Monthly pretax income = DTI

It’s also possible that you don’t earn enough income to qualify. Top-rated lenders like Splash Financial ($42,000), Education Loan Finance ($35,000) and LendKey ($24,000) each set different benchmarks for prospective borrowers.

What to do about it

Shopping around for a good lender is the easiest solution. There are more and more lenders that don’t have income and employment requirements, so you could improve your application by simply applying elsewhere.

Earnest is an example of a lender that prides itself on a more flexible approach to underwriting. The company rewards applicants who are good savers, and who have strong educational backgrounds and earning potential.

Another solution to this problem would be piggybacking on a higher-earning cosigner who won’t mind footing the bill for your loan if you’re unable to repay it yourself.

But the most challenging — and probably most beneficial — solution is increasing your income, decreasing your debt or ideally, both. That’ll help improve your DTI.

If you can’t lower your debt by trimming your household budget, you might pause your refinancing applications to focus on increasing your income. You could take on a side hustle, negotiate a raise at work or use the next major holiday to ask family and friends for their financial support — whatever works best for you.

3. You’ve missed payments on your loans

The largest determining factor of your credit score is payment history. It comprises 35% of the commonly used FICO score. Plus, a missed — or delinquent — payment could stay on your credit report for as long as seven years.

Aside from the effect delinquency might have on your credit, it could stall your application. After all, lenders want to avoid applicants who don’t have a strong history of repaying their debt promptly.

If your delinquency has turned into a default, refinancing might be out of the question. Most top-rated lenders, including Earnest, require that all your loans be in good standing at the time of your application.

What to do about it

You might have seen refinancing as the way to get up to speed on your loan repayment. Unfortunately, you have some dirty work to do first.

For federal loans in default, you can take one of two paths:

  • Loan rehabilitation: Phone your servicer and agree to make nine on-time payments over the next 10 months to get your loan up to date. In exchange, your loan will no longer be considered in default.
  • Loan consolidation: Using a direct consolidation loan, group your loans into one. You won’t be able to lower your interest rate, but you will be able to reduce your monthly payments via an income-driven repayment plan — and most importantly, shed the “default” status.

For delinquent or defaulted private loans, the road ahead could be more difficult. Open the lines of communication with your lender to review your options.

You might be surprised at how understanding some lenders can be. You might get an offer, say, for a modified repayment plan or a temporary forbearance to allow you to catch your breath before continuing repayment.

Once your loan repayments are back on schedule, you’ll be much less like to get rejected for student loan refinancing.

Don’t give up on refinancing after a rejection

There’s only one way to lower your student loan interest rates while starting fresh with a lender of your choice. Refinancing gives you that ability, and that’s why it’s not always easy to qualify for it.

When jumping through hoops to improve your credit, DTI or loan statuses, don’t lose sight of your goal to overcome getting rejected for student loan refinancing. No matter how your application fell short initially, you can turn rejection into approval by taking some serious steps in the right direction.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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What Happens to Student Loans When You Drop Out of College?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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About 40% of college students who borrowed money for their education considered quitting school, according to a MagnifyMoney survey.

If you’ve also thought of leaving — or have already stepped off campus — you might be wondering: What happens to student loans when you drop out of college?

Here’s what you need to know to ensure you get rid of your debt, even if you don’t graduate.

What happens to student loans when you drop out?

Unfortunately, the student loans won’t just disappear. The main exception is if you leave school and cancel your federal debt within 120 days of the loan’s disbursement. In that case, your school would return the balance to your servicer, and you’d be off the hook for repayment, fees and interest.

Similarly, with private loans, you could return some or all of the balance as soon as you decide to leave school. If you borrowed from Sallie Mae, for example, you could forward your school’s tuition refund check back to the lender to ease your repayment.

Be aware, though, that your lender might have already imposed interest, leaving you with a larger amount to repay than what you borrowed.

It’s also possible that your school already cashed the funds from your loan, making the refund process more difficult. Check with your campus financial aid office as soon as you plan to withdraw to learn about its tuition refund deadlines.

If you’re departing school with federal or private student loans to repay, rest assured that your grace period is likely protected. Certainly with federal loans, as well as with some private lenders, your servicers won’t send your first bill until after the six-month grace period has ended. But note that the clock starts ticking as soon you officially tell your school registrar that you’re withdrawing.

When the six months are up, your servicer will provide:

  • A repayment schedule, including the first payment due date
  • The number and frequency of payments
  • The amount of each payment

By checking with your financial aid office, you’ll learn about the exit counseling requirement for your federal loans. The program teaches you about how to handle your loan repayment once you’re off campus. You’ll also learn about your ability to change repayment plans, for example.

Opening up dialogues with your school’s financial aid office and loan servicer are the critical first steps if you feel lost. You’re best served, however, by doing your research. Federal loan servicers, for example, might not have the time or resources to walk you through all your loan repayment options.

There’s no such thing as exit counseling for private loans, so it’s wise to take your loan repayment by the reins and contact your lender as soon as possible.

5 key tips if you drop out with student loan debt

Without a diploma — and perhaps no strong job prospects — your student loan debt could feel like an impossible challenge. It doesn’t have to be.

Consider these five tips for handling your loan repayment.

1. Use your grace period wisely

If you recently left school, you might be tempted to put your loan repayment on the back burner until you receive your first bill in the mail. But by getting a head start, you could ease your eventual repayment.

Use your six-month period to contact your federal loan servicer via the National Student Loan Data System, as well as sync up with your private lender if you have one. Start a conversation about where you stand with your debt.

If you use this time to educate yourself on the ins and outs of loan repayment, you won’t be as stressed when your first due date approaches.

Keep in mind that for federal and private loans, you may only receive one grace period. In the case of federal loans, if you return to school more than six months after leaving, you won’t have another six-month grace period on which to fall back.

2. Adjust your repayment plan, if necessary

With your private student loans, you’re likely stuck with the repayment plan to which you agreed.

But federal loans come with the ability to alter your repayment plan.

Without a degree and, perhaps, lacking a sizable paycheck, you might benefit from one of the government’s income-driven repayment plans. You could lower your monthly payments to a percentage of your income until you can pay more.

Remember that whenever you lower your monthly payment, you’re also lengthening your repayment and making it more expensive.

Say you have $15,000 in federal loans on a standard 10-year repayment plan and are repaying the balance, plus 5.70% in interest. By switching to a 20-year income-based repayment plan, for example, your monthly payment could fall from $164 to $58. The bad news is that in this scenario, you’d owe $5,518 more in interest over the life of your loan.

You might still want to focus on lower monthly payments over long-term savings, but use Federal Student Aid’s Repayment Estimator to ensure you choose the right repayment plan for your situation.

3. Explore your deferment and forbearance options

While you were enrolled, your federal and private student loans were effectively deferred — that is, you were excused from making payments as long as you kept going to class.

Now that you’re off campus (or considering leaving), it’s worth investigating ways to pause your loan repayment.

For federal loans, there are many ways to defer payments, including if you:

  • Take part in a rehabilitation training program
  • Are unemployed and unable to find work
  • Experience an economic hardship
  • Serve in the military
  • Return to school

Private lenders might offer the more limited option of forbearance, rather than deferment. With this, you could be able to pause your repayment for months due to a job loss or other financial struggle. Be prepared to provide evidence that your hardship has made it difficult to keep pace with loan payments.

4. Increase (and keep more of) your income

Maybe you’ve already given yourself some breathing room by switching to an income-driven repayment plan or securing a deferment or forbearance for your loans.

To give yourself an even better chance to get out from under your debt, come up with ways to increase your income — and keep more of it.

Perhaps your job options are limited without a degree in hand. You could still leverage the skills you picked up in college, however, to start making some money. If you’re a former journalism student, for example, you might try to be a freelance writer. And you could always supplement this with a side gig, too.

As soon as you’ve developed at least one income stream, make sure it’s not going to waste. Start by budgeting your expenses, line by line. This way, you might find some trimmable costs or room to make extra-large student loan payments.

5. Consider refinancing your student loans

Keeping up with on-time loan payments and increasing your income will make you a more attractive candidate for student loan refinancing.

Through refinancing your college debt, you could lower your interest rate, potentially saving significantly in interest payments. You could also choose a friendlier lender and consolidate your loans into one account if you’re looking to simplify your repayment.

Refinancing without a bachelor’s degree is possible, though not with every lender. Some will insist on you being a graduate, but others just want to know you’re a creditworthy borrower.

At Citizens Bank, for example, you’re eligible to refinance without a degree. But you must make 12 on-time payments toward your loans before applying.

Before you decide to refinance, however, be certain that you won’t miss any features of your federal loans. Only federal student debt comes with access to income-driven repayment and some types of deferment, not to mention loan forgiveness.

Whatever your decision, you can learn more through our complete guide to student loan repayment.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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College Students and Recent Grads

How to Refinance Your Student Loans in 6 Easy Steps

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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When it comes to paying back student loans, keeping up with interest can be half the battle. Luckily, refinancing offers a chance to bring down your interest rate.

If you qualify, you could restructure your debt with a reduced rate and new repayment terms. Plus, you could simplify repayment by combining multiple loans into one.

Even if you’re not sure if refinancing is right for you, it’s easy to check your offers with a few providers and still make no commitment whatsoever. Read on to learn how to refinance a student loan in six steps.

How to refinance student loans in 6 easy steps

Although refinancing can come with a number of financial benefits, not everyone qualifies. That’s why your first step in the process is learning about the criteria and seeing how your finances measure up.

1. Learn how to qualify for student loan refinancing

Student loan refinancing is offered by private lenders, including banks, credit unions and online lenders. Unlike the federal government — which may have lent your original student loans — private lenders require that you pass a credit check in order to qualify for a loan. Basically, they want to ensure you have a history of repaying your debts, as well as a stable income moving forward.

Before approving you for student loan refinancing, lenders look at a few key metrics:

  • Credit score: Most lenders prefer a score around 650 or higher.
  • Income: Although there’s no specific cut-off, banks want to see you have a steady source of income or at least an offer of employment.
  • Debt-to-income ratio: Some lenders take other debts into account to ensure you have enough cash flow each month to cover your bills.
  • College degree: Most online lenders only work with borrowers who have graduated college. If you left school before graduating, however, there are still a few refinancing providers who will work with you.

Before starting the refinancing process, take a look at your credit score, income and other financial credentials. If your credit score is low, you might take steps to build it up before applying for refinancing.

Alternatively, you could apply with a creditworthy cosigner to boost your chances. Just make sure you and your cosigner have set clear expectations around who is responsible for paying back the debt.

2. Check your rates with more than one lender

Once you have an idea of whether you’re eligible for refinancing student loans, your next step is to check your rates with multiple lenders. Many lenders make it easy to check your rates online with an instant rate quote.

All you have to do is enter a few basic pieces of information, and the lender will tell you if you prequalify for student loan refinancing. Although these offers aren’t final, they give you a good sense of whether you qualify and what your rate could be.

Lenders such as SoFi, CommonBond, Earnest, Laurel Road, and LendKey offer this instant rate quote. Simply head to the lender’s website and provide a few basic details about yourself. Most lenders ask for the following:

  • Name
  • Address
  • Degree and university
  • Total student loan debt
  • Income
  • Monthly housing payment

After filling out the form, you’ll consent to a “soft” credit check. Unlike a “hard” credit inquiry, this soft check won’t impact your credit score at all.

After a couple of seconds, the lender will show you various prequalification offers. By checking your rates with multiple lenders, you can find an offer that best matches your debt payoff goals.

3. Compare offers and loan terms with a refinancing calculator

Once you have a few offers on the table, you might simply choose the one with the lowest rate. But finding the best offer isn’t always so simple.

For one, you’ll often have the choice between a fixed and variable rate. A fixed rate will stay the same over the life of your loan, while a variable rate could fluctuate over the years.

While the St. Louis Federal Reserve predicts rates will rise over the next two years, you might find variable rate offers that are currently lower than those with fixed rates. You’ll want to consider how long you think you’ll need to repay your debt as you decide between a fixed and variable loan.

Your rate could also vary depending on your repayment term. Most lenders offer terms of five, seven, 10, 15, or 20 years.

A shorter term will typically come with a higher monthly payment, but it will get you of debt faster. A longer term means lower monthly bills, but could also mean you’ll pay more interest over the long run.

Comparing all these variables can get confusing fast, so use our student loan refinancing calculator to do the heavy lifting for you. Play around with a few different rates and terms to estimate your monthly payments and total interest cost.

And consider your financial goals, whether you’re driven to repay your debt as quickly as possible or are looking for some relief from heavy monthly payments. If you’re struggling to pay your bills, for instance, a longer term with lower monthly payments could be what you need to get back on your feet.

Besides crunching the numbers, don’t forget about other benefits a lender might offer. CommonBond, for instance, lets you postpone payments if you run into financial hardship. Meanwhile, SoFi offers career coaching and networking events for its customers.

Although a low interest rate is probably your priority, consider these extra benefits, especially if some or all of your debt is comprised of federal student loans. Once you refinance federal loans, they become private, and you’ll lose access to certain federal programs, such as income-driven repayment plans and student loan forgiveness.

If you’re interested in any of these federal student loan programs, then you might not want to refinance your loans with any lender, and should look into consolidation instead.

4. Enlist a cosigner if needed

If you don’t meet a lender’s underwriting requirements for credit and income on your own, you might need to add a cosigner to your application. Even if you’re eligible on your own, adding a creditworthy cosigner could help you qualify for the most competitive rates.

But cosigning on debt is a big responsibility, and your cosigner’s credit will be on the line in the event you can’t pay. Before asking someone to share your student loan debt, make sure you both discuss what it means and how you’ll deal with potential financial setbacks in the future.

You might also check to see if your lender offers cosigner release after a certain period of on-time repayment. With this benefit, your cosigner could help you qualify for refinancing but then would eventually be removed from your debt completely.

5. Gather your documents and submit a full application

If you find an offer you like, your next step is to submit a full application. Similar to the instant rate quote, this application will collect your personal information.

But it will go more in-depth and will ask you to upload documents with your loan and income information. Here are some the materials you’ll likely need to provide:

  • Official statements for all the federal and private loans you wish to refinance. This statement needs to show your loan balance and account number.
  • Proof of income with pay stubs or a job offer letter
  • Proof of residency with a utility bill or bank statement
  • Proof of citizenship or legal residency, such as your Social Security number or government ID number
  • Valid ID number, whether from a driver’s license or passport

If you’re applying with a cosigner, you’ll also need to provide their information. Once you submit a full application, the lender will run a hard credit inquiry to check your credentials.

If you have any questions along the way, make sure to contact the lender’s customer service team for guidance.

6. Set up autopay on your new refinanced student loan

It typically takes between one and three weeks before your refinanced student loan is up and running, according to Citizens Bank. In the meantime, keep paying off your old student loans so you don’t accidentally miss a payment.

Once your new lender gives you the green light, set up your online account and enable autopay on your student loan. Autopay lets the lender withdraw your monthly repayment from your bank account so you never miss a bill. Plus, many lenders give you a 0.25% discount off your interest rate for setting up autopay.

Note that you can always make extra payments to get out of debt faster if your income increases or you get a windfall of cash, such as a bonus from work. Just make sure that if you do this, you contact the lender to ensure that any extra payments are applied directly to the principal and not used to pay off interest for future payments.

Hunt for the best student loan refinancing rates

Now that you know how to refinance student loans, don’t forget to shop around with a few lenders. Each one is different, so comparing offers is the best way to find the lowest rates.

Also remember that as your circumstances change, you can always refinance again if it makes sense for you financially. By being proactive about your debt, you can save yourself money and stress as you pay back your student loans.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Safier
Rebecca Safier |

Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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College Students and Recent Grads

How Often Can I Refinance My Student Loans?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Do you wish you could go back in time and make different choices about your student loans? Although you can’t “un-borrow” your debt, you do have a chance to restructure it through student loan refinancing.

Not only can refinancing save you money with a lower interest rate if you qualify, but it also lets you choose new repayment terms that better match your budget.

What’s more, you don’t have to refinance just once — you can refinance multiple times to save as much money as possible on your debt.

Here’s how refinancing your student loans more than once could be beneficial, along with some potential drawbacks to avoid.

How often can I refinance my student loans?

Refinancing student loans comes with a number of benefits, including lowering your interest rate if you qualify, lengthening or shortening your repayment and combining multiple loans into one. So given all the advantages, it’s natural to wonder how often can you refinance your student loans.

As it turns out, there’s really no limit to the number of times you can refinance your college debt, so long as you meet lender requirements for credit and income (or apply with a cosigner who does).

Lenders give the best rates to the most creditworthy borrowers. So if your credit has improved significantly since the last time you refinanced, applying again could get you even better terms than you received in the past.

3 potential benefits of refinancing multiple times

Chances are, filling out student loan paperwork isn’t your favorite pastime. But taking time to refinance your student loans more than once could be worth the effort. Here are three times when refinancing over and over could be advantageous.

Get an even lower interest rate

The main reason to refinance more than once would be if to snag a lower interest rate. Let’s say you owed $20,000 at a 6.00% rate and have five years left on your repayment term. Over those years, you’d pay $3,199 in interest. But if you could refinance to a 3.5% rate, you’d pay just $1,830 in interest over five years.

Lowering your rate might also mean having more affordable monthly payments. As a result, you might be able to pay more each month. By throwing extra payments at your loans, you’ll get out of debt ahead of schedule.

Switch from a variable rate to a fixed rate

Another reason to refinance more than once would be to switch from a variable rate to a fixed rate on your debt. Let’s say you refinanced a few years ago and chose a variable rate, which has since increased over the years.

To stop it from creeping up further, you might refinance again and choose a fixed rate, which will stay the same over the life of your loan. Even if you choose a longer repayment term, you won’t have to worry about your interest rate rising over time.

Choose new terms that work for your budget

Finally, refinancing allows you to pick new repayment terms, typically between five and 20 years. Let’s say you chose a long term when you refinanced the first time, but now you want a shorter term to get out of debt faster.

Or on the flip side, maybe you’ve run into some financial trouble and are struggling to afford your monthly payments. If that’s the case, you could lower them by choosing a longer term.

If your financial situation has changed, the choices you made when you refinanced the first time might no longer match your goals. If you’re looking for new terms on your debt, refinancing a second time could be a smart strategy.

Beware the downsides of refinancing more than once

While the answer to “How many times can you refinance a student loan?” might be “As many times as you want,” it’s a different story when you ask how often should you refinance student loans.

Refinancing multiple times could save you money, but there are some potential pitfalls as well. Here are the two main ones:

Be careful about accidentally adding years to your debt

As mentioned above, refinancing gives you the chance to choose new repayment terms. But if you’re not careful, you could end up adding years onto your debt.

Let’s say you chose a 10-year term when you refinanced two years ago, and you now only have eight years left on your loan. If you refinance again and choose a 10-year term, you’d be adding two years onto your debt.

Not only would you be in debt longer, but you would spend more on interest overall. If your goal is to save money, be careful you don’t unnecessarily lengthen your debt when refinancing for a second or third time.

Watch out for hidden costs and fees

Besides being careful about which repayment term you select, you must also watch out for extra costs associated with refinancing.

Some lenders charge an origination fee when disbursing a refinanced student loan, and others even charge an application fee.

That said, some of the best lenders, such as CommonBond, SoFi and Earnest, don’t charge any fees for refinancing student loans.

But make sure to read the fine print before you refinance again, so you don’t end up overspending on your student loans.

Make the most of instant rate quotes to find the best offer

Before refinancing again, shop around to see if you could qualify for a lower rate. Lenders such as SoFi and Earnest make it easy to get an instant rate quote.

To get a rate quote, you’ll just provide some basic information, such as your name, college and loan amount. The lender will then run a soft credit check, which won’t impact your credit report at all. Then, it will show you your prequalification offers and potential interest rates.

Check your rates with multiple lenders so that you can find the best offer and decide if it makes sense to refinance your student loans more than once.

How often should you refinance student loans? Final thoughts

Refinancing student loans has a number of financial benefits, so it stands to reason that refinancing more than once will only increase those benefits.

If your credit has improved or your income has risen since the last time you refinanced, you might be an even stronger candidate for a lower interest rate. What’s more, refinancing for a second time could allow you to restructure your debt in a way that better meets your present-day circumstances.

But be careful not to accidentally extend the life of your debt or overspend on fees. As long as you fully understand the terms and conditions, refinancing multiple times could work to your benefit.

Once your new loan is up and running, shift your attention to making on-time payments every month, or if possible, paying off your student loan ahead of schedule.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rebecca Safier
Rebecca Safier |

Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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College Students and Recent Grads

Student Loans by the Numbers: Average Student Loan Debt Statistics

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Source: ARENA Creative

The numbers don’t lie: As college costs have risen in recent decades, many students and their families have been forced to take out more student loans to keep up. Seeing the statistics behind college debt can help shine a light on how big the student loan crisis has become and whom it’s affecting most.

Average Student Loan Debt: In a Nutshell

  • The total amount of student debt in the U.S. has reached $1.53 trillion, making student loans the nation’s second-largest source of consumer debt, below only mortgages (and well above credit cards), according to the Federal Reserve.
  • The average student loan debt for each borrower at $36,314 owed across 3.3 student loans, according to a MagnifyMoney analysis of anonymized My LendingTree users’ September 2018 credit reports. (Note: LendingTree is MagnifyMoney’s parent company)
  • Nearly one in five adults (18.2%) in the U.S. has student debt, which is around 44 million Americans.
  • Outstanding student debt more than doubled (a 167% increase) over the past 10 years alone to its current peak. The number of Americans with student loan debt also rose 51% in the same period.
  • Across all types of institutions, the average annual cost of college was $23,091 in 2016-17. Students who borrow for college take out $6,988 in federal student loans per year, on average.

To get a complete picture of the situation, we’ve collected recent data on student loans, college costs and other student aid.

How Much Does College Cost?

In recent decades, college costs have shot up, often forcing today’s students and their families to pay more out of pocket and borrow more in student loans to cover educational expenses.

Here’s a look at the average college costs that today’s students face, by different types of institutions.

Average College Costs All Institutions

Tuition and
Fees

Dormitory
Rooms

Board

Total

All Institutions

$12,219

$6,106

$4,765

$23,091

Public Institutions

$6,817

$5,859

$4,561

$17,237

Nonprofit Institutions

$32,556

$6,704

$5,291

$44,551

For-Profit Institutions

$14,419

$6,889

$4,123

$25,431

Source: The National Center for Education Statistics

Average College Costs 4-Year Institutions

Tuition and
Fees

Dormitory
Rooms

Board

Total

All Institutions

$15,512

$6,231

$4,850

$26,593

Public Institutions

$8,804

$6,017

$4,666

$19,488

Nonprofit Institutions

$32,720

$6,709

$5,273

$44,702

For-Profit Institutions

$14,423

$6,996

$4,113

$25,532

Source: The National Center for Education Statistics

Average College Costs 2-Year Institutions

Tuition and
Fees

Dormitory
Rooms

Board

Total

All Institutions

$3,518

$3,931

$3,149

$10,598

Public Institutions

$3,156

$3,822

$3,113

$10,091

Nonprofit Institutions

$15,293

$5,609

$4,350

$25,252

For-Profit Institutions

$14,397

$6,290

$4,340

$25,027

Source: The National Center for Education Statistics

How Much Have College Costs Risen?

The cost of a college degree has risen much more steeply over the past five decades than overall inflation and wage growth.

Here’s a look at how college prices have changed over the past 50 years. Costs are adjusted for inflation and include room and board, tuition and other related fees.

How Are Students Using Financial Aid?

Student loans are just one form of financial aid that can help pay for a college degree. Gift aid — such as grants from the federal government, state or local organizations or from colleges themselves — can lower a student’s net college price and the need for student loan debt.

But as college costs have increased, student aid awards have not kept up. While most college students receive some form of student aid, just under half (45.7%) of students rely on student loans, borrowing nearly $7,000 a year.

Percentage of Students Who Receive Student Aid. 2015 - 2016 Academic Year

Institution Type

All Aid

Federal Grants

State/Local Grants

InstitutionaI Grants

Student Loans

All Institutions

82.7%

42.7%

32.3%

44.40%

45.7%

Public

80.2%

42.3%

37.3%

35.6%

38.2%

Nonprofit

89.6%

35.2%

23.8%

78.7%

60.9%

For-Profit

86.5%

69.8%

8.6%

25.3%

74.4%

Source: The National Center for Education Statistics

How Much Has Federal Student Loan Debt Risen?

The federal government remains the top source of student loan debt, lending far more than states, banks and other institutions. Of the $1.53 trillion in outstanding student debt, $1.38 trillion takes the form of federal student loans.

This college debt has increased by $860 billion since 2007, a sharp difference of 167% in just over 10 years. Meanwhile, the number of people who hold federal student loans has also risen from 28.3 million in 2007 to 42.8 million, a 51% increase.

How Much Do People Owe the Government in Student Debt?

Next, take a look at how much borrowers owe in federal student debt. The average student loan debt is $32,150 across all types of federal student loans.

But most borrowers owe far less than this, with a majority (57.3%) carrying $20,000 or less in federal student loan debt.

Six-figure student debt is, fortunately, still fairly rare, with just 5.5% of borrowers owing $100,000 or more in federal loans.

Student loan balances also vary by age, with borrowers ages 35 to 49 having the highest average student loan debt, at $37,051. That average then eases for those above 50, but not by that much. And, of course, borrowers who are college-aged (24 or younger) have the smallest balances, since this group includes those still taking out loans for their education.

Overall, borrowers between the ages of 25 to 49 account for the bulk of college debt, with just under a trillion, or $995.1 billion, of outstanding federal student loans.

Who Is Defaulting?

With balances this high, not all borrowers can keep up with student loan payment. If nine months of nonpayment pass, a federal student loan defaults.

Options such as taking student loan deferment and forbearance or enrolling in income-driven repayment plans can often be effective ways to avoid defaulting. But the data suggest that some borrowers still aren’t taking advantage of these federal student loan benefits.

In 2017, more than 1 in 10 borrowers who had left college in 2014 had since defaulted. Default rates are higher among students leaving two-year colleges and schools with programs shorter than two years.

For-profit colleges also tended to have higher rates of default, compared to public colleges and private nonprofit schools.

Percentage of people who defaulted since they entered their repayment phases three years ago (2014)

All Institutions

11.5%

Public

11.3%

Nonprofit

7.4%

For-profit

15.5%

Less-than-2-year institutions

17.0%

Public

13.80%

Nonprofit

19.80%

For-profit

17.0%

2-year institutions

18.2%

Public

18.3%

Nonprofit

17.6%

For-profit

17.5%

4-year institutions

9.0%

Public

7.5%

Nonprofit

7.0%

For-profit

14.6%

Source: The National Center for Education Statistics

What About Graduate Student Loan Debt?

Completing an advanced degree can also mean taking on a significant amount of debt, though here, not all graduate student debt is created equal. For example, 48.2% of research doctorate degree holders have student loan debt, but that proportion is significantly higher — 74.5% — for those with professional doctorate degrees.

Among those with graduate student loan debt, balances range from $50,300 among master’s degree holders up to $171,700 for those with professional doctorates.

Digging a little deeper, the data show that earning an advanced medical degree (such as an MD) comes with the highest levels of debt. Eight in 10 graduates with these degrees have student debt, with average student loan debt balances at $223,100.

What Do We Know About Private Student Loan Debt?

Besides federal student loan debt, private student loans from banks and other lenders are also an important piece of the puzzle. The amount of outstanding private student loan debt is $67.1 billion, most of which (88.3%) was borrowed for undergraduate studies.

Private Loans Outstanding

Q1 2018

Current Balance

$67.12 billion

% of Loans for Undergraduate School

88.3%

% of Loans for Graduate School Source: MeasureOne

11.7%

Source: MeasureOne

Repayment Status of Private Loans

Q1 2018

Grace

2.3%

Deferment

21.1%

Forbearance

2.5%

Repayment

74.1%

Source: MeasureOne

Percentage of Payable Private Loans Currently Delinquent

Q1 2018

30-89 days delinquent

2.8%

90+ days delinquent

1.50%

Charge-offs

1.80%

Source: MeasureOne

How Much Can That Expensive Degree Earn Me?

With college costs and average student loan debt levels on the rise, some borrowers might wonder whether their education is worth the price.

Overall, earning one or more degrees does substantially increase income. Someone with a bachelor’s degree earns 57.1% more on average than a worker with only a high school diploma. Those who hold a master’s degree or higher tend to earn twice as much as those with high school diplomas, and 28.2% more than graduates who hold a bachelor’s degree.

Of course, a college graduate’s course of study has a huge impact on their career opportunities and earning potential. Engineering fields offer the highest pay, with median salaries of $69,650 among college graduates. Studying theology and religious studies, on the other hand, resulted in the lowest pay at just $34,420 per year.

 Median Salary of Bachelor's Holders by Field of Study                   

Field of Study

2016

Agriculture

$44,590

Architecture

$50,000

% of Loans for Graduate School Source: MeasureOne

2016

Area, ethnic,and civilization studies

$44,260

Arts, fine and commercial

$39,830

Fine arts

$36,270

Commercial art and graphic desisn

$40,300

Business

$50,360

Business, general

$50,290

Accounting

$55,400

Business management and administration

$48,280

Marketing and marketing research

$50,200

Finance

$60,070

Management information systems and statistics

$59,950

Business, other and medical administration

$49,600

Communications and communications technologies

$45,260

Computer and information systems

$65,440

Construction/electrical/transportation technologies

$55,310

Criminal justice and fire protection

$40,990

Education

$40,240

General education

$40,270

Early childhood education

$35,940

Elementary education

$39,070

Secondary teacher education

$39,070

Education,other

$40,050

Engineering and eneineering-related fields

$69,650

General engineering

$63,770

Chemical engneering

$74,880

Civil engineering

$63,110

Computer engineering

$78,080

Electrical engineering

$74,790

Mechanical engineering

$71,860

Engineering, other

$65,480

Engineering technologies

$59,630

English language and literature

$40,280

Family and consumer sciences

$37,680

Health professions

$51,830

General medical and health services

$50,060

Nursing

56,350

History

$43,430

Liberal arts and humanities

$40,020

Linguistics and comparative language and literature

$42,040

Mathematics

$50,340

Multi/ interdisciplinary studies

$43,170

Natural sciences

$45,340

Biology

$45,330

Environmental science

$41,000

Physical sciences

$49,110

Physical fitness,parks,recreation and leisure

$40,080

Philosophy and religious studies

$39,810

Psychology

$40,100

Publicadm inistration and public policy

$56,460

Social sciences

$50,310

Anthropology and archeology

$39,800

Economics

$60,350

Geography

$45,210

lnternational relations

$52,290

Political science and government

$50,330

Sociology

$40,030

Miscellaneous social sciences

$42,190

Social work and human services

$36,200

Theology and religious vocations

$34,420

Other fields

$40,380

Source: The National Center for Education Statistics

How Many Students Are Leaving School Without Getting a Degree?

For students who have already taken out student debt, completing their degree could make the difference between easily repaying their loans or ending up in default.

Part-time students are much likelier to drop out of college overall, while for-profit college have the worst attrition rates in terms of types of institutions.

As student loan balances have grown, so has the impact of this debt has on borrowers’ lives. By understanding the numbers underlying the student debt crisis, we can better gauge its effects. Overall, though, a degree is still worth getting despite rising college costs and the amount of debt needed to pay them.

But today’s students and borrowers need to be wiser with their educational and financial choices to avoid the worst outcomes. As the data suggest, the type of school and the field of study can play a big role here.

Statistics can’t always capture individual cases, as one student’s situation won’t necessarily match the averages. But one thing that might hold true for most if not all borrowers is the importance of knowing your options to manage this debt. If you owe student loans, check out our top picks for refinancing student loans to help you get out of being another statistic in the ongoing student debt crisis.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Elyssa Kirkham
Elyssa Kirkham |

Elyssa Kirkham is a writer at MagnifyMoney. You can email Elyssa here

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