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College Students and Recent Grads, Life Events, Pay Down My Debt

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

Editorial Note: The editorial content on this page is not provided by any financial institution and has not 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 card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Erin Millard
Erin Millard |

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 Transfer a Parent PLUS Loan to the Student: Is It Possible?

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

If you’ve taken out a federal parent PLUS loan to help a child pay for college, you may have already started making loan payments while your child is in school. Or, perhaps you’ve deferred the payment until after graduation.

When you borrow a parent PLUS loan, the money gets sent to your child’s school. However, as the borrower, you are legally responsible for repaying the loan.

Sometimes, a parent and child may have an arrangement where the child starts making payments or reimbursing a parent once he or she can afford it. However, these are informal arrangements and don’t reflect the legal liability that you have as the borrower. If you want the child to take on full responsibility for the loan, you’ll have to figure out a way to transfer the debt to the child’s name.

Can a parent PLUS loan be transferred to the student?

Yes, transferring a parent PLUS loan to a child is possible. However, the U.S. Department of Education, which issues parent PLUS loans and lends money to students for educational costs, doesn’t offer a way to transfer a parent PLUS loan.

Even if your child has his or her own student loans and is making monthly payments to the same loan servicer that you’re working with, there’s no way to transfer the parent PLUS loan to the child within the federal student loan system.

To transfer the debt, the child will need to qualify for and take out a loan from a private lender and then use the money to pay off the parent PLUS loan. The new loan doesn’t have to be a student loan. Children could take out a personal loan or use a cash-out refinance if they own a home, and then give the money to a parent to pay off the parent PLUS loan.

But there are student loan refinancing companies that let borrowers refinance a parent PLUS loan into the child’s name. The loan may remain a qualified educational loan, which means eligible borrowers may be able to deduct up to $2,500 in interest payment from their taxes each year. The refinancing company will also generally pay off the other student loans directly, rather than sending the borrower cash.

Steps for children who want to take over parent PLUS loans

If you’re a student or former student who wants to transfer a parent PLUS loan to your name, refinancing the loan with a private student loan refinancing company could your best option.

You can choose which loans you want to refinance, including some of your own student loans. Refinancing could even save you money if you can qualify for a lower interest rate, and combining multiple loans into one new loan can make managing your loans easier.

However, carefully consider your options before refinancing your federal student loans. After refinancing, your new private student loan won’t be eligible for federal repayment, assistance and forgiveness programs.

Whether or not you want to refinance your own loans, if you’re looking to transfer a parent PLUS loan, consider taking these four steps:

1. Review your budget

Refinancing your student loans could lead to lower monthly payments if you’re only refinancing your own loans. However, if you’re taking on additional debt by adding in a parent PLUS loan, your monthly payments may increase. You can use a student loan refinance calculator to estimate the change in your monthly payment amount.

Consider how your new monthly payments will impact your budget, and whether you’ll still be able to cover all your living expenses. If you don’t think you can afford all the payments, you may not want to transfer the parent PLUS loan.

2. Find lenders that offer parent PLUS loan transfers

Many lenders offer student loan refinancing, but some lenders only let your refinance your own student loans. If you want to transfer a parent PLUS loan, you’ll need to find lenders that let you include a parent PLUS loan into the child’s new loan. For example, CommonBond, SoFi and Laurel Road — some of the top private student loan refinancing companies — all offer parent PLUS refinancing that transfers the debt to the student.

3. See if you’re eligible

Once you’ve identified a few lenders that let you transfer parent PLUS loans, review their basic eligibility criteria to see if you’ll qualify for refinancing.

Your citizenship status, state of residence, whether you received a bachelor’s degree and how much debt you’re refinancing could impact your eligibility. Your monthly income could also be a factor, as lenders want to be certain you can afford your loan payments.

Additionally, your credit history and score can determine whether a lender will approve your loan application and the terms it offers. Some lenders offer a soft credit preapproval, which lets you see if you qualify for refinancing and your estimated loan terms without affecting your credit score. With others, you won’t know what terms you’ll get until you apply.

You could check your credit score for free online to help estimate your chances of getting approved. Although lenders may use different credit scoring models to evaluate applicants, and a credit score isn’t the only important factor, you may need a minimum score of around 660-680 to qualify for refinancing from some of the top lenders.

You also may want to review your credit reports for negative marks. For example, regardless of your score, some lenders may not approve your application if you have recent collections accounts or a bankruptcy on your credit reports. You may need to wait until the negative items fall off your reports (which can take seven to 10 years), and can focus on building a good credit history with on-time payments.

4. Compare your loan offers and complete a loan agreement

Once you have a list of lenders that you think may be a good fit, you could start submitting applications.

When you submit a complete application for student loan refinancing, the resulting hard inquiry on your credit report could have a small, negative impact your credit score. And multiple inquiries can sometimes increase the damage. However, multiple hard inquiries from student loan applications that occur within a 14-day period (depending on the type of credit score) only count as one inquiry for scoring purposes. Therefore, shopping lenders and comparing offers during a short period could help you secure the lowest rate possible without causing excessive damage to your credit.

Once you figure out which offer is best, and if you decide to move forward, you’ll need to complete the application process. You may need to upload verification documents, such as recent pay stubs, tax returns or a job offer to verify your income. You’ll also have to sign the loan agreement, which you may be able to do electronically.

The private lender will then generally send payments to your loan servicer as well as your parent’s loan servicer to pay off those student loans. You should both continue making payments as usual until you’ve confirmed the original loans were paid off.

Pros of transferring your parent PLUS loans

Transferring your parent PLUS loan to a child may offer several benefits for both parties.

The debt will no longer impact the parent’s eligibility for financing. Decreasing the debt that’s in the parent’s name will lead to a lower debt-to-income ratio, which can help the parent qualify for loans and lines of credit at lower rates.

The child may be making the loan payments anyway. If you have an informal agreement that the child makes the loan payments or reimburses the parent, transferring the parent PLUS loan will let the legal responsibility match your arrangement.

The child can build credit. After transferring the loan, the child can build his or her credit by making on-time loan payments. However, a late payment could now hurt the child’s credit.

The loan’s interest rate could drop. Depending on the loan offers that the child receives, the refinanced loan could have a lower interest rate. A lower rate could lead to lower monthly payments and long-term savings.

Cons of transferring parent PLUS loans

There are also potential drawbacks to transferring your parent PLUS loans. Consider these carefully, because you can’t undo the transfer once it’s complete.

The borrower loses access to federal programs. Private student loans aren’t eligible for federal repayment plans, forgiveness programs or forbearance and discharge options. Therefore, if you’re having trouble making payments, you may have fewer options when dealing with your private lender.

The child might not qualify for a good rate. If the child doesn’t qualify for an equal or lower interest rate, the long-term cost of repaying the loan could increase. When there isn’t a pressing reason to transfer the loan, you may want to wait to refinance while the child builds their credit.

Additional parent PLUS loan repayment options

If your child doesn’t qualify to refinance the parent PLUS loan in his or her name, or you decide against the transfer for another reason, there still may be other options for your loan.

Consider a different federal repayment plan

If you’re struggling to afford monthly parent PLUS loan payments, you may want to consider switching your repayment plan. The graduated plan starts with a lower rate, which usually increases every two years. There’s also an extended plan, which increases your term to 25 years, versus 10 with the standard or graduated plans, and leads to a lower monthly payment (but more interest paid over time).

Parent PLUS loans borrowers are also eligible for the income-contingent repayment (ICR) plan, if you first consolidated your parent PLUS loan (or loans) into a federal direct consolidation loan. The ICR plan will adjust your monthly payments based on your discretionary income, and any remaining balance will be forgiven after you make payments for 25 years. You may, however, have to pay income taxes on the forgiven amount.

Look into federal forgiveness and discharge options

Parent PLUS loans are eligible for some of the same federal cancellation and discharge programs as federal student loans lent directly to students. For example, the debt may be discharged if your child’s school closed and he or she wasn’t able to complete the program.

You could also get part of the loan forgiven through the Public Service Loan Forgiveness. You’ll need to consolidate your loan and switch to the ICR plan specifically. To qualify, you (not your child) must work for an eligible employer, such as a government or nonprofit tax-exempt 501(c)(3) organization, and make 120 qualified monthly payments.

Additional student loan forgiveness or repayment programs

There are a variety of federally funded and private student loan repayment assistance (LRAP) programs that could also help you with your loan. Many of these programs are targeted at people in specific professions, such as those who work in health care, law or the military. And there may be additional requirements to work in high-need areas. Depending on the program, you may receive an additional signing bonus or annual stipend that will be sent to your loan servicer to repay your student loan.

Refinance the loan in your name

Just as your child may be able to refinance his or her student loans, you may be able to refinance your parent PLUS loan with a private lender. You may be able to qualify for a lower interest rate or change your loan term, which could lower your monthly payment and may save you money over the lifetime of your loan.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads

Top Checking Accounts for College Grads

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Top Checking Accounts for College Grads
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For many college students, their default banking option while in school is a student checking account, which is typically free. Unfortunately, when you graduate you lose those benefits. Many student checking accounts will begin to charge you monthly maintenance fees unless you meet certain requirements.

So, where do you go from there?

Few young adults would turn to their parents for fashion or dating advice and, yet, one of the most common ways we’ve found young people choose their bank account is by going with whichever bank their parents already use. This could be a bigger faux pas than stealing your dad’s old pair of parachute pants.

The bank your parents use may carry fees or have requirements that don’t meet your lifestyle or budget, and make accounts expensive to use.

But where do you even begin to choose the right checking account?

When you’re nearing graduation, start planning your bank transition.

Many banks send a letter in the mail a few months prior to your expected graduation date informing you that your student checking account is going transition to a non-student account. If you’re not careful and you disregard the letter, you may be transitioned into an account that charges a fee if you don’t meet certain requirements.

You can always call the bank and ask to switch to a different account or you can choose a new account that offers more benefits, like interest and ATM fee refunds.

The 5 key things you should look for in a checking account

When you’re shopping around for a new checking account, there are several things you should look for to ensure you’re getting the most value from your account:

  1. A $0 monthly fee: Sometimes banks may say they don’t charge a monthly fee but read the fine print — they may require a minimum monthly balance in order to avoid it. There are plenty of free checking accounts available for you to open, so there’s no reason to stay stuck with an account that charges a monthly fee. Take note some accounts may require you to meet certain criteria to maintain a free account like using a debit card, enrolling in eStatements or maintaining a minimum daily balance.
  2. No minimum daily balance: Accounts without minimum daily balances mean you can have a $0 balance at any given time. This may allow you to have a free account without meeting balance requirements — note, other terms may apply to maintain a free account.
  3. APY: Annual Percentage Yield is the total amount of interest you will earn on balances in your account. Opening an account that earns you interest on your balance is an easy way to be rewarded for money that would typically sit without earning anything. Some checking accounts earn interest, albeit rarely, but you should definitely aim to earn a decent APY on your savings account.
  4. ATM fee refunds: You may not be able to access an in-network ATM at all times, so accounts providing ATM fee refunds can reimburse you for ATM fees you may incur while using out-of-network ATMs. Those $3 or $5 charges add up!
  5. No or low overdraft fees: Most banks charge you an overdraft fee of around $35 if you spend more money than you have available in your account. Therefore, it’s a good idea to choose an account that has no or low overdraft fees.

Top overall checking accounts for college grads

The best checking accounts will have a number of features that are both simple and low cost. For the top overall checking accounts, we chose accounts that have no monthly service fees, no ATM fees, refunds for ATM fees from other banks, interest earned on your deposited balances and with strong mobile banking apps. While there is no all-inclusive account that contains every benefit, the accounts below are sure to provide value whether you want a high interest rate, unlimited ATM fee refunds or 24/7 live customer support.

1. Aspiration – The Aspiration Summit Account

Monthly Fee

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

$0

$0

$10

Unlimited

0.25% APY on balances up to $2,499.99

1.00% APY on balances $2,500+

The Aspiration Summit Account offers a wide range of benefits for account holders and has few fees. The amount to open is fairly low, and once you open your account there is no minimum monthly balance to maintain — though the more money you keep in your account, the more interest you’ll earn.

Another helpful feature is unlimited ATM fee refunds. That means you can either use in-network ATMs (filter by checking “SUM”) and avoid fees, or use any other ATM and be reimbursed for any fees incurred at the end of the month. If you’re looking for an interest checking account with no ATM fees, the Aspiration Summit Account is a solid choice.

LEARN MORE Secured

on Aspiration’s secure website

2. nbkc bank – Personal Account

Monthly Fee

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

$0

$0

$5

Up to $12 a month

0.90% APY on all balances

nbkc has several locations in the Kansas City region. Anyone can sign up for an account, however. This just means if you don’t reside nearby, you’ll have to rely on their online banking system.

The nbkc Personal Account earns interest on your balances and has no hidden fees. Typical checking accounts charge overdraft fees and stop payment fees, among others, but nbkc doesn’t.

The two fees that may apply are for less common transactions — $5 to send domestic wires and $45 to send or receive international wires.

You can use 24,000+ MoneyPass® ATMs in the U.S. for free, and if you use out-of-network ATMs you’ll be reimbursed up to $12 a month. This account is a good choice if you want a checking account that has minimal fees and earns interest.

LEARN MORE Secured

on nbkc bank’s secure website

3. Ally Bank – Interest Checking Account

Monthly Fee

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

$0

$0

$0

Up to $10 per statement cycle

0.10% on daily balances less than $15,000

0.60% on daily balances $15,000+

Ally Bank is an overall great online bank and their Interest Checking Account is a standout choice if you want to open an account without depositing any money. There are some standout perks with this card like 24/7 live customer care and the ability to send money with Zelle®.

There are also no ATM fees at U.S. Allpoint® ATMs, and you’ll receive up to $10 per statement cycle for fees charged at other ATMs nationwide. This account earns at a lower interest rate than the two mentioned earlier, but it’s still better than typical banks. Ally Bank’s Interest Checking Account provides account holders with a well-rounded experience and the ability to earn interest.

LEARN MORE Secured

on Ally Bank’s secure website

Member FDIC

Check out our full list of the best checking accounts.

Top free checking accounts for college grads

Free checking accounts are a great way to save on the monthly service fees many banks charge if you don’t meet deposit or balance requirements. The checking accounts listed below are all free, and if there are requirements, they’re minor like enrolling in eStatements or using a debit card. These accounts can be a good choice if you often have a fluctuating or low account balance and don’t want to worry about maintaining the requirements big banks impose to keep their accounts free.

1. Atlantic Stewardship Bank – Cash Back Checking

Monthly Fee

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

$0

$0

$1

Unlimited

Does not earn interest. But it does offer 0.50% cash back if you meet requirements*

Atlantic Stewardship Bank is headquartered in New Jersey and donates 10% of its profits annually to Christian and nonprofit organizations. Its Cash Back Checking account has a minor opening deposit and basic requirements for you to meet to get the added perks.

*When you make 12 debit card transactions each cycle and enroll in online banking and eStatements, you can receive unlimited ATM fee refunds and the chance to earn rewards at 0.50% cash back on debit card purchases.

2. Radius Bank – Radius Hybrid Checking

Monthly Fee

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

$0

$0

$10

Unlimited

0.85% on balances $2,500+

Radius Bank is a community bank headquartered in Boston. The Radius Hybrid Checking account is free as long as you open the account with the required deposit and meet three simple requirements: Enroll in online banking, receive eStatements and choose to receive a debit card. Unlike other checking accounts that require you to make a certain number of debit card transactions a month, Radius Bank does not. In addition to simple requirements, there are unlimited ATM fee refunds at the end of each statement cycle.

LEARN MORE Secured

on Radius Bank’s secure website

Member FDIC

3. Bay State Savings Bank – Free Kasasa Cash®

Monthly Fee

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

$0

$0

$0

Unlimited

0.05% if qualifications are not met

(2.01% up to $20,000 if you meet requirements listed below*)

Bay State Savings Bank was founded in Worcester, Mass., and is an independent community bank with the goal of maintaining long-term relationships with consumers and giving back to the community via the Bay State Savings Charitable Foundation.

If you want a free account that is always free — meaning no requirements for you to meet — check out their the Free Kasasa Cash® account.

There’s a small minimum deposit to open the account and you automatically earn interest on your balances.

*If you want the added perks of unlimited ATM fee refunds and a higher 2.01% APY, you need to enroll in electronic statements and online banking, as well make 12 PIN-based debit card transactions each month.

If you don’t meet those requirements, you’ll still earn 0.05% APY, but will have to pay $0.75 per ATM transaction (plus any fee the ATM operator charges). There are thousands of surcharge-free ATMs provided by the SUM® ATM network.

LEARN MORE Secured

on Bay State Savings Bank’s secure website

Check out our full list of the best free checking accounts.

Top high-yield checking accounts for college grads

Since most checking accounts offer little to no interest, high-yield checking accounts are a great way for you to maximize the money that typically would just sit in your account without earning interest. These accounts often offer interest rates that fluctuate depending on how much money you have in the account. However, in order to earn interest, there are some requirements that you may have to meet such as making a certain number of debit card transactions and enrolling in eStatements.

1. First Financial Credit Union – High 5 Checking

Monthly Fee

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

$0

$0

$0

Up to $10 per statement cycle

5.00% APY on balances up to $2,500

0.10% APY on balances of $2,500.01 or more

The High 5 Checking account from First Financial Credit Union is a free account that has fewer requirements for you to follow to qualify for the interest rates compared with other high-yield checking accounts. That’s why it tops our list.

All you need to do is enroll in eStatements and complete 15 signature-based debit card transactions in the statement period. In addition, there are surcharge-free STAR® ATMs to use, plus out-of-network ATM fee refunds of up to $10 per statement cycle. You can also earn Buzz® Points with your debit card that can be redeemed as statement credit, gift cards and other rewards.

LEARN MORE Secured

on First Financial CU (IL)’s secure website

2. America’s Credit Union – Affinity Checking

Monthly Fee

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

$0

$0

$0

None

5.00% APY on balances up to $1,000

0.10% APY on balances between $1,000.01 - $15,000

0.25% APY on balances over $15,000

Like most high-yield checking accounts, you’ll need to jump through a few hoops before you qualify for the higher rate. Here are the four requirements:

  • Have $15,000 in combined loans or deposits with ACU
  • Have a $500 direct deposit each month
  • Sign up for eStatements
  • Complete 10 debit transactions in-store that post and settle during the monthly statement period

In addition, there are 30,000+ surcharge-free ATMs for you to use, and while there are no ATM fee refunds, you receive 10 free ATM fee withdrawals per month — that means America’s Credit Union will not charge you for using an out-of-network ATM, but you will have to pay whatever fee the ATM operator charges.

LEARN MORE Secured

on America's Credit Union’s secure website

3. La Capitol Federal Credit Union – Choice Plus Checking

Monthly Fee

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

$2, waived if you enroll in eStatements

$0*

$50

Up to $25 per month

4.25% APY on balances up to $3,000

2.00% APY on balances $3,000-$10,000

0.10% APY on balances over $10,000 (or on all balances if you don’t make 15 or more posted non-ATM debit card transactions per month)

This checking account has a $2 monthly service fee, which can easily be waived if you enroll in eStatements.

*While the terms state a minimum balance requirement of $1,000 and a low balance fee of $8, the fee can be waived if you make 15 or more posted non-ATM debit card transactions per month.

To earn the top interest rate on your checking balance, you just need to make at least 15 or more posted non-ATM debit card transactions per month. There are numerous surcharge-free La Capitol ATMs for you to use, and after signing up for eStatements you can receive up to $25 per month in ATM fee refunds when you use out-of-network ATMs.

LEARN MORE Secured

on La Capitol Federal Credit Union’s secure website

Check out our full list of the best high-yield checking accounts.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Alexandria White
Alexandria White |

Alexandria White is a writer at MagnifyMoney. You can email Alexandria at alexandria@magnifymoney.com

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College Students and Recent Grads

Education Loan Finance: Student Loan Refinance Review

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

As long as you qualify to refinance your student loans, you may be able to combine multiple student loans into one new loan, lower your interest rate and decrease your monthly payment. Doing so could save you money and make it easier to manage your loans. But remember, if you want to refinance your student loans, you can shop around to make sure you find the best deal.

Student loan refinancing companies may offer you different interest rates, loan terms and benefits, which is why it can be important to compare lenders before deciding which one to use.

What is Education Loan Finance?

In 2012, SouthEast Bank was bought by Education Services of America (also known as Edsouth Services), a nonprofit that’s been in the student loan space for 30 years. SouthEast Bank went on to create Education Loan Finance, or ELFI, a division of SouthEast that offers student loan refinancing. ELFI is based in Knoxville, Tenn., which is also where the customer service representatives are based.

ELFI prides itself on its decades of experience in the student loan industry and the positive reviews it receives from borrowers. It has a student loan refinancing product for graduates, and for parents who took out federal student loans to pay for their child’s education. The program we’re reviewing here is for students who are refinancing their loans.

Education Loan Finance student loan refi in a nutshell

Fixed APR range

3.09% to 6.69%

Variable APR range*

2.69% to 6.01%

Loan terms offered

Five, seven, 10, 15 and 20 years

Fees

The are no application, origination or prepayment fees.

The late fee is the lesser of $50 or 5% of the amount past due.

There’s a $30 returned check or insufficient funds charge.

Maximum loan amount

You must refinance at least $15,000 in student loans. The maximum loan amount varies by applicant.

Cosigners

You can apply with a cosigner.

You can reapply to refinance the loan in your name and release a cosigner.

Savings opportunities

None

Other perks

ELFI will mail you a $100 bonus if you accept your loan offer within 30 days of your application date.
You can earn $400 for referring new ELFI customers.

*Although the interest rate will vary after you are approved, the interest rate will never exceed 9.95% for the 5-year, 7-year, 10-year, 15-year, or 20-year term.

What it takes to qualify with Education Loan Finance

Credit score

680

Income/employment

You or your cosigner must make at least $35,000 a year.

Loan types

  • Federal and private student loans

  • Parent PLUS loans that were taken out to pay for your education.

School/state eligibility

You must graduate with at least a bachelor’s degree from one of the approved post-secondary institutions.

Available to residences of every state, Washington, D.C. and Puerto Rico.

How Education Loan Finance compares with other lenders

You may find that there are a lot of different lenders that offer student loan refinancing. ELFI stands apart from some of the other top lenders with its relatively low interest rates and somewhat strict eligibility requirements.

In general, if you can qualify, ELFI may be one of the better options because the lender doesn’t seem to sugarcoat its offering. For example, ELFI doesn’t offer an interest rate discount if you sign up for automatic payments. Other lenders may offer you a discount, such as 0.25% off your interest rate, while you’re using autopay — and they may advertise this lower rate on their website.

While the lack of a discount may sound like a drawback, it isn’t necessarily a bad thing. If ELFI approves you for a lower rate than other lenders, then you’ll receive this lower rate whether or not you use autopay.

There are other potential advantages and drawbacks to consider as you’re comparing lenders.

Advantages of refinancing with Education Loan Finance

Soft credit pull preapproval. You can check your eligibility and get estimated loan rates with a soft credit check, which won’t hurt your credit score.

Open to residents of every state. While other lenders aren’t able to offer refinancing to residents of some states, ELFI’s refinancing is available to everyone in the U.S.

You can include multiple types of student loans. ELFI lets you combine your federal and private student loans. You can also include a parent PLUS loan, as long as your parent took out the loan to pay for your education.

Forbearance option. You may be able to put your loans in forbearance and temporarily stop making payments for up to 12 months. Eligibility is handled on a case-by-case basis.

Up to a 20-year loan term. ELFI offers five loan terms with both its variable- and fixed-rate loans. While the longest, a 20-year term, may lead to paying more interest over your loan’s lifetime, it may also lower your monthly payment. Having that option is a plus because some lenders don’t offer a 20-year term.

Bonus opportunities. ELFI offers three potential bonuses: a $100 bonus if you’re referred by an ELFI borrower, an additional $100 bonus if you accept a loan within 30 days of submitting your first application and $400 for each new ELFI borrower you refer.

Drawbacks of refinancing with Education Loan Finance

You must earn at least a bachelor’s degree. Other lenders may let you refinance your student loans once you earn an associate’s degree, or if you didn’t graduate.

No cosigner release option. If you add a cosigner to help you qualify for refinancing, or secure a lower interest rate, you may want to remove the cosigner later. Some lenders let you apply for a cosigner release (removing the cosigner without refinancing) after making a series of consecutive on-time payments. While you may need to agree to a credit check and meet all the requirements to take over the loan on your own, you’d keep the original loan terms if you qualify. ELFI does not offer such a cosigner release option.

The only way to remove a cosigner from an ELFI loan is to refinance again, without a cosigner. However, interest rates may have risen since you originally refinanced.

There isn’t a clear policy for death or permanent disability discharge. Some other lenders will always discharge the remaining loan balance if the borrower dies or becomes completely and permanently disabled. ELFI doesn’t have a clear policy and handles situations on a case-by-case basis.

Relatively high minimum credit score requirement. ELFI requires a 680 credit score, which is in line with some other refinancing companies, but a bit higher than a few other lenders that only require a 660 to qualify.

Relatively high minimum income requirement. ELFI requires you, or your cosigner, make at least $35,000 a year to qualify for refinancing. Some lenders only require a $24,000 a year income or don’t have an explicit minimum income requirement.

$15,000 minimum loan requirement. Other lenders may let you refinance as little as $5,000 in student loan debt, but ELFI requires you to refinance at least $15,000.

Who is Education Loan Finance best for?

Since it won’t hurt your credit, there’s no downside to applying for preapproval with ELFI to see if you qualify and check your estimated rates. Even so, the lender may be a better fit for some types of borrowers.

Creditworthy applicants with a high income relative to their debts may pass the eligibility requirements and lock in one of ELFI’s low interest rates. These types of applicants may get the best rates from many student loan refinancing lenders, but they they may not be eligible with other lenders based on where they live or which loans they want to refinance.

ELFI may not be the best option if you need a cosigner because it doesn’t offer a cosigner release, unless you reapply for refinancing again with either ELFI or a different lender. It also might not be a great fit for those who don’t have a lot of outstanding private student loan debt.

Borrowers may want to only refinance their private student loans to avoid losing the benefits on their federal student loans. But ELFI’s $15,000 minimum threshold could be difficult to reach with just your private student loans.

Education Loan Finance

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on Education Loan Finance’s secure website

Taking a closer look at the online platform

Education Loan Finance’s website is intuitive to navigate and focused on its student loan products. There are pages devoted to each product, a few pages about the company or recent company-related news, a blog with personal finance posts and a page with testimonials.

There is also a calculator, several checklists that you can review to see if you’ll be eligible for refinancing and to prepare for the application process and an FAQ page. The FAQ page is broken down into six sections, ranging from general questions to sections about rates or the ELFI bonus programs.

Starting an application is also simple — we detail the process below — and if you want to take a break and start again later, you can log in to your account and pick up wherever you left off.

The fine print

There are a few fine-print items that were fairly easy to find on ELFI’s website. There’s a page with a list of the approved postsecondary schools, as well as a document checklist you can reference to see what you should gather before applying.

The terms page is also helpful, as it has an overview of the potential loan fees, interest rate amount, variable-rate interest rate cap, eligibility requirements and repayment options.

However, there were also a few fine-print items that were difficult to find on the website. A representative from the company confirmed the 12-month potential forbearance period and the case-by-case nature of the death or permanent disability discharge.

What to expect during the application process

ELFI’s online application process straightforward, and you may be able to complete it in just a few minutes.

Create your account

You’ll need to create an account to start your application. After entering your name, email address and password, you’ll be sent an email with a verification code. Submit the code, and you can then fill out your profile with your:

  • Name, address, date of birth and citizenship status
  • The school you attended, highest degree you attained and date of graduation
  • Your Social Security number
  • Whether you own a home, rent or live with family, as well as your monthly housing expense
  • Your gross income
  • The loan amount you’re requesting

You also must agree to a soft credit pull and read the Education Loan Finance’s communication policy before continuing.

Choose a loan term

If you qualify for preapproval, you can now choose between a fixed- or variable-rate loan with a term of either five, seven, 10, 15 or 20 years. You’ll see an estimated interest rate and monthly payment for each loan type.

The final loan offer may vary from these preapproval rates, and you can choose a different interest-rate type and loan term later if you want.

Complete your profile

The next step is to complete your profile by entering your mailing address and choosing three security questions and answers.

Read the loan disclosure forms

There are three loan disclosure forms you must read, and acknowledge that you read, before continuing:

  • The federal loan disclosure form goes over the differences between federal and private student loans.
  • The application disclosure fixed-rate form discusses the fixed-rate loan that Education Loan Finance offers. It will tell you your potential interest rate range, the fees associated with the loan and eligibility requirements, and it has examples of repayment times and amounts.
  • The application disclosure variable rate form is similar to the fixed-rate form, but for Education Loan Finance’s variable-rate loans.

Apply for refinancing

Once you reach this point, you can complete the official application for refinancing. Some of the information will be filled in for you based on what you’ve already entered.

  1. Borrower information. Much of this section will be filled in already, but you may need to add your driver’s license number/state and how long you’ve lived at your current address. If you’ve lived there for fewer than two years, you’ll also need to add your previous address.
  2. Reference information. You need to have two references who are at least 18 years old, don’t live with you and aren’t your cosigner. You’ll have to share the reference’s name, email address, phone number, mailing address and how you know the person.
  3. Employment information. Choose your employment status and then complete the related information about your employer, or how long you’ve been unemployed or retired. If you’re employed, you’ll also be asked to share the company’s address, how many years you’ve worked for the company and your income. You can also add additional sources of income, which may help you qualify for refinancing.
  4. Review application and approve hard credit pull. The fourth step asks you to double-check all your information and then authorize a hard credit pull. A hard pull could affect your credit score.
  5. Student loan information. You’ll need to share information about the student loans that you’re refinancing and may need to upload copies of recent billing statements or payoff letters. The documents should show the loan servicer’s name and address, your account number and the current balance or payoff amount.
  6. Rates. Choose the interest rate type and loan term that you want for your new loan.
  7. Documents. The documents step is where you’ll find copies of the disclosures you previously read. This is also where you can upload additional documents, such as pay stubs or tax returns to verify your income, or a copy of a government-issued ID to verify your identity.

Once you finish the seven steps, ELFI can use the documents you uploaded to verify your eligibility for the loan you chose. You can then sign the promissory note for the new loan to complete the process.

It can take about 30 to 45 days for your current loan servicer(s) to receive the payments for your student loans. You should continue making your loans payments as usual during this period to avoid missing a payment. And don’t worry, if you overpay your loan, the overpayment will decrease your loan balance with ELFI.

If you refinance with ELFI, a company named MOHELA will service your loan. MOHELA should reach out to you so you can set up an account, and you’ll send your monthly payments to MOHELA.

How to compare student loan refinance companies

There are many factors to consider when comparing student loan refinancing companies. The most important ones may be the eligibility requirements so you can rule out potential lenders, and the interest rates that the lenders offer you. The lower your interest rate, the greater your potential savings.

However, there may be other details to compare as well. For example, some lenders may not offer a 20-year term, which you may want if you’re looking to lower your monthly payments. And there are lenders, including SoFi and CommonBond, that give borrowers extra perks, such as invitations to exclusive events.

You can quickly compare lenders’ maximum loan terms, interest rate ranges, maximum loan amounts and transparency scores on MagnifyMoney.

But determining which lender is best for you depends on your circumstances. Once you find a few lenders you think may be a good fit, look to see if they offer a soft credit check preapproval so you can compare estimate interest rates.

Once you’re ready to refinance, submit applications to all the lenders on your short list. Although each application could result in a hard inquiry, which may hurt your credit score, multiple student loan inquiries won’t increase the impact if they occur within a 14-day period. Some, depending on the credit-scoring models, offer a longer “rate shopping” period, but to be safe, it’s a good idea to shop around in as short a period as possible.

After completing the applications, you can compare the official loan offers from each lender and decide which option is best. If you want to see how the different loan offers may affect your savings, you can plug the numbers into our student loan refi calculator.

 

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads

The Ultimate Guide to Paying Off Big Grad School Loans

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

A graduate degree can open up new doors and may lead to higher annual earnings. But earning a degree generally isn’t cheap.

According to the College Board, as of the 2016-2017 academic year, the average graduate student borrowed $42,710 in federal student loan to pay for that year’s schooling — more than six times the $6,590 that the average undergrad borrowed. (Although, on average, parents also borrowed $15,880 to help pay for a child’s undergraduate education.)

And that’s not including any private loans students may have obtained along the way. By the time graduate students finish their degree, they may have a combination of undergraduate and graduate student loans to repay.

Tackling these student loans can be a daunting task, but having a plan could help diminish some of the fear or anxiety that may arise. Here’s a guide to help you navigate the process. You may even learn a few tips or strategies that could save you money or make your monthly payments more affordable.

Get organized and understand your grad school loans

Getting a clear understanding of all your student loans can be an important first step. You may want to start listing your student loans alongside important information for each loan.

Write down the name of the loan servicer, the loan type, the loan amount, remaining amount due, your monthly payment, the loan’s interest rate and whether the loan has a fixed or variable interest rate. Using a spreadsheet could be helpful, as you can then quickly arrange the loans by different criteria, such as the remaining amount due or interest rate.

You may then want to separate your loans into two groups — federal and private student loans — and further separate your federal loans by the federal loan type. These can be important distinctions and you may want to take different approaches to different types of loans.

The different types of student loans

You may have one or more of the following types of student loans:

Private student loans. A variety of institutions offer private student loans, including banks, credit unions, schools, states and online lenders. If you applied for a student loan without first filling out the Free Application for Federal Student Aid (FAFSA), then you took out a private student loan.

Some private student lenders outsource their loan servicing to a third party and the company you make your monthly payments to may not be the same company that lent you the money. You may need to contact that loan servicer, review a recent statement or check your account online to get information on your private student loans.

Federal student loans. The Department of Education offers federal student loans to undergraduate and graduates students, as well as parents of students. The federal government funds the loans, and there have been several different federal student loan programs over the years.

You may have different types of federal loans, including ones from your undergraduate degree. Some of the federal student loans also go by several names. Your loans could include:

  • Direct loans, which may be direct subsidized loans, direct unsubsidized loans, direct consolidation loans, and direct PLUS Loans (also known as grad PLUS loans when offered to a graduate or professional student).
  • Perkins loans
  • Federal Family Education Loan (FFEL), which may include subsidized and unsubsidized Stafford loans, FFEL PLUS loans, and FFEL consolidation loans.

Your federal student loans may be serviced by one or more of the 10 loan servicers that the education department contracts to collect payments. However, you can log into the National Student Loan Data System (NSLDS) to get an overview of all your federal student loans.

Know your options

Once you’ve got your loan information organized, learn about your options for loan forgiveness and repayment. You may be able to use one or more of the programs below to help manage your payments and ultimately get rid of your graduate school debt.

Federal student loan forgiveness programs

Several loan forgiveness programs are exclusively for federal student loans. However, your eligibility may depend on the type of federal loan you have, and you may need to meet other requirements to qualify.

For example, the federal Public Service Loan Forgiveness (PSLF) is only available for direct loans. With PSLF, you’ll have to make 120 qualifying monthly payments while working full time at a qualifying employer to get the remainder of your direct loan forgiven. Our guide to applying for PSLF has more details on determining if your loans qualify and how to get started.

Consolidate your federal loans

You may be able to consolidate your federal student loans into a direct consolidation loan. Consolidation lets you combine multiple loans into a new loan that’s part of the direct loan program.

Consolidating your loans may not save you money because the new loan has the weighted average interest rate of your existing loans. In some cases, since your loan term could be extended, it may even result in you paying more in interest over the lifetime of the loan.

However, consolidation could make managing your loans easier since you’ll have fewer monthly payments to manage, and it could give you access to repayment plans and forgiveness or cancellation programs that are only available to direct loans.

Federal repayment plans

Although you may wind up paying more in interest in the long run, switching repayment plans could lower your monthly payments and make managing your finances a little easier.

Student loans start with a 10-year standard repayment plan. You could change to a graduated repayment plan, which also has a 10-year term but the payments start low and gradually increase. The extended repayment plan, which has a 25-year term, is another option.

There are also income-driven repayment plans that base your monthly payment amount on how much money you earn. An income-driven plan could greatly decrease your monthly payments if you’re not making a lot of money. Plus with four of the plans, the education department will forgive your remaining balance after you make payments for 20 or 25 years on an income-driven plan.

Career-based forgiveness programs

You may be eligible for a variety of loan forgiveness or repayment programs from government or private organizations. Unlike the federal forgiveness programs, your private student loans may also be eligible for some of the programs.

The career-based programs can help you repay undergraduate and graduate degree loans, but they are generally limited to a few qualifying professions, some of which require an advanced degree. These are often service-oriented jobs, such as teachers, attorneys, military members and healthcare professionals.

You may also need to work in a high-need area, such as a federally designated health professional shortage area, for at least a year to qualify for loan repayment assistance.

Employer-based repayment programs

Some employers offer student loan repayment assistance programs (LRAPs) as an employee benefit. The specifics of the programs and the amounts vary, but some employers offer monthly payment toward your private or federal student loans.

Design your repayment road map

Once you know your options, you can start designing your plan for repaying grad school loans and any remaining undergrad debt. Here are a few of the questions you may want to ask yourself:

Which loans should you try to pay off first?

If you’re focused on paying off your graduate student loan debt ahead of schedule, you may want to organize your loans based on which one you want to pay off first.

For example, you could try to pay off the higher rate loans first, which could save you money on interest in the long run. Or, you may want to focus on your private student loans first, since those generally offer fewer options to borrowers who are having trouble making payments.

Should you consolidate your federal student loans?

Consolidating your federal student loans could be a good first step, but there are several pros and cons to consider.

Pros to consolidating your federal loans

  • It may be easier to manage your monthly loan payments if you only have one loan.
  • You can choose your new loan servicer.
  • Non-direct loans, such as FFEL loans, could be eligible for PSLF after consolidation.
  • The consolidated loan may be eligible for more income-driven repayment plans than your previous loans.
  • You may be able to take a loan out of default by consolidating it.
  • The consolidated loan will have a fixed interest rate (some previously issued federal student loans had variable rates).

Cons to consolidating your federal loans

  • If you consolidate all your federal loans, you won’t be able to make extra payments on the loan that has the highest interest rate.
  • You may lose progress you’ve made toward a federal loan forgiveness program.
  • If you consolidate all your loans, and then default on your loans, you won’t be able to consolidate again to take them out of default.
  • Consolidating could increase your loan term, and may lead to paying more interest over time, unless you make more than the required monthly payments.
  • You may lose interest rate discounts or rebates that you had on your loans.

Consider the pros and cons, as well as your circumstances, before rushing to consolidate your federal student loans. You can also pick and choose which loans you want to consolidate. For example, you could only consolidate your relatively low-interest-rate loans. Then, you can still make extra payments on your higher-interest loans.

Does it make sense to refinance any loans?

Private lenders offer student loan refinancing, which involves taking out a new loan to pay off one or more of your existing student loans. Depending on the lender and your creditworthiness, you may be able to qualify for a lower interest rate, which could save you money.

Even if you considered refinancing in the past, and weren’t able to get a good rate, you may want to revisit the option. Your credit score may have risen if you’ve been making your credit card and loan payments on time, and your debt-to-income ratio may be lower if your graduate degree helped you secure a higher paying job. Both of these factors can help you qualify for a better rate.

When you refinance, you can often choose your new loan’s term. A longer term can lead to lower monthly payments, but also paying more in interest over the lifetime of the loan. A shorter term could help you get a lower interest rate, but your required monthly payments could increase.

Keep in mind, there’s no prepayment fee for student loans. So, even if you refinance with a longer term and have a lower required monthly payment, you could pay extra and repay your loans early.

Your new loan may maintain its status as an educational loan, which means you may still be eligible for a tax deduction. However, once you refinance a student loan, it will be a private student loan. As a result, the loan won’t be eligible for any of the federal loan forgiveness, cancellation, discharge or repayment programs.

One option could be to only refinance your private student loans. Or, you may find it makes sense to refinance a few federal loans that have a higher interest rate, such as your grad school loans, while leaving other federal loans untouched.

If you do decide to refinance your student loans, comparing lenders can be a good idea since different lenders may offer you different interest rates, loan terms and benefits.

Strategies for getting ahead of graduate student debt

Being proactive and following through on your road map could help you repay your loans early. Here are a few strategies and tips that could help:

Create a budget and look for ways to save

A budget is a tally of your income and expenses broken down by category, and many free and inexpensive apps can help you with the tracking and organization. Knowing where your money comes from and goes to each month can be an important step in getting your finances in order, and may provide insights into savings opportunities.

For instance, you may find that you’re spending a lot of money eating out each month or paying for subscription services you rarely use. Cutting back on these expenses could help you free up money that you can then put toward your student loans.

Increase your income: negotiate a raise, change jobs or find a side gig

While saving money can help you pay down loans, there’s usually a limit to how much you can cut back. On the other hand, you may be able to greatly increase your income, maintain your standard of living and make big strides in paying down your debt.

While it’s not necessarily a quick or simple process, negotiating a raise is one way to increase your income. Alternatively, you may be able to get a higher pay increase if you’re open to changing companies or finding a new job in your field.

In the meantime (or in addition) you could get a side gig to earn extra money. There are a number of opportunities, ranging from turning a hobby into a source of income, to using one of the many “sharing economy” apps. You also may be able to leverage the specialized knowledge you obtained while earning your graduate degree, and use the side gig experience to build your resume or help make your case for why you deserve a raise.

Make (targeted) extra payments

Research how your student loan servicer will apply additional payments to your loans before you send a payment. Some servicers may split the payment amount between all your loans or use the money to prepay next month’s bill unless you specify how you want them to apply the payment. And, even if you don’t owe anything next month, they may still withdraw money from your account if you signed up for autodebit.

Whether you’re paying extra each month, or get a large gift, bonus or tax refund that you want to use to repay student loans, you want to make sure the payment aligns with your strategy. Ask your loan servicer how you can ensure this happens, and check your loan balances after you send in payments to make sure they were applied correctly.

Ask for help if you are struggling

While your aim may be to quickly pay down your grad school loans, you could find yourself falling behind on payments or struggling to meet all your financial obligations. If this happens, reach out to your student loan servicer and ask about your options.

You may be able to switch repayment plans, or the servicer may allow you to temporarily stop making payments while you get your finances in order. However, if you miss a payment, you may wind up having to pay late fees and hurting your credit.

Keep your entire financial situation in mind

You might be focused on paying off your grad school debt as quickly as possible, and that’s a commendable undertaking. However, consider your grad school loans within the context of your entire financial situation.

In some cases, you may want to start by paying down other, higher interest debt before your student loans. Doing so could free up the money you’d been spending on interest payments, which you can then use to pay off your student loans.

Building an emergency fund could also be a priority, as it can help you weather a financial setback without having to take on additional high-interest debt.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads, Pay Down My Debt

7 Best Options to Refinance Student Loans – Get Your Lowest Rate

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Updated: June 1, 2018

Are you tired of paying a high interest rate on your student loan debt? You may be looking for ways to refinance your student loans at a lower interest rate, but don’t know where to turn. We have created the most complete list of lenders currently willing to refinance student loan debt. We recommend you start here and check rates from the top 7 national lenders offering the best student loan refinance products. All of these lenders (except Discover) also allow you to check your rate without impacting your score (using a soft credit pull), and offer the best rates of 2018:

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

3.40% - 7.75%


Fixed Rate*

2.63% - 7.70%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
Learn more Secured
earnestA+

20


Years

3.25% - 6.32%


Fixed Rate

2.57% - 5.87%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
commonbondA+

20


Years

3.20% - 7.25%


Fixed Rate

2.57% - 7.25%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
lendkeyA+

20


Years

3.15% - 8.79%


Fixed Rate

2.68% - 8.06%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan
Learn more Secured
A+

20


Years

3.37% - 7.02%


Fixed Rate

2.80% - 5.90%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
A+

20


Years

3.50% - 8.69%


Fixed Rate

2.62% - 8.07%


Variable Rate

$90k / $350k


Undergraduate /
Graduate
Learn more Secured
A+

20


Years

5.24% - 8.24%


Fixed Rate

4.74% - 7.99%


Variable Rate

$150k


Undergraduate /
Graduate
Learn more Secured

You should always shop around for the best rate. Don’t worry about the impact on your credit score of applying to multiple lenders: so long as you complete all of your applications within 14 days, it will only count as one inquiry on your credit score.

We have also created:

But before you refinance, read on to see if you are ready to refinance your student loans.

Can I get approved?

Loan approval rules vary by lender. However, all of the lenders will want:

  • Proof that you can afford your payments. That means you have a job with income that is sufficient to cover your student loans and all of your other expenses.
  • Proof that you are a responsible borrower, with a demonstrated record of on-time payments. For some lenders, that means that they use the traditional FICO, requiring a good score. For other lenders, they may just have some basic rules, like no missed payments, or a certain number of on-time payments required to prove that you are responsible.
LenderMinimum credit scoreEligible degreesEligible loansAnnual income
requirements
Employment
requirement
 
SoFi

Good or Excellent
score needed

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured
earnest

660

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured
commonbond

660

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

680

Undergraduate
& Graduate

Private & Federal

$24K

Yes

Learn more Secured

Not published

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

680

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

$24K

Yes

Learn more Secured

Not published

Undergraduate
& Graduate

Private & Federal

None

Yes

Learn more Secured

Diving Deeper: The best places to consider a refinance

If you go to other sites they may claim to compare several student loan offers in one step. Just beware that they might only show you deals that pay them a referral fee, so you could miss out on lenders ready to give you better terms. Below is what we believe is the most comprehensive list of current student loan refinancing lenders.

You should take the time to shop around. FICO says there is little to no impact on your credit score for rate shopping as many providers as you’d like in a single shopping period (which can be between 14-30 days, depending upon the version of FICO). So set aside a day and apply to as many as you feel comfortable with to get a sense of who is ready to give you the best terms.

Here are more details on the 7 lenders offering the lowest interest rates:

1. SoFi

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on SoFi’s secure website

Read Full Review

SoFi : Variable rates from 2.63% and Fixed Rates from 3.40% (with AutoPay)*

SoFi was one of the first lenders to start offering student loan refinancing products. More MagnifyMoney readers have chosen SoFi than any other lender. The only requirement is that you graduated from a Title IV school. In order to qualify, you need to have a degree, a good job and good income.

Pros Pros

  • Borrowers can refinance private, federal and Parent PLUS loans together: Through SoFi, borrowers have the ability to combine all of their student loans (private, federal and Parent PLUS) when refinancing. Along with the ability to refinance Parent PLUS loans, parents can also transfer the PLUS loans into their child’s name.
  • Access to career coaches: SoFi offers their borrowers access to their Career Advisory Group who work one-on-one with borrowers to help plan their career paths and futures.
  • Unemployment protection: SoFi offers some help if you lose your job. During the period of unemployment they will pause your payments (for up to 12 months) and work with you to find a new job. However, just remember that any unemployment protection offered by SoFi would be weaker than the income-driven repayment options of federal loans.

Cons Cons

  • No cosigner release: While they offer you the opportunity to refinance with a cosigner, it is important to know that SoFi does not offer borrowers the opportunity to release a cosigner later on down the road.
  • You lose certain protections if you refinance a federal loan: This con is not unique to SoFi (and you will find it with all other private lenders). Federal loans come with certain protections, including robust income-driven payment protection options. You will forfeit those protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

SoFi is really the original student loan refinance company, and is now certainly the largest. SoFi has consistently offered low interest rates and has received good reviews for service. In addition, SoFi invests heavily in building a “community” – which means you can start to get other benefits once you are a SoFi member.

SoFi has taken a radical new approach when it comes to the online finance industry, not only with student loans but in the personal loan, wealth management and mortgage markets as well. With their career development programs and networking events, SoFi shows that they have a lot to offer, not only in the lending space but in other aspects of their customers lives as well.

2. Earnest

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on Earnest’s secure website

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Earnest : Variable Rates from 2.57% and Fixed Rates from 3.25% (with AutoPay)

Earnest focuses on lending to borrowers who show promise of being financially responsible borrowers. Because of this, they offer merit-based loans versus credit-based ones. 

Pros Pros

  • Flexible repayment options: Earnest offers some of the most flexible options when it comes to repayment. They allow you to choose any term length between 5-20 years. You can choose your own monthly payment, based upon what you can afford (to the penny). Earnest also offers bi-weekly payments and “skip a payment” if you run into difficulty.
  • Ability to switch between variable and fixed rates: With Earnest, you can switch between fixed and variable rates throughout the life of your loan. You can do that one time every six months until the loan is paid off. That means you can take advantage of the low variable interest rates now, and then lock in a higher fixed rate later.
  • Loans serviced in-house: Earnest is one of just a few lenders that provides in-house loan servicing versus using a third-party servicer.

Cons Cons

  • Cannot apply with a cosigner: Unlike many of the other lenders, Earnest does not allow borrowers to apply for student loan refinancing with a cosigner.
  • No option to transfer Parent PLUS loans to Child: If you are a parent that is looking to refinance your Parent PLUS loan into your child’s name, it is important to note that this cannot be done through refinancing with Earnest.
  • You lose certain protections if you refinance a federal loan: When refinancing with any private lender, you will give up certain protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

Earnest, who was recently acquired by Navient, is making a name for themselves within the student refinancing space. With their flexible repayment options and low rates, they are definitely an option worth exploring.

3. CommonBond

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on CommonBond’s secure website

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CommonBond : Variable Rates from 2.57% and Fixed Rates from 3.20% (with AutoPay)

CommonBond started out lending exclusively to graduate students. They initially targeted doctors with more than $100,000 of debt. Over time, CommonBond has expanded and now offers student loan refinancing options to graduates of almost any university (graduate and undergraduate).

Pros Pros

  • Hybrid loan option: CommonBond offers a unique “Hybrid” rate option in which rates are fixed for five years and then become variable for five years. This option can be a good choice for borrowers who intend to make extra payments and plan on paying off their student loans within the first five years. If you can a better interest rate on the Hybrid loan than the Fixed-rate option, you may end up paying less over the life of the loan.
  • Social promise: CommonBond will fund the education of someone in need in an emerging market for every loan that closes. So not only will you save money, but someone in need will get access to an education.
  • “CommonBridge” unemployment protection program: CommonBond is here to help if you lose your job. Similar to SoFi, they will pause your payments and assist you in finding a new job.

Cons Cons

  • Does not offer refinancing in the following states: Idaho, Louisiana, Mississippi, Nevada, South Dakota and Vermont.
  • You lose certain protections if you refinance a federal loan: When refinancing with any private lender, you will give up certain protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

CommonBond not only offers low rates but is also making a social impact along the way. Consider checking out everything that CommonBond has to offer in term of student loan refinancing.

4. LendKey

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on LendKey’s secure website

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LendKey : Variable Rates from 2.68% and Fixed Rates from 3.15% (with AutoPay)

LendKey works with community banks and credit unions across the country. Although you apply with LendKey, your loan will be with a community bank. Over the past year, LendKey has become increasingly competitive on pricing, and frequently has a better rate than some of the more famous marketplace lenders.

Pros Pros

  • Opportunity to work with local banks and credit unions: LendKey is a platform of community banks and credit unions, which are known for providing a more personalized customer experience and competitive interest rates.
  • Offers interest-only payment repayment: Many of the lenders on LendKey offer the option to make interest-only payments for the first four years of repayment.

Cons Cons

  • Rates can vary depending on where you live: The rate that is advertised on LendKey is the lowest possible rate among all of its lenders, and some of these lenders are only available to residents of specific areas. So even if you have an excellent credit report, there is still a possibility that you will not receive the lowest rate, depending on geographic location.
  • No Parent PLUS refinancing available: Unlike several of the other student loan refinancing companies, borrowers do not have the ability to refinance Parent PLUS loans with LendKey.
  • You lose certain protections if you refinance a federal loan: As when refinancing federal loans with any private lender, you will give up your federal protections if you refinance your federal loan to a private one.

Bottom line

Bottom line

LendKey is a good option to keep in mind if you are looking for an alternative to big bank lending. If you prefer working with a credit union or community bank, LendKey may be the route to uncovering your best offer.

5. Laurel Road Bank

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on Laurel Road Bank’s secure website

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Laurel Road Bank : Variable Rates from 2.80% and Fixed Rates from 3.37% (with AutoPay)

Laurel Road Bank offers a highly competitive product when it comes to student loan refinancing.

Pros Pros

  • Forgiveness in the case of death or disability: They may forgive the total student loan amount owed if the borrower dies before paying off their debt. In the case that the borrower suffers a permanent disability that results in a significant reduction to their income,Laurel Road Bank may forgive some, if not all of the amount owed.
  • Offers good perks for Residents and Fellows: Laurel Road Bank allows medical and dental students to pay only $100 per month throughout their residency or fellowship and up to six months after training. It is important for borrowers to keep in mind that the interest that accrues during this time will be added on to the total loan balance.

Cons Cons

  • Higher late fees: While many lenders charge late fees,Laurel Road Bank’s late fee can be slightly steeper than most at 5% or $28 (whichever is less) for a payment that is over 15 days late.
  • You lose certain protections if you refinance a federal loan: While not specific to Laurel Road Bank, it is important to keep in mind that you will give up certain protections when refinancing a federal loan with any private lender.

Bottom line

Bottom line

As a lender,Laurel Road Bank prides itself on offering personalized service while leveraging technology to make the student loan refinancing process a quick and simple one. Consider checking out their low-rate student loan refinancing product, which is offered in all 50 states.

6. Citizens Bank

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on Citizens Bank (RI)’s secure website

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Citizens Bank (RI) : Variable Rates from 2.62% and Fixed Rates from 3.50% (with AutoPay)

Citizens Bank offers student loan refinancing for both private and federal loans through its Education Refinance Loan.

Pros Pros

No degree is required to refinance: If you are a borrower who did not graduate, with Citizens Bank, you are still eligible to refinance the loans that you accumulated over the period you did attend. In order to do so, borrowers much no longer be enrolled in school.

Loyalty discount: Citizens Bank offers a 0.25% discount if you already have an account with Citizens.

Cons Cons

Cannot transfer Parent PLUS loans to Child: If you are looking to refinance your Parent PLUS loan into your child’s name, this cannot be done through Citizens Bank.

You lose certain protections if you refinance a federal loan: Any time that you refinance a federal loan to a private loan, you will give up the protections, forgiveness programs and repayment plans that come with the federal loan.

Bottom line

Bottom line

The Education Refinance Loan offered by Citizens Bank is a good one to consider, especially if you are looking to stick with a traditional banking option. Consider looking into the competitive rates that Citizens Bank has to offer.

7. Discover

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on Discover Student Loans’s secure website

Discover Student Loans : Variable Rates from 4.74% and Fixed Rates from 5.24% (with AutoPay)

Discover, with an array of competitive financial products, offers student loan refinancing for both private and federal loans through their private consolidation loan product.

Pros Pros

  • In-house loan servicing: When refinancing with Discover, they service their loans in-house versus using a third-party servicer.
  • Offer a variety of deferment options: Discover offers four different deferment options for borrowers. If you decide to go back to school, you may be eligible for in-school deferment as long as you are enrolled for at least half-time. In addition to in-school deferment, Discover offers deferment to borrowers on active military duty (up to 3 years), in eligible public service careers (up to 3 years) and those in a health professions residency program (up to 5 years).

Cons Cons

  • Performs a hard credit pull: While most lenders do a soft credit check, Discover does perform a hard pull on your credit.
  • No Parent PLUS refinancing available: Discover does not offer borrowers the option of refinancing their Parent PLUS loans.
  • You lose certain protections if you refinance a federal loan: Be careful when deciding to refinance your federal student loans because when doing so, you will lose access federal protections, forgiveness programs and repayment plans.

Bottom line

Bottom line

If you’re looking for a well-established bank to refinance your student loans, Discover may be the way to go. Just keep in mind that if you apply for a student loan refinance with Discover, they will do a hard pull on your credit.

 

Additional Student Loan Refinance Companies

In addition to the Top 7, there are many more lenders offering to refinance student loans. Below is a listing of all providers we have found so far. This list includes credit unions that may have limited membership. We will continue to update this list as we find more lenders:

Traditional Banks

  • First Republic Eagle Gold. The interest rates are great, but this option is not for everyone. Fixed rates range from 1.95% – 3.95% APR. You need to visit a branch and open a checking account (which has a $3,500 minimum balance to avoid fees). Branches are located in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland (Oregon), Boston, Palm Beach (Florida), Greenwich or New York City. Loans must be $60,000 – $300,000. First Republic wants to recruit their future high net worth clients with this product.
  • Wells Fargo: As a traditional lender, Wells Fargo will look at credit score and debt burden. They offer both fixed and variable loans, with variable rates starting at 4.74% and fixed rates starting at 5.24%. You would likely get much lower interest rates from some of the new Silicon Valley lenders or the credit unions.

Credit Unions

  • Alliant Credit Union: Anyone can join this credit union. Interest rates start as low as 4.75% APR. You can borrow up to $100,000 for up to 25 years.
  • Eastman Credit Union: Credit union membership is restricted (see eligibility here). Fixed rates start at 6.50% and go up to 8% APR.
  • Navy Federal Credit Union: This credit union offers limited membership. For men and women who serve (or have served), the credit union can offer excellent rates and specialized underwriting. Variable interest rates start at 4.07% and fixed rates start at 4.70%.
  • Thrivent: Partnered with Thrivent Federal Credit Union, Thrivent Student Loan Resources offers variable rates starting at 3.63% APR and fixed rates starting at 3.99% APR. It is important to note that in order to qualify for refinancing through Thrivent, you must be a member of the Thrivent Federal Credit Union. If not already a member, borrowers can apply for membership during the student refinance application process.
  • UW Credit Union: This credit union has limited membership (you can find out who can join here, but you had better be in Wisconsin). You can borrow from $5,000 to $150,000 and rates start as low as 3.57% (variable) and 3.99% APR (fixed).

Online Lending Institutions

  • Education Loan Finance:This is a student loan refinancing option that is offered through SouthEast Bank. They have competitive rates with variable rates ranging from 2.69% – 6.01% APR and fixed rates ranging from 3.09% – 6.69% APR. Education Loan Finance also offers a “Fast Track Bonus”, so if you accept your offer within 30 days of your application date, you can earn $100 bonus cash.
  • EdVest: This company is the non-profit student loan program of the state of New Hampshire which has become available more broadly. Rates are very competitive, ranging from 4.29% – 7.89% (fixed) and 3.94% – 7.54% APR (variable).
  • IHelp : This service will find a community bank. Unfortunately, these community banks don’t have the best interest rates. Fixed rates range from 4.00% to 8.00% APR (for loans up to 15 years). If you want to get a loan from a community bank or credit union, we recommend trying LendKey instead.
  • Purefy: Purefy lenders offer variable rates ranging from 2.42%-8.07% APR and fixed interest rates ranging from 3.50% – 9.64% APR. You can borrow up to $150,000 for up to 15 years. Just answer a few questions on their site, and you can get an indication of the rate.
  • RISLA: Just like New Hampshire, the state of Rhode Island wants to help you save. You can get fixed rates starting as low as 3.49%. And you do not need to have lived or studied in Rhode Island to benefit.

Is it worth it to refinance student loans?

If you are in financial difficulty and can’t afford your monthly payments, a refinance is not the solution. Instead, you should look at options to avoid a default on student loan debt.

This is particularly important if you have Federal loans.

Don’t refinance Federal loans unless you are very comfortable with your ability to repay. Think hard about the chances you won’t be able to make payments for a few months. Once you refinance student loans, you may lose flexible Federal payment options that can help you if you genuinely can’t afford the payments you have today. Check the Federal loan repayment estimator to make sure you see all the Federal options you have right now.

If you can afford your monthly payment, but you have been a sloppy payer, then you will likely need to demonstrate responsibility before applying for a refinance.

But, if you can afford your current monthly payment and have been responsible with those payments, then a refinance could be possible and help you pay the debt off sooner.

Like any form of debt, your goal with a student loan should be to pay as low an interest rate as possible. Other than a mortgage, you will likely never have a debt as large as your student loan.

If you are able to reduce the interest rate by refinancing, then you should consider the transaction. However, make sure you include the following in any decision:

Is there an origination fee?

Many lenders have no fee, which is great news. If there is an origination fee, you need to make sure that it is worth paying. If you plan on paying off your loan very quickly, then you may not want to pay a fee. But, if you are going to be paying your loan for a long time, a fee may be worth paying.

Is the interest rate fixed or variable?

Variable interest rates will almost always be lower than fixed interest rates. But there is a reason: you end up taking all of the interest rate risk. We are currently at all-time low interest rates. So, we know that interest rates will go up, we just don’t know when.

This is a judgment call. Just remember, when rates go up, so do your payments. And, in a higher rate environment, you will not be able to refinance your student loans to a better option (because all rates will be going up).

We typically recommend fixing the rate as much as possible, unless you know that you can pay off your debt during a short time period. If you think it will take you 20 years to pay off your loan, you don’t want to bet on the next 20 years of interest rates. But, if you think you will pay it off in five years, you may want to take the bet. Some providers with variable rates will cap them, which can help temper some of the risk.

You can also compare all of these loan options in one chart with our comparison tool. It lists the rates, loan amounts, and kinds of loans each lender is willing to refinance. You can also email us with any questions at info@magnifymoney.com.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Best of, College Students and Recent Grads, Credit Cards

Best Student Credit Cards June 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Getting a credit card while you’re in college might seem dangerous or confusing. But if you are able to use a student credit card responsibly, you do not need to be afraid, and you can set yourself up for financial success after you leave school.

Fortunately, learning how to choose and use the right student credit card is relatively simple. Make sure you avoid annual fees and go with a bank or credit union you can trust. When you get the card, make sure you use it responsibly and pay the balance in full and on time every month. If you do these things consistently over time, you can leave school with an excellent credit score. And if you want to rent an apartment or buy a car, having a good credit score is very important.

Our Top Pick

Discover it® Student Cash Back

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on Discover Bank’s secure website

Rates & Fees

Read Full Review

Discover it® Student Cash Back

Annual fee
$0
Cashback Rate
5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com, or wholesale clubs up to the quarterly maximum each time you activate. 1% unlimited cash back automatically on all other purchases.
Regular APR
14.49%-23.49%

Variable

Credit required
fair-credit
Fair

Best for Commuter Students

Bank of America® Cash Rewards Credit Card for Students

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on Bank Of America’s secure website

Bank of America® Cash Rewards Credit Card for Students

Annual fee
$0
Cashback Rate
1% cash back on every purchase, 2% at grocery stores and wholesale clubs, and 3% on gas for the first $2,500 in combined grocery/wholesale club/gas purchases each quarter
Regular Purchase APR
14.74%-24.74%

Variable

Credit required
fair-credit

Average

Best Flat-Rate Card

Journey® Student Rewards from Capital One®

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on Capital One’s secure website

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Journey® Student Rewards from Capital One®

Annual fee
$0
Cashback Rate
Earn 1% cash back on all your purchases. Pay on time to boost your cash back to a total of 1.25% for that month.
Regular Purchase APR
24.74%

Variable

Credit required
fair-credit
Average

Best Intro Bonus

Wells Fargo Cash Back College℠ Card

Annual fee
$0
Cashback Rate
3% cash rewards on gas, grocery, and drugstore purchases for the first 6 months, 1% cash rewards on virtually all other purchases.
Regular Purchase APR
12.65%-22.65%

Variable

Credit required
fair-credit
Fair Credit

Best Credit Union Card

Altra Federal Credit Union Student Visa

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on Altra’s secure website

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Altra Federal Credit Union Student Visa

Annual fee
$0 For First Year
$0 Ongoing
Rewards
1 point per dollar spent
Regular Purchase APR
15.15%

Fixed

Credit required
zero-credit
New to Credit

Best for Studying Abroad

Bank of America® Travel Rewards Credit Card for Students

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on Bank Of America’s secure website

Bank of America® Travel Rewards Credit Card for Students

Annual fee
$0
Rewards
1.5 points per dollar spent
Regular Purchase APR
16.49%-24.49%

Variable

Credit required
fair-credit
Fair Credit, Limited Credit history

Best Secured Card

Discover it® Secured

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on Discover Bank’s secure website

Rates & Fees

Read Full Review

Discover it® Secured

Annual fee
$0
Minimum Deposit
$200
Regular APR
24.49%

Variable

Credit required
bad-credit
Bad

Best for No Credit History

Deserve® EDU Mastercard

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on Deserve’s secure website

Deserve® EDU Mastercard

Annual fee
$0
Cashback Rate
1% on all purchases
Regular Purchase APR
20.24%

Variable

Credit required
zero-credit
New to Credit

Also ConsiderAlso Consider

Golden 1 Platinum Rewards for Students

Golden 1 Credit Union Platinum Rewards for Students:

This credit card offers a snazzy rewards program: rather than accumulate points, you’ll get a cash rebate instead. All you have to do is make a purchase. At the end of the month, you’ll get a rebate of 3% of gas, grocery, and restaurant purchases, and 1% of all other purchases deposited back into your Golden 1 savings account at the end of the month. You can join Golden 1 by joining the Financial Fitness Association for $8 per year and keeping at least $5 in a savings account.

What should I look for in a student credit card?

The most important thing to consider when looking for a student credit card is that it charges no annual fee. You should never have to pay to build your credit score. Fortunately, most student cards don’t charge you an annual fee, but it’s still something to watch out for.

The second most important thing you should keep an eye out for are tools that help you learn about credit or even promote good credit-building habits. For example, some student credit cards will give you a free monthly FICO® score update. You can use this freebie to see in real time how your credit score changes as you build credit history by keeping the card open, or paying down your credit card balance, for example.

The last thing you should be considering when picking out a student credit card is the rewards program. I know, I know, it seems counterintuitive. But stick with me — I’ll show you why in the next question.

Why shouldn’t I be concerned about maximizing my rewards while in college?

Rewards cards are nice to have. But if you’re a college student, here’s the truth: you probably won’t spend enough to earn meaningful rewards.

Why? With a good rewards program, you can earn points or cash back. A small percentage of your monthly spending can add up quickly. However, given the tight budget that most college students live on, it will probably take a while to earn meaningful rewards. For example, if you earn 1.25% cash back and spend $300 a month on your card, you would earn $45 of cash back during the year.

College students are very good at making good use of $45. And our favorite card offers a great cash back rewards program. Just don’t expect to earn a lot of cash back, given the tight budget of a college student.

Why should I get a credit card as a college student?

There are a lot of great reasons why you should get a credit card, as long as you can commit to using it responsibly.

The single biggest reason why you should get a credit card as a college student is because you can start establishing a credit history now. When you graduate from college, you will need a good credit score to get an apartment. And your future employer will likely check your credit report. Building a good credit history while still in college will help prepare you for life after graduation.

Getting a credit card while in college can also train you to develop good credit habits now. But you need to be honest with yourself. If you find that you can’t avoid the temptation of maxing out your credit card, you might want to switch to a debit card or cash.

Finally, getting a credit card now can be the motivation you need to start learning about credit. These skills aren’t hard to learn, and they could save you thousands or even hundreds of thousands of dollars later in life (when you want a mortgage, for example).

What is the CARD Act and why should I care about it?

Many years ago, credit card companies would market on college campuses. You could get a free beer mug or t-shirt in exchange for a credit card application. And you would be able to qualify for a credit card without having any income. The Credit Card Accountability Responsibility and Disclosure (CARD) Act was signed into law in May 2009 to change a number of practices.

How did the CARD Act change student credit cards?

The CARD Act made a lot of changes in how credit card issuers do business with students. One of the biggest changes was requiring students to be able to demonstrate an ability to pay. If you are under 21 and do not have sufficient income (a campus job, for example), you would need to get a co-signer.

In addition, colleges must now limit the amount of credit card marketing on campus. The days of free t-shirts and pizzas in exchange for credit card applications are gone. But that doesn’t mean it is impossible for a college student to get a credit card. Some highly reputable banks and credit unions still offer student cards. And building a good credit score while still in college is still highly recommended.

How can I protect myself from racking up debt?

When used properly, credit cards are a very convenient method of repayment. However, when not used properly, you can end up deep in credit card debt. It is important to establish a healthy relationship to credit now, with your first credit card.

You should try to ensure that you pay off your credit card bill in full and on time every month. Ideally, you should set up an automatic monthly payment. And to keep yourself on track, take advantage of alerts offered by most credit card companies. You can even get daily text messages reminding you of your balance.

How can I automate my credit card usage?

If all of this sounds confusing, don’t worry. There’s actually a way you can automate your payments so you never even have to bother with the hassle of using a credit card. All it takes is a few minutes of upfront work.

First, you’ll need at least one recurring monthly bill of the same amount, such as Netflix or Spotify. Log in to your account and set up an automatic payment each month using your credit card. Make a note of how much your monthly bill costs.

Next, log in to your bank account. Set up a second automatic payment to go to your credit card each month for the same amount as the bill. If your bank doesn’t offer the option to set up automatic payments, you may also be able to set up your credit card to automatically withdraw the amount of the bill from your bank.

Because you know this bill will be for the same amount each month (barring any price increases), you can literally just leave this running in the background each month on autopilot. You don’t even have to carry your credit card in your wallet if you don’t want to. Then, when you graduate, you’ll automatically have an improved credit score!

What happens to my student credit card when I graduate?

Congratulations! You’ve made it to the finish line. But what about your student credit card? You will have a few options once you graduate and we detail them here.

Here is a summary of our favorite cards:

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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College Students and Recent Grads

Understanding Student Loan Interest Rates

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

Looking into student loans to pay for college or graduate school? Before you take on debt, it’s important to understand how the interest on student loans work, so you can make smart decisions before you borrow and when it comes time to repay the debt.

Understanding how student loan interest works

When you take out a student loan, the lender charges interest as a fee for borrowing the money. Interest on student loans isn’t a flat fee. Instead, interest on student loans is expressed as a percentage of the unpaid loan amount. Right now, federal direct unsubsidized loans for undergraduates carry a 4.45% annual interest rate (but they’re about to go up for the 2018-19 school year). That means the lender charges 4.45% of the unpaid loan balance per year.

When interest on a student loan goes unpaid, the balance of the loan grows over time. For example, during college many students “defer” student loan payments. In general, during deferment, the bank continues to charge interest, so the balance grows over time. A student who borrows $5,000 at a 4.45% interest rate at the start of his freshman year of college will owe $5,974 four years later when he starts making payments. Generally, any unpaid interest is added to the principal balance once the loan enters the repayment period.

Even though interest rates on student loans are expressed as an annualized interest rate (such as 4.45% per year), interest on federal student loans is determined by a daily interest rate. A 4.45% annual interest rate translates to a 0.0122% daily interest rate.

Once you start making standard monthly payments on the loan, the balance of the loan and dollar amount of interest being charged each day drops. For example, on a 10-year repayment plan, the $5,000 loan that grew to $5,974 loan from the previous example will have a $61.77 monthly payment.

After making the first payment, the balance will fall by $39.62 to $5,934 — the other $22.15 goes toward paying interest. By contrast, with the last payment, $61.27 goes toward balance reduction, and just $0.23 goes towards paying interest.

Many people have heard stories of student loan borrowers who have faithfully made regular payments for decades but have barely made a dent in their balance or owe more money today than when they graduated from college. This doesn’t happen when borrowers make payments based on standard repayment plans. However, it can happen when federal loan borrowers opt for income-driven repayment plans. Under these plans, the monthly payment is based on a person’s income, not on a repayment schedule. That means that the required monthly payment could be less than the amount of interest that the lender charges on the loan. In that case, the balance of the loan grows over time, and the amount of interest charged grows, too.

Variable vs. fixed interest rates

All federal student loans disbursed since July 1, 2006, have fixed interest rates, meaning the interest rate will never change. By contrast, some private lenders offer variable-rate loans. Variable-rate loans are loans where the interest rate may change over time. In general, variable interest rates are set based on an index rate such as the LIBOR (London Interbank Offered Rates). When the LIBOR increases, the variable interest rate on a student loan increases. When it decreases, the interest rate on a student loan decreases. The interest rate on a variable-rate loan could change as often as once a month.

As the interest rate on a variable-rate loan changes, the minimum monthly payment changes, too. A higher interest rate will mean a higher monthly payment, and a lower interest rate will mean a lower monthly payment.

Some variable-rate loans will have maximum interest rates. That means, no matter how high the index rate goes, the lender will not charge more than the maximum rate.

The primary advantage of fixed-rate loans are that borrowers will know exactly how much they owe each month, which makes it easy to budget for. However, most private lenders set higher interest rates for fixed-rate student loans compared with variable-rate loans. That means that borrowers could end up paying more in interest over time.

The lower starting interest rates mean that some people may save money by opting for a variable-rate loan. But variable-rate student loans are riskier than fixed-rate loans. The changing interest rates could mean that borrowers have to make large monthly payments and pay more in interest over the life of a loan.

When should borrowers choose a fixed-rate student loan?

No wiggle room in budget: Fixed-rate student loans are an ideal choice if you don’t have a ton of wiggle room in your budget. You may pay a bit more — but you might not — and you don’t have to worry about your monthly payment increasing.

Long repayment periods: Fixed-rate loans also tend to make sense if your repayment plan will last several years. By contrast, variable rate loans are riskier when you face longer repayment periods. Longer repayments mean that you’ll face a higher risk that the rate will increase significantly from where you first took out the loan.

Small rate difference between fixed- and variable-rate loans: Variable-rate loans often have lower prices, but you get that lower price by taking on more risk. If the interest rate you’ll pay on a fixed-rate loan is just a tiny bit more than the interest rate on a variable-rate loan, the peace of mind is probably well worth the financial cost. Plus, if interest rates fall, you may be able to refinance to a lower, fixed rate in the future.

When should borrowers choose variable-rate student loans?

Expect rapid loan payoff: Borrowers who plan to aggressively pay back loans (and cut years off of standard repayment plans) can take advantage of lower interest rates in the early years of the loan. Even if interest rates rise over time, people who aggressively pay back loans in the early years will save enough in interest to compensate for the higher rate in the later years.

Rate difference between fixed- and variable-rate loans: Most of the time, variable-rate loans are less than 1% cheaper than fixed-rate loans. This offers some savings. But depending on your borrower qualifications (credit score, debt-to-income ratio, etc.), you may qualify for a much better variable-rate loan. If you personally qualify for a much lower rate on a variable rate loan (compared with a similar fixed-rate loan), you can expect to save a lot of cash over the life of a loan, even when student loan interest rates start to rise.

Federal student loan interest rates

Congress sets interest rates on federal student loans. Once you borrow the money, the interest rate on the loan will not change because federal student loans have fixed interest rates, but not all federal student loans have the same interest rates. For example, direct unsubsidized and subsidized loans for undergraduates carry a 4.45% interest rate for the 2017-18 school year. The same loan for graduate or professional students is 6%. PLUS loans, which are available for parents and graduate students, have a 7% interest rate. For federal student loans disbursed between July 1, 2018 and June 30, 2019, rates are as follows: 5% for undergraduate loans, 6.6% for graduate and professional unsubsidized loans and 7.6% for PLUS loans borrowed by parents or graduate and professional students.

How does interest work during deferment?

Many students defer payment on their student loans while they are studying or for select other reasons, such as unemployment or active-duty military service, if their loans offer such flexibility (some private loans and all federal loans do).

During deferment and the grace period following graduation, you will not make payments on your student loans, but interest continues to accrue on the loan. Interest that accrues during deferment is added to the balance of the loan, so your principal loan balance grows during deferment.

However, the U.S. Department of Education helps reduce the burden of interest by paying interest on subsidized loans while the borrower is enrolled in school at least halftime, during deferment and during the grace period that follows graduation. Subsidized loans include direct subsidized loans, federal Perkins loans and the subsidized portions of direct consolidation loans and FFEL consolidation loans.

It’s important to note that deferment is not the same as forbearance. Forbearance is a period of reduced or suspended payments a lender may grant to a borrower going through financial hardship. During forbearance, interest continues to accumulate and will capitalize (be added to the principal balance).

Current interest rates and fees on federal student loans

The table below shows the interest rates and fees on federal student loans for the 2018-19 school year. It’s important to note that some loans have a loan fee. These fees are a percentage of the principal balance, taken from the disbursement and paid to the bank. For example, a $5,000 loan will actually be a $4,946.70 disbursement to you (assuming the 1.066% loan fee).

Federal loan type

Borrower type

Interest rate

Loan fee

Does interest accrue during deferment?

Direct unsubsidized

Undergraduate

4.45% (for loans disbursed between July 1, 2017 and June 30, 2018)

5% (for loans disbursed between July 1, 2018 and June 30, 2019)

1.066%

Yes.

Direct unsubsidized

Graduate or professional students

6% (2017-18)

6.60% (2018-19)

1.066%

Yes.

Direct subsidized

Undergraduate

4.45% (2017-18)

5% (2018-19)

1.066%

No.

Direct consolidation

Past borrowers

Weighted average interest rate of all loans being consolidated, rounded up to the nearest one-eighth of one percent.

None.

Generally yes. The subsidized portions of the loan do not accrue interest during deferment.

PLUS

Parents, graduate students and professional students

7% (2017-18)

7.6% (2018-19)

4.264%

Yes.

Private student loan interest rates

Private student loans can be a double-edged sword for students and their parents. The private student loan marketplace allows a greater level of borrowing, and some people find better interest rates in the private loan marketplace. However, private student loans generally do not offer the safeguards of federal student loans.

For example, many private loans don’t offer forbearance or deferment (except in-school deferment), and they may have very high student loan interest rates. Unlike federal student loans, most private student loans don’t have income-driven repayment plans, and the interest rates on private student loans aren’t set by legislation. Instead, interest rates on private loans are determined by a variety of factors:

  • Your credit score (or the score of a cosigner)
  • Your income (or the income of a cosigner)
  • Employment status
  • The length of repayment
  • Fixed- or variable-rate terms
  • Rates charged by other lenders

Many private lenders require a cosigner (someone who promises to make payments if you can’t) if you don’t have a high enough income or credit score to qualify for the loan.

Interest rates on private student loans have a much greater variety than federal student loans. For example, some student loan refinancing companies offer interest rates as low as 2.57%. However, some lenders charge interest rates that exceed credit card interest rates.

Borrowers who are considering private student loans should research the costs and have a plan to make the required monthly payment once they graduate.

Student loan interest rate vs. APR

When it comes to student loan borrowing, borrowers should understand both the interest rate and the APR (annualized percentage rate) on a loan. The Federal Truth in Lending Act requires lenders to disclose a loan’s APR. APR measures the annualized cost of all finance charges (including interest and transaction fees) if you make all your payments on time. By contrast, the interest rate on a loan is simply the annual cost of borrowing the money, and does not include other fees.

When you pay off student loans early, you will reduce the total interest you pay on the loan. However, finance charges (such as loan fees or origination fees) are not reduced by paying off the loan early.

Lowering your student loan rates

When it comes to any type of borrowing, paying less in interest means you’ll have more money to put elsewhere. Student loan borrowers should consider methods for reducing the interest rate on their loan, and methods to pay less interest overall. These are just a few options to consider.

Lowering your student loan interest rates

Fill out FAFSA: If you’re a traditional student (generally under 24 years old with limited work/life experience), federal student loans likely offer the lowest possible interest rates on student loans. To qualify for federal aid, you and your parents must fill out the FAFSA (Free Application for Federal Student Aid). The FAFSA may also be required for merit-based aid at your university.

Get a cosigner: Borrowers in the private marketplace may find that a cosigner helps them qualify for a reduced rate. Its common for grandparents or parents to cosign private student loans, but cosigners must exercise caution. If a borrower can’t make their monthly payments, the cosigner has to step up and make the payments, otherwise both borrowers’ credit scores will suffer from the impact of missed payments.

Refinance: Following graduation, borrowers (especially those with high incomes or good credit scores) may be able to reduce their student loan interest rates by refinancing with private loans. However, borrowers must be careful when refinancing. Private lenders generally do not offer income-driven repayment plans or other safeguards that can help borrowers who experience unemployment, underemployment or low incomes. Plus, debts that are refinanced with private lenders will not qualify for federal student loan forgiveness programs.

Enroll in automatic payments: Many private lenders offer borrowers a rate discount when the borrower sets up automatic monthly payments.

Reducing total interest paid

Reducing interest rates aren’t the only way to free up cash. Borrowers may also use other methods to reduce the total amount of interest they put toward loans.

Borrow as little as possible: The less you borrow during school, the less interest that will accrue on the loans. Students may be able to minimize borrowing during school by working, applying for scholarships and grants, and using savings. This may sound obvious, but it’s important to point out, because the amount you’re approved to borrow may exceed what you need, resulting in unnecessary debt and, as a result, unnecessary interest payments. Budget carefully and borrow only what you need.

Pay more than the minimum: The more money you put toward your loans each month, the faster you’ll pay them off. Extra principal payments are especially helpful in the early life of the loan when a large portion of the standard payment goes to interest. When you put extra money toward your loan, be sure that the additional payment goes toward repaying the principal. The Consumer Financial Protection Bureau offers guidance on how borrowers can make sure their lender processes their payments correctly.

Combine income-driven repayment with student loan forgiveness: A lot of times, income driven repayment plans reduce monthly payments only to have the loan balance grow over time. However, if you qualify for a student loan forgiveness program, the lower payment is a huge advantage. Not only will you reduce your cash outflow during the repayment phase, once you complete the requirements for loan forgiveness, you may qualify for forgiveness without any incurring tax penalties. (However, some loan forgiveness requires you to pay income taxes on the forgiven amount.) Different loan forgiveness programs have different requirements, so be sure you qualify before planning to use this strategy.

Pay interest during school: Many students are cash-strapped during their studies, but putting money toward interest may go a long way toward keeping loans at a manageable level. Making interest-only payments during college allows students to keep loans at a set level instead of allowing the lender charge interest on interest once the loan enters repayment and unpaid interest is capitalized (added to the principal loan balance).

Refinance to a shorter term: Borrowers who have sufficient cash flow can reduce their total interest payment by refinancing their loans to a shorter term. Sometimes a shorter term means a better interest rate. But, even without a lower rate, a faster repayment means that less money goes to interest overall. For example, a borrower with a $10,000 loan at 3.5% will pay $1,866.21 in interest over the life of a 10-year loan. If that borrower refinances to a five-year loan (also at 3.5%) the total interest is cut in half to just $915.03.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

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College Students and Recent Grads

4 Student Loan Refinancing Companies for Medical Residents

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Medical students may look forward to a high income and bright financial future. But the path to becoming a doctor often requires students to take on a lot of student loan debt — 75 percent of graduating medical students in 2017 had education debt, and the median debt balance was $192,000 (including undergraduate loans).

Graduating medical students generally don’t jump right into a high-income job, either. After graduating, the next step to becoming a doctor is a residency and/or fellowship program, and for the 2016-17 academic year, the starting median income for residents was $53,580. On top of that, a residency or fellowship can take three to seven years to complete, depending on your focus and specialization.

However, your student loan payments may begin after your loan’s grace period ends, generally six to nine months after graduation.

Managing student loans during your residency

Medical residents may have several options for handling their student loans during their residency and fellowship programs:

  • Start making full payments. If you can afford to make full principal and interest monthly student loan payments, paying down your loans now could help reduce the total amount of interest you pay. However, a medical school graduate’s monthly payments could be thousands of dollars, which might not be manageable on a resident’s income.
  • Switch repayment plans. Residents with federal student loans may be able to switch to a different federal student loan repayment plan and significantly lower their monthly payments compared with the standard federal repayment plan. Lower payments can lead to paying more overall but can help you manage your budget.
  • Defer payments. You may be able to put federal and private student loans into deferment and temporarily stop making payments while you’re a resident. However, interest will continue to accumulate, and this option could significantly increase your total cost of borrowing.
  • Refinance and repay your loans. Refinancing your student loans could lower your interest rate, which may decrease how much interest accumulates while you’re a resident and lower your monthly payments. Some medical residency refinancing programs also let you make preset, low monthly payments while you’re a resident or fellow.
  • Understand how interest accrues and capitalizes. When you defer payments, interest will continue to accumulate on your loan balance. The same may be true if your refinance your loans with a residency loan and the monthly payment doesn’t cover the interest that accrues each month.

Generally, the interest won’t compound, meaning you won’t get charged interest on your interest. However, the interest gets capitalized — added to your loan’s principal — once you start making full payments. As a result, your principal debt load could increase during your residency unless you make additional monthly payments to offset the interest accumulation.

4 companies that offer medical residency refinancing

Many companies offer student loan refinancing. However, there are only a few that have specialized refinancing programs for medical residents and fellows.

LenderVariable APR*Fixed APR*TermsMinimum loan amountMaximum loan amount 
SoFi

3.14%-8.01%**

3.50%-7.75%

5-20 years

$10,001

Total eligible loan balance

LEARN MORE Secured

on Sofi Bank’s secure website

3.55%-6.15%***

4.33%-7.27%

7-20 years

$5,000

Total eligible loan balance

LEARN MORE Secured

on Laurel Road’s secure website

Not available

3.91%-7.13%

7-20 years

$40,000

$450,000

LEARN MORE Secured

on LinkCapital ’s secure website

Not available

5.29%-5.44%

Up to 10 years

$25,001

$346,000

LEARN MORE Secured

on Splash Financial’s secure website

**SoFi variable-rate loans have an interest rate cap of 8.85% for five-, seven- and 10-year terms and 9.95% for 15- and 20-year terms.
***Laurel Road variable-rate loans have an interest rate cap of 9% for seven- and 10-year terms and 10% for 15- and 20-year terms.

Details on medical residency refinancing programs

SoFi medical and dental resident student loan refinancing

SoFi is an online-only lender that offers several types of loans and loan refinancing products. After taking out a loan from SoFi, you can take advantage of several SoFi membership benefits, including discounts on other types of loans and free career coaching services.

Why we like SoFi

SoFi offers the lowest potential APR of the four lenders we compared. It also doesn’t have a maximum loan limit and offers variable- and fixed-rate loans.

You can choose from five loan terms at SoFi, with a short five-year option that some other lenders don’t offer. While a shorter term will increase your monthly payment, it can decrease the total interest you pay.

You only have to make $100 monthly payments during your residency and for up to six months following the end of a four-year residency program.

If you think SoFi may be a good fit, you can pre-qualify online. SoFi pre-qualification involves a soft inquiry on your credit report, which won’t hurt your credit.

Eligibility requirements

To refinance medical school loans with SoFi, you must graduate with an MD, DO, DMD or DDS from an eligible school, currently be a resident or fellow and have up to four years left in an approved program.

You also must generally refinance at least $10,001 in eligible student loan debt (residency loans do not qualify). However, people who live in Connecticut and Kentucky must refinance a minimum of $15,001, and those who live in Pennsylvania must refinance a minimum of $25,001.

Residents of Mississippi, Montana and Washington, D.C., aren’t eligible for medical and dental resident student loan refinancing from SoFi.

There are also other general eligibility and underwriting requirements.

Where SoFi may fall short

Although SoFi offers the potential lowest APR and a variety of interest-rate types and loan terms, it may not be the best fit for everyone.

One potential drawback is that you can only make $100 monthly payments for up to 54 months, after which you’ll have to make full interest and principal payments. However, some residency and fellowship programs last longer than 54 months.

You can apply for refinancing with SoFi as soon as you match with your residency or fellowship program. But you’ll lose any grace periods your loans have and must start making $100 monthly payments once you get your new SoFi loan.

Laurel Road student loan refinancing for medical residents

Laurel Road is a Connecticut-based bank and online lender. Originally named Darien Rowayton Bank, the bank rebranded as Laurel Road in April 2018. Laurel Road offers student loan refinancing to students and parents, and it has a special product for doctors and dentists who are in a residency or fellowship program.

Why we like Laurel Road

With Laurel Road, you can apply to refinance your student loans as soon as you’re matched with a residency program. Laurel Road may honor your student loans’ grace periods, so you could lock in a lower interest rate as soon as you match and still delay making payments until after graduation.

You can choose from four loan terms — seven, 10, 15 or 20 years — and can pick between a variable-rate or a fixed-rate loan. Laurel Road also lets you prequalify with a soft credit pull, which allows you see estimated loan terms without hurting your credit.

Laurel Road may let you make monthly payments as low as $100 while you’re a resident or fellow, including up to six months after finishing your residency or fellowship.

Eligibility requirements

You must be a U.S. citizen or permanent resident with a valid I-551 card and have eligible student loans that are in their grace period or repayment. You’ll also need to pass Laurel Road’s credit check and underwriting requirements.

Laurel Road can refinance medical school loans in all 50 states, as well as Washington and Puerto Rico. You’ll need to refinance at least $5,000 worth of debt, and you can refinance up to your total outstanding federal and private student loan balance.

Where Laurel Road may fall short

Based on the rate ranges listed above, you may be able to qualify for a lower interest rate at other lenders. Laurel Road also doesn’t offer the $100 minimum monthly payment to all borrowers.

Beyond that, there aren’t any clear downsides to Laurel Road’s student loan refinancing for medical residents offering. However, it’s still generally a good idea to shop around and compare your loan offers before deciding which lender to use.

LinkCapital medical resident refinance loan program

LinkCapital is an online lender that focuses on health care professionals. It offers student loan refinancing to medical professionals and has two student loan refinancing products for medical residents.

The standard resident refinancing loan is for graduates who have only completed one year their residency program. The contracted resident loan is for residents and fellows who are in their last year of training and have a signed contract to start working within the next 12 months.

Why we like LinkCapital

LinkCapital’s standard residency refinance program lets residents make $75 minimum monthly payments for up to up to 72 months while they’re in an eligible residency or fellowship program. The contracted resident refinance programs lets you make $75 monthly payments for up to 12 months. You also may be able to continue making $75 monthly payments during a three-month post-training grace period with either program.

If you refinance your student loans with LinkCapital’s standard resident refinance product, you could receive an automatic interest rate reduction after finishing your residency program.

Eligibility requirements

You must graduate with a medical professional master’s or doctorate degree and complete at least one year of your residency program before you can refinance your student loans with LinkCapital. You’ll also have to pass a credit check and be a U.S. citizen.

Although you don’t have to refinance all your student loans, you must refinance at least $40,000 in eligible student loans with LinkCapital.

Where LinkCapital may fall short

LinkCapital only offers fixed-rate loans. While fixed-rate loans are less risky than variable-rate loans because their interest rate can’t change in the future, they also generally have a higher starting interest rate than variable-rate loans.

The minimum loan requirement may be too high for some applicants, particularly if they’re only looking to refinance their private student loans.

You also have to wait until the end of your first year of residency before you can refinance your student loans. You may be able to save money by refinancing your loans with a different lender before that point.

Unlike some of the other lenders on this list, LinkCapital doesn’t offer an option to check your eligibility or estimated loan offer with a soft credit pull.

Splash Financial medical resident and fellow refinancing

Another online lender, Splash Financial offers student loan refinancing and medical resident student loan refinancing.

Why we like Splash Financial

Splash Financial lets borrowers make $1 monthly payments during an eligible residency or fellowship program. You can continue making the $1 monthly payments for up to 84 months, the longest advertised partial-payment period offered by the resident refinance loans we compared.

The high end of the advertised APR is relatively low compared with competitors’ fixed-rate medical residency refinance loans.

Eligibility requirements

You must start your residency program before you can apply for student loan refinancing with Splash Financial. Approval for refinancing, and your terms, will depend on your creditworthiness.

To refinance your student loans with Splash Financial, you must refinance at least $25,001 and no more than $346,000 in eligible federal and private student loans.

Where Splash Financial may fall short

Splash Financial only offers fixed-rate loans for medical residents.

Splash Financial only offers loans with a 10-year term, which begins after you finish your residency and fellowship programs. Other lenders let you choose from a variety of loan terms, which can influence your interest rate and monthly payments.

Unlike other lenders, Splash Financial doesn’t offer pre-approval with a soft credit check.

Additional options for refinancing med school loans

In addition to the medical residency student loan refinancing programs, you may want to consider refinancing your student loans with a non-resident-specific program from one of the lenders below. Non-resident programs won’t let you make lower monthly payments during your residency, but they could still lower your interest rate and monthly payment.

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

3.40%% - 7.75%%


Fixed Rate*

2.63%% - 7.70%%


Variable Rate*

No Max


Undergrad/Grad
Max Loan

LEARN MORE Secured

on SoFi’s secure website

earnestA+

20


Years

3.25%% - 6.32%%


Fixed Rate

2.57%% - 5.87%%


Variable Rate

No Max


Undergrad/Grad
Max Loan

LEARN MORE Secured

on Earnest’s secure website

commonbondA+

20


Years

3.20%% - 7.25%%


Fixed Rate

2.57%% - 7.25%%


Variable Rate

No Max


Undergrad/Grad
Max Loan

LEARN MORE Secured

on CommonBond’s secure website

lendkeyA+

20


Years

3.15%% - 8.79%%


Fixed Rate

2.68%% - 8.06%%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan

LEARN MORE Secured

on LendKey’s secure website

A+

20


Years

3.37%% - 7.02%%


Fixed Rate

2.80%% - 5.90%%


Variable Rate

No Max


Undergrad/Grad
Max Loan

LEARN MORE Secured

on Laurel Road Bank’s secure website

A+

20


Years

3.50%% - 8.69%%


Fixed Rate

2.62%% - 8.07%%


Variable Rate

$90k / $350k


Undergraduate /
Graduate

LEARN MORE Secured

on Citizens Bank (RI)’s secure website

A+

20


Years

5.24%% - 8.24%%


Fixed Rate

4.74%% - 7.99%%


Variable Rate

$150k


Undergraduate /
Graduate

LEARN MORE Secured

on Discover Bank’s secure website

4 student loan mistakes residents make

As a medical student or resident, you have a lot on your plate already, and dealing with student loans could be down low on your priority list. Or, you may find yourself going along with whatever a friend or colleague does instead of considering all your options and choosing the path that’s best for your situation.

We’ve compiled a few of the common mistakes that residents and fellows might make when it comes to their student loans. Ryan Inman, a fee-only financial planner for physicians, also shared some insights into the best ways to deal with your loans, based on his experience working with residents and doctors.

1. Misunderstanding Public Service Loan Forgiveness requirements

The federal Public Service Loan Forgiveness (PSLF) program may forgive your remaining federal student loan balance after you make 120 qualified payments while working full time at an eligible employer, which may include government and nonprofit clinics and hospitals.

Inman said doctors could get confused about all the requirements for PSLF, or think they’re eligible simply because of where they work. If you took out private student loans, or if you refinanced your student loans with a private lender, those loans won’t be eligible. The program only applies to certain types of federal student loans.

In addition to reviewing the types of loans you have, you may want to apply for PSLF and resubmit an employment certification form every year to help ensure that your employer qualifies.

If you’re certain you want to use the PSLF program and you’re planning on working at an eligible employer for at least 10 years, you should also compare your federal loan repayment plan options.

“Make sure you choose the repayment plan that will allow you to qualify while paying the least amount on your loans every month,” said Inman. You can compare estimated monthly payments with this online tool.

2. Choosing the wrong federal repayment plan

Your federal student loans may be eligible for several different federal student loan repayment plans, including four income-driven repayment plans that base your monthly payments on your income, family size and where you live.

Choosing the plan that leads to the lowest monthly payment may be ideal if you have a tight budget, or you plan to go for PSLF. But if you don’t plan to get PSLF, perhaps because you want to work in a private practice, then the best repayment plan may not be so clear.

“Knowing that you aren’t going for PSLF, you should generally go with the plan that gives the largest interest subsidy, which is REPAYE,” said Inman, referring to the Revised Pay As You Earn plan.

With REPAYE, if your monthly payment doesn’t cover all the interest that accrues on your loan, the government will pay at least half of the difference between your monthly payment and the interest accrual.

“That could add up to tens of thousands of dollars if the loan balances are high enough,” said Inman, “and interest subsidies are not available through some other income-driven plans.”

3. Rushing into refinancing

Carefully consider the pros and cons of refinancing federal student loans. Once you refinance your federal loans, you’ll lose access to federal repayment plans and forgiveness, cancellation and discharge programs. Private student loans already aren’t eligible for these plans or programs, so there’s potentially less to lose by refinancing those loans.

If you do decide to refinance, remember that you don’t need to refinance all your loans. You can pick and choose, and refinance the ones that have the highest interest rates.

Also, before rushing and choosing a variable-rate loan because it offers a lower initial interest rate, consider how rising interest rates could affect your payments and budget. Inman said, “In this low-interest-rate environment, fixed rates are relatively cheap and may be the best option for a new physician.” He thinks variable-rate loans generally only make sense if you plan to pay off the loan within five years.

4. Not shopping before refinancing

Inman said many physicians either don’t have the time to shop around when they’re refinancing their student loans or they aren’t interested in the fine print. But this can be a big mistake. “Shopping a few companies for the best rates is critical if you want to make sure you’re getting the best deal,” said Inman.

You could compare many details, such as the fees that the lenders charge. The four resident-specific programs above don’t have origination or disbursement fees, but some other refinancing companies might charge these.

You can also compare lenders’ other benefits or drawbacks, such as the interest-rate types they offer, the length of their loan terms, repayment-plan options while you’re a resident and how they handle cosigners.

Once you’ve compared all the terms, you can submit applications with several lenders to see which one offers you the lowest interest rate. While a loan application can hurt your credit score, some credit scoring models count multiple student loan applications within a short period of time as a single hard inquiry, allowing you to apply with several companies to see which will save you the most money.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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College Students and Recent Grads

The Ultimate Guide to Student Loans in 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Student loans are loans that you take out to help pay for educational expenses, such as tuition, fees, room, board, equipment and transportation to and from school. This guide covers the ins and outs of federal and private student loans, explains how to apply for student loans, discusses which option may be best for your circumstances and offers several alternatives to borrowing money.

PART I: Understanding student loans

As with other types of debt, you must agree to repay the money, plus interest.

However, student loans can differ from other types of loans. They may have less stringent credit or income requirements for students, and you may be able to delay making payments until after you leave school.

How do student loans work?

You can apply for a student loan from the federal government or from a private lender. The eligibility requirements and application process (discussed in detail later) are different for federal and private student loans, but the overall student loan process can be similar.

After applying and getting approved for a student loan, the lender will often send the money directly to your school. The school applies the money to your account to pay for tuition, fees and other expenses. If there’s money left over, the school will issue you a refund which you can use for additional educational expenses, such as off-campus housing and food. You can also return the excess funds.

With federal loans, you’ll need to reapply for financial aid once every year to remain eligible; the policies of private lenders vary. You may need to reapply each term, apply once for an academic year or apply once and fund multiple years. However, with both federal and private student loans, the loan will generally be split up and disbursed (i.e. sent) to the school at the beginning of each term.

Terms and repayment options

Your repayment term — the amount of time you have to repay the loan — and repayment plans can vary depending on the type of student loan. Many student loans, including federal student loans, let you defer payments while you’re enrolled at least a half-time in an eligible program, as well as during a six-month grace period after you graduate, leave school or drop below a half-time schedule. However, some private lenders require borrowers to make at least interest-only or $25 monthly payments once the loan is disbursed.

Federal student loans automatically enter a 10-year standard repayment plan. However, you can switch to a different plan for free. Other repayment plans may give you more time to repay your loans, which can decrease your monthly payments but lead to paying more interest over the loan’s lifetime.

You may also be eligible for an income-driven plan that bases your monthly payments on your income, family size and where you live. An income-driven plan could even lead to $0 monthly payments, and the remainder of your loan balance might be forgiven after you make monthly payments for 20 to 25 years. There are also federal student loan forgiveness and cancellation programs.

Private loans aren’t eligible for federal repayment, forgiveness or cancellation programs, and often you’ll choose your loan’s term or be assigned a term when you apply. Some lenders have different repayment plans, but with others the only way to change your private loan’s term is to refinance the student loan.

Interest rates

The interest rate on your student loan can impact your overall cost of borrowing and your monthly payment amount. It’s important to understand how a lender determines your interest rate, how interest accrues on your loan and what your options are before agreeing to take out a student loan.

Congress sets the interest rate on federal student loans. All federal student loans have a fixed interest rate, meaning the rate won’t change once the loan is disbursed.

By contrast, private student loans’ interest rates can vary greatly. Lenders may offer different rate ranges, and the rate you receive will depend on your creditworthiness (or the credit of your cosigner). Private lenders also offer fixed- and variable-rate loans. Variable-rate loans are riskier because the interest rate can change in the future, but they can be enticing because they often offer a lower initial interest rate than fixed-rate loans.

Many federal and private student loans begin accruing interest as soon as the loan is disbursed. The interest will continue to accrue while your loans are in deferment or a grace period, and then it will be added to your loan’s principal balance (i.e. capitalized) once you enter repayment. When this happens, more interest may accrue each month, as your interest rate will now apply to a higher principal loan balance.

PART II: Types of student loans

Students loans fall into one of two general categories: federal or private student loans.

Federal student loans

Federal student loans can offer borrowers simplicity and savings compared to private student loans. Although there are differences depending on the type of federal student loan or the degree the borrower is pursuing, federal student loans have uniform eligibility requirements, interest rates, loan terms, benefits and repayment options for every borrower.

Private student loans

On the other hand, private student loans — and their eligibility requirements, interest rates, loan terms, benefits and drawbacks — can vary depending on the lender. Carefully research different companies’ policies and the fine print on their loan agreements before agreeing to take out a loan.

Often, federal student loans are the best first choice for borrowers because of their standard terms and low barrier to entry. Even if you could get a lower rate with a private student loan, federal loans’ flexible repayment options and eligibility for federal repayment plans and forgiveness, cancellation, deferment and forbearance programs can make them a better option. Private lenders may not offer or guarantee similar options.

PART III: Federal student loan options

What is a federal student loan?

A federal student loan is a loan that’s funded by the federal government. There are currently three types of federal student loans available to new borrowers through the William D. Ford Federal Direct Loan (Direct Loan) Program: Direct Subsidized Loans, Direct Unsubsidized Loans and Direct PLUS Loans.

There are also Direct Consolidation Loans, which allow borrowers to combine multiple federal student loans. Previous borrowers may also be repaying other federal student loans that are no longer available to new borrowers.

All three types of federal student loans have the same basic eligibility requirements, including being enrolled at least half-time or accepted into an eligible degree or certificate program. In addition, the application process always starts with the Free Application for Federal Student Aid (FAFSA).

However, these loans are not identical. They may have different annual loan limits, aggregate loan limits and credit requirements. Loan details, such as eligibility for different repayment plans, can also vary depending on the borrower — whether they are an undergraduate, graduate or professional student, or the parent of a student.

The loans may have different interest rates and disbursement fees, a fee that’s subtracted from the amount that’s sent to your school. These fees depend on the loan type, the type of borrower and when the loan is disbursed.

The federal student loan interest rates in this guide are for federal loans disbursed from July 1, 2017 to June 30, 2018. The disbursement fees apply to federal student loans disbursed from Sept. 30, 2017 to Sept. 30, 2018.

Direct Subsidized Loan

 

Interest rate

Disbursement fee

Annual loan limit

Aggregate loan limit

Credit needed

Direct Subsidized Loans

4.45%

1.066%

$3,500 first year
$4,500 second year
$5,500 third and subsequent year

$23,000

None

How does it work? Direct Subsidized Loans are only available to undergraduate students, and only if their school determines they have a financial need based on the school’s cost of attendance and their expected family contribution. The Direct Subsidized Loan loan limit increases during your second and third years. However, your offer could decrease if your financial need decreases.

The subsidy part comes into play after your loan is disbursed. Although the loan starts to accrue interest right away, the U.S. Department of Education will pay the interest while you’re in school at least half-time, during your grace period and if you later put the loan into deferment.

Pros and cons. If you plan to take out a federal student loan, the Direct Subsidized Loan’s relatively low disbursement fee and interest rate, and the subsidization, makes it the best option in most cases. Of course, it’s only an option if you qualify — the biggest drawback is that you may not be able to borrow enough to pay for all your educational expenses.

Direct Unsubsidized Loan

Direct Unsubsidized Loans

Interest rate

Disbursement fee

Annual loan limit

Aggregate loan limit

Credit needed

For dependent undergraduate students

4.45%

1.066%

$5,500 first year
$6,500 second year
$7,500 third and subsequent years

The annual loan limits include Direct Subsidized Loans.

$31,000, including up to $23,000 in Direct Subsidized Loans.

None

For independent undergrads and dependent undergrads after a parent gets denied for a PLUS Loan

4.45%

1.066%

$9,500 first year
$10,500 second year
$12,500 third and subsequent years

The annual loan limits include Direct Subsidized Loans.

$57,500, including up to $23,000 in Direct Subsidized Loans.

None

For graduate and professional students

6%

1.066%

$20,500

$138,500, including up to $65,500 in Direct Subsidized Loans.

None

How does it work? Undergraduate and graduate students may be able to borrow money with Direct Unsubsidized Loans, even if they don’t have a demonstrated financial need. The loans also have higher annual and aggregate loan limits than Direct Subsidized Loans, and the limit varies depending on your degree type and dependency status.

However, the loan limits include debt from both Direct Subsidized Loans and Direct Unsubsidized Loans loans. You also might not be offered the maximum amount, as your offer depends on several factors — these can include your school’s cost of attendance, your family’s expected contribution and how much money you’ve received from other sources of financial aid, such as scholarships.

Pros and cons. The higher loan limits and lack of a financial need requirement may make it easier to qualify for a Direct Unsubsidized Loan; for undergraduate students, these loans have the same interest rate and disbursement fee as the subsidized version. However, the biggest drawback may be the lack of the subsidy. Without the subsidy, you could leave school with significantly more debt than you initially borrowed, unless you make interest payments while you’re in school and during the grace period.

For graduate and professional students who aren’t eligible for Direct Subsidized Loans, the Direct Unsubsidized Loans offer a lower interest rate and disbursement fee than grad PLUS loans. However, graduate and professional students may have already established their creditworthiness, and so might be able to save money with a private student loan.

Parent PLUS loan

 

Interest rate

Disbursement fee

Annual loan limit

Aggregate loan limit

Credit needed

Parent PLUS loan

7%

4.264%

No limit

No limit

No adverse credit history

How does it work? Parent PLUS loans are Direct PLUS Loans that a parent borrows to help a dependent child pay for school. Parent borrowers must meet many of the same basic eligibility requirements as student borrowers; however, parent PLUS loans also require a credit check. The credit check looks for an adverse credit history in your credit reports, such as a recent bankruptcy or outstanding delinquent debts.

If you don’t pass the credit check, you may still be able to take out a parent PLUS loan if you have a creditworthy endorser (i.e. cosigner) or appeal the decision. Your child may also be able to take out additional Direct Unsubsidized Loans if you’re unable to qualify for a parent PLUS loan.

Loan payments begin immediately after the parent PLUS loan is disbursed, unless parents request a deferment. If you request a deferment, you may not have to make payments as long as your child is enrolled at least half-time and for the six months after they leave school or begin taking a less-than-half-time schedule. However, interest will accrue during the deferral period.

Pros and cons. As with other federal student loans, parent PLUS loan are eligible for different federal repayment plans, and forgiveness and cancellation programs. However, parent PLUS loans are only eligible for one of the four income-driven plans: the income-contingent plan — notably, this is only an option after the parent PLUS loan is consolidated with a Direct Consolidation Loan.

Direct PLUS Loans, including parent PLUS loans, also have the highest interest rate and disbursement fee of the federal student loans. The interest rate and fees may still be lower than what you could receive with a private student loan, but you should compare your options.

Another potential con is that parents can’t transfer the loan to their children, although a child may be able to take over the debt if they can qualify to refinance student loans with a private lender. The debt from the parent PLUS loan could also increase your debt-to-income ratio, which may affect your eligibility for other loans or financial products.

Grad PLUS loan

 

Interest rate

Disbursement fee

Annual loan limit

Aggregate loan limit

Credit needed

Grad PLUS loan

7%

4.264%

No limit

No limit

No adverse credit history

How does it work? Graduate and professional students can use grad PLUS loans to pay for educational expenses. They have the same fees, limits and credit-check requirements as parent PLUS loans (both loans are Direct PLUS Loan), but there are a few differences.

Grad PLUS loans are eligible for all four income-driven repayment plans, and unlike parent PLUS loans, grad PLUS loans are automatically placed into deferment until six months after you drop below a half-time schedule, graduate or leave school. However, you can make early payments if you want.

Pros and cons. Grad PLUS loans don’t have pre-set annual or aggregate loan limits; you can also borrow up to your school’s cost of attendance, minus your other financial aid awards. This means you may be able to fund all your educational costs with grad PLUS loans — but that doesn’t mean a grad PLUS loan should necessarily be your first choice.

Direct Unsubsidized Loans will have a lower interest rate and disbursement fee than grad PLUS loans, and they offer the same access to federal repayment plans and programs. You may also want to compare private student loans offers to your grad PLUS loan rates to determine which will save you the most money.

PART IV: Private student loans

What is a private student loan?

A private student loan is an educational loan issued by a non-government lender. As with federal student loans, borrowers must use the money for educational expenses.

Some federal laws apply to both federal and private student loans. For example, lenders aren’t allowed to charge you a fee for paying off your loans early — however, it can be difficult to discharge a federal or private student loan during a bankruptcy.

There are also important differences between federal and private student loans, and several pros and cons, to consider before taking out a private student loan.

Pros:

  • High loan limits. The federal student loans with the lowest interest rates also have pre-set annual and aggregate loan limits. By contrast, private student lenders may let you borrow up to your school’s cost of attendance.
  • Potentially lower interest rates. Creditworthy borrowers may qualify for a lower interest rate with a private lender than they’d receive with a federal student loan.
  • No funding fee. Federal student loans often have a disbursement fee; private student lenders generally don’t charge a disbursement or origination fee.
  • Variable-rate options. Private lenders may offer variable-rate loans, which generally start with a lower interest rate than fixed-rate loans. However, there’s a risk the rate will increase in the future.
  • Interest rate discounts. Federal and private student loans often offer a 0.25 percent interest rate discount if you sign up for autopay. Private lenders may offer additional discount opportunities.

Cons:

  • Credit requirements. Your income, credit score and other factors could impact your eligibility, interest rate and maximum loan amount.
  • No access to federal benefits or programs. Private student loans aren’t eligible for federal repayment plans or subsidies. They also aren’t eligible for forgiveness, cancellation, discharge, forbearance or deferment programs.
  • Fewer hardship options. Private lenders might not offer borrowers forbearance or deferment options when borrowers have trouble making payments.
  • Quicker defaults. Private student loans may default sooner than federal student loans if you stop making payments. When a loan defaults, you’ll immediately owe the entire loan balance. Federal student loans also offer ways to get your loan out of default and back onto a repayment plan, but private lenders may not give you similar options.
  • Limitations with loan repayment assistance programs. Some government and private student loan repayment assistance programs won’t help you repay private student loans.
  • Varied discharge policies. Private lenders may not discharge your loan balance if you become permanently and totally disabled or die. As a result, you may leave your estate or cosigner with a loan balance to pay. Federal student loans can be discharged when the borrower, or student in the case of parent PLUS loans, permanently and totally disabled or dies.

Where can you find private student loans?

Banks, credit unions, online lenders, schools and states all offer private student loans to students, and sometimes to students’ parents. Your school’s financial aid office may be able to recommend several options, but you can also look online or speak to friends and family members to get recommendations.

There’s no single best private student lender, and you should compare different lenders’ loan types, loan terms, repayment options, fees, discounts and fine-print restrictions, like if they let you release a cosigner. You could also read others’ reviews and recommendations to determine which private student lenders might be best for your situation.

Once you’ve narrowed down your list, you can then apply for a student loan with several lenders and compare your offers to determine which loan is best.

Who are private student loans best for?

Federal student loans are the best place to start for most borrowers, but there are some students who may want or need to take out private student loans. For example, if you’ve reached your annual or aggregate loan limit with federal student loans and you still need more money for school, you may want to consider a private student loan.

Parents and graduate or professional students who have established their creditworthiness may also want to consider private student loans as an alternative to federal student loans. Their federal loans have a higher interest rate and disbursement fee than undergraduate students’ federal loans, and older applicants may be able to qualify for a lower interest rate with a private lender. However, consider the big picture as there may be other drawbacks, such as lack of access to federal forgiveness programs and repayment plans.

PART V: How to get a student loan

Applying for federal student loans

You must complete and submit a Free Application for Federal Student Aid (FAFSA) every year to apply for, and remain eligible for, federal financial aid.

MagnifyMoney has a detailed guide on filling out the FAFSA. You can also find a PDF guide from the Education Department and free phone support at 1-800-4-FED-AID (1-800-433-3243).

Submitting your FAFSA early can help your financial aid situation, as some schools and states offer financial aid on a first-come, first-served basis based on information in your FAFSA. Even if you don’t plan on taking out loans, the FAFSA is a requirement for some grant and scholarship opportunities.

To begin the FAFSA process online, go to fsaid.ed.gov and create your FSA ID. The FSA ID will be your username and password for signing into your account and you’ll also use it to sign loan documents. Dependent students also need a parent to create an FSA ID, which the parent will use to sign the child’s FAFSA.

After you’ve created your FSA ID, you can start the online application at fafsa.gov. To complete the application, you’ll need:

  • Your Social Security number or alien registration number
  • Income-related forms, including recent W-2s and federal income tax returns
  • Copies of your bank, brokerage, and other financial account statements
  • Documents related to other income
  • If you’re a dependent student or you’re married, you may also need your parents’ or spouse’s Social Security number and income-related forms.

It generally takes under an hour to complete the FAFSA. Returning students will send the form to their school, while first-year students can send their FAFSA to the schools they’re considering.

After submitting your FAFSA, you will get a Student Aid Report (SAR) by mail or email; you should review this document to ensure all your information is correct. The SAR will list your expected family contribution amount, along with your FAFSA information. Schools and state agencies use this data to determine your financial aid eligibility and award amounts, and a mistake could lead to you being offered less aid.

Your school, or the schools you’re considering, will then send you an aid offer that lists the financial aid types and amounts that you can accept. Your aid package may include a combination of grants, scholarships, work-study funds, and/or several types of student loans.

You can choose which aid package offer to accept and how much money to borrow if you’re taking out a loan; the process can vary depending on your school. If you’re accepting a federal student loan offer, you will have to sign a promissory note, or loan contract. Keep in mind that you do not have to accept the full amount of federal loans you’re eligible to borrow — do the math to avoid unnecessary debt.

Applying for private student loans

Private student lenders may have different applications, and the application processes could vary. However, you can find some lenders that have a fairly simple and straightforward online application.

You won’t need to complete the FAFSA to apply for a private student loan, but you may want to gather similar personal and financial documents — you’ll likely need information from these documents during the application process, and you might have to submit copies for verification purposes.

You may also need personal and financial information from a cosigner if you’re adding one to your application; in some instances, the cosigner may be able to log in and submit his or her information directly.

If your application is approved, you might be able to pick from several loan terms with varying interest rates. Or, the lender may make you an offer and you can choose to accept or decline it.

At some point during the application process, the lender could contact your school to verify your eligibility and the school’s cost of attendance, which can determine your maximum loan limit. Alternatively, you could be asked to self-certify these numbers.

Alternatives to student loans

A loan shouldn’t necessarily be your first choice when it comes to financial aid. Scholarships and grants can offer money for school that you don’t need to pay back. Graduate or professional students may be able to get “free” money from fellowships. And you could look into different work opportunities.

If you submitted a FAFSA, you may get a work-study award as part of your financial aid offer. The federal work-study program pays a portion of work-study recipient’s wages, which could make it easier for you to find a job while you’re at school. However, only certain employers are eligible, such as the school, nonprofits and some for-profits if the work you’ll do aligns with your major.

Graduate and professional students may have opportunities to get an assistantship at the school. Depending on the program, you could receive a stipend, tuition waivers or even benefits in exchange for working part-time.

You can also look for work opportunities that aren’t part of a financial aid program. A part-time job while you’re at school, or a full-time job during the summers, might not earn you enough to cover all your educational costs — but every dollar you earn and put towards your education is one less dollar you need to borrow (and pay interest on).

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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