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Everything You Need to Know About Debt Settlement

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

If you’re struggling with consumer debt and can’t seem to dig your way out, you’re not alone. In fact, you are one of many millions of Americans who deal with debt and its consequences in any given year.

Fact: The average adult with a credit card carried $6,348 in debt, paying an average APR of 15.54%. So far in 2018, we have also paid $104 billion in credit card interest and fees, which is 35% more than Americans paid five years ago.

With these figures in mind, it’s no wonder so many of us continue to fall further and further behind.

The painful reality is that 70 million Americans were contacted about a debt in collections in 2017, which typically means their debt was in default for at least 180 days. Debt collectors call consumers to follow up on these debts over one billion times per year, with up to 15 calls made per account per day.

While consumers can sometimes figure out a way to pay debt off on their own, there are strategies that can expedite the process. Some opt to consolidate their debts with a new loan that offers better terms and a lower interest rate, for example. Others sign up for a debt management plan, which is a debt repayment plan operated by a third-party credit counselor.

Finally, some consumers opt to negotiate their debts down through a process known as debt settlement. This option comes with its own share of pros and cons, and risks for consumers.

Before you decide to settle your debts, understand how it works, what the consequences might be and who can help you manage the process. This guide was created to explain your options and offer all the information you’ll need to decide for or against debt settlement.

What is debt settlement?

Unlike debt management plans, which are often offered by nonprofit companies, debt settlement programs tend to be administered by for-profit organizations. With debt settlement, the company you work with aims to negotiate a “settlement” with your creditors that is less than the amount you owe.

Since you’re already behind on your debts before you begin this type of plan, the debt settlement company asks you to save a specific sum of cash each month in a dedicated savings account. You do maintain ownership over the funds you save as well as any interest that accrues in your account, though. Your debt settlement company may ask you to stop making payments on your debts during the negotiation process, resulting in you purposely putting yourself further in default.

The end goal of these programs is that once a settlement amount is reached, you would have saved enough cash to pay the lowered amount in full. Once the final lump sum payment is made, the accounts are considered satisfied.

While debt settlement is an imperfect solution to a complex problem, this strategy could be the best option for you. Here’s how you can decide if it’s right for you:

  • Determine the severity of your debt problems. According to Kevin Gallegos, vice president of client enrollment for Freedom Debt Relief, it’s important to make an honest assessment of whether you can pay down credit card balances and other debt on your own. Gallegos said that some people can use careful budgeting and belt-tightening or the debt snowball method to pay down debt without third-party help. Your first step should be figuring out how much you earn and comparing it with how much you owe on various debts each month. Look for ways to cut your budget and spending to free up cash you can use to repay your debts.
  • Ask yourself if another option could bring a better result. Take a close look at alternatives such as debt consolidation and debt management plans. Each plan has pros and cons (which are discussed below), so take the time to explore these options and how they might work in your situation.
  • Look closely at debt settlement if your situation warrants it. Gallegos said that generally speaking, debt settlement is a viable option for consumers who have significant debt ($7,500 or more) they can’t keep up with due to financial hardship.

When you should consider alternatives

While debt settlement can wipe away some of your debts if you’re struggling to keep up with minimum payments, there are times when you should look more closely at potential alternatives. Those instances can include:

  • The debts you’re struggling to repay are secured debts. Debt settlement is only an option for unsecured debts — or debts that are not secured by collateral. With that in mind, debt settlement won’t fix all your problems if you’re struggling to repay secured debts such as car loans, your mortgage, home equity loans or federal student loans.
  • You want to keep your credit score in good shape. Because debt settlement usually requires you to stop making payments on your debts until a settlement is reached, it’s likely your score will drop significantly as you move through the process. “If someone wants to protect credit scores more than put debt behind them, other options may be better,” said Gallegos.

How to settle your debts

Here are the main ways consumers can settle their debts by working with a third party or handling negotiations on their own.

Working directly with the debt collection agency

Mike Sullivan, a personal finance consultant with Take Charge America, a national nonprofit credit counseling and debt management agency that does not offer debt settlement services, said that consumers settling their own debts with collections agencies is very rare. This is partly because the process is complex, but also because it takes so long.

Still, here are the steps you need to take if you prefer to settle your debts on your own.

  • Determine exactly how much you owe and make a list of all your credits and debt balances. You may also want to create a new spreadsheet or document so you can keep track of all your communications.
  • Make a written offer to each creditor. Generally speaking, debt settlement requires you to make a specific written offer to each creditor. While there is no cut-and-dried amount creditors will take, you can often negotiate debts down to less than half of the balance you owe. However, creditors may not reply to offers for 60 to 90 days or even more than that after you’ve missed a payment.
  • Continue making written counteroffers until an agreement is reached. Once again, this back-and-forth process can take many months. Once you have agreed with each creditor on an amount to be repaid, make sure you receive this agreement in writing.
  • Be prepared to have funds available for a lump-sum settlement. Gallegos noted that if you owe a creditor $10,000 and they confirm they are willing to accept 50% of that amount, you must have the cash available immediately. “You will have to come up with $5,000, or the deal is off the table,” he said.
  • Pay your settlement and demand a letter noting your debt has been satisfied. Make sure to get a letter from each creditor noting your payment and the satisfaction of your debts. This letter should be signed by an authorized agent of the creditor and share details of your settlement as well as wording that notes you no longer owe anything on debts associated with the account.

Working with a debt settlement company

Working with an agency that offers debt settlement is an easier proposition for many consumers since the debt settlement firm will perform most of the steps involved on your behalf. However, you’ll need to do some research and legwork upfront. The main steps required to work with a debt settlement company include:

  • Research different debt settlement companies. Gallegos said that it’s a good idea for consumers considering debt settlement to do plenty of research and talk with a few different companies to see how they work. Make sure to confirm the company you work with offers individualized plans that are tailored to your needs, he said. Also, find out how long the company has been in business, any statistics about their success rate and how good their reviews are. Gallegos said that the American Fair Credit Council is a good resource to use when evaluating debt settlement companies.
  • Watch out for companies with unethical practices. The Federal Trade Commission (FTC) said to avoid debt settlement companies that ask for money upfront, pressure you, makes guarantees about how your debts will be handled or don’t go over your financial situation in detail.
  • Compare debt settlement fees. While debt settlement companies are prohibited by law to charge upfront fees for their services, they do charge a percentage of the enrolled debt amount — usually 18% to 25%. Make sure to compare companies and their fees before you move forward.
  • Sign up for debt settlement. If you decide this is a viable option for you, you will need to sign a debt settlement contract. Once you are under contract, your debt settlement company will begin contacting your creditors on your behalf. You may be asked to stop making payments toward your debts during this time, which can hurt your credit score.
  • Start saving money. Your debt settlement company will ask you to start saving a set amount of money in a separate bank account during the negotiation process.
  • Reach a settlement with your creditors. If your debt settlement company can reach a settlement with creditors, the cash you’ve saved will be used to settle your remaining debts. At this point, your accounts will be considered charged off or satisfied, although you will likely have considerable damage to your credit score at this point. Keep in mind that the entire process can take 36 months or longer.

Debt settlement: Pros and cons to consider

While negotiating a settlement that is less than what you owe might sound advantageous, and it can be, debt settlement comes with both pros and cons. Here are the main advantages and disadvantages of this strategy:

Advantages of debt settlement:

  • Repay less than you owe on your debts including the current principal, interest and fees. The main benefit of debt settlement is that if it works, you will pay less than you owe to have your debts settled and gone for good.
  • Pay one monthly payment instead of several. Debt settlement lets you go from juggling several monthly payments to making a single payment toward your “savings” for future debt settlement each month.
  • You won’t pay fees for debts that can’t be settled. According to the FTC, debt settlement companies can only charge you fees on debts they’ve successfully negotiated down and settled on your behalf. This means you won’t be charged fees on debts they weren’t able to settle.
  • If you work with a debt settlement company, they will take care of many of the tasks involved in this process for you. Debt settlement companies do charge fees, but they will make phone calls, negotiate with creditors and deal with the details of your debt settlement on your behalf.

Disadvantages of debt settlement:

  • Not all debts qualify for debt settlement. While most types of unsecured debt can qualify for debt settlement, secured debts like your mortgage, car loan and federal student loans do not. Many other types of debt such as child support, gambling debts and back taxes do not qualify.
  • Debt settlement can result in damage to your credit score that takes years to fix. Because you’re typically asked to stop making payments on your debt during debt settlement, you will likely see damage to your credit score. However, Gallegos said that consumers typically see their scores bounce back once their debts are settled and they begin paying them off.
  • Debt settlement may result in tax consequences. Some settled debts may be considered income and taxable as a result unless you are considered “insolvent.” The FTC notes that insolvency typically describes a situation where your total debts are worth more than your assets. This may sound clear-cut, but they report that insolvency is difficult to determine and prove.
  • Debt settlement isn’t free. As we noted already, debt settlement costs money. You are typically charged 18% to 25% of each debt handled by a debt settlement company.
  • Creditors are not required to settle with you. Creditors are under no obligation to settle your debts. For that reason, there’s a chance you could go through all the steps required for debt settlement only to end up without any resolution to your problem. The FTC also points out that debt settlement companies may try to negotiate smaller debts first, while interest and fees on large debts continue to grow. This could leave you worse off than when you began the process.
  • Debt collectors may continue pursuing you. According to the FTC, creditors and debt collectors may continue to hound you for payment during the process. You could even be sued for repayment — even if you’re saving up money to settle your debts. If you are sued and you lose, your creditors could garnish your wages or even put a lien against your home.

What happens when you settle your debt

If you can move through the debt settlement process successfully and put all your debts behind you, the time and energy spent could be worth it despite the potential downsides. Why? Because your debts could go away for good, granting you a chance at a fresh start to rebuild your finances.

As we noted already, you may find you are liable for income taxes on some of your forgiven debts. You should also be aware that your credit score may have taken a significant hit that will take months or years to recover from.

Make sure to get a copy of a debt settlement letter from each of your creditors so you’ll have proof of the settlement and your payment if they try to collect in the future. Once you have this proof, you should also check your credit report to ensure settled debts are reported as “paid off.”

Alternatives to debt settlement

While the information we’ve offered on debt settlement may have you excited about the prospect, you may also be worried about the long-term consequences. Perhaps you want to keep your credit score in good shape while you get out of debt, or maybe you don’t like the idea of escaping full repayment of the debts you owe.

In any case, there are several alternatives to debt settlement you can consider. Your options include:

Debt management plan

Debt management plans are debt repayment plans administered by third-party credit counselors who work for nonprofit agencies. These credit counselors call your creditors and negotiate more favorable terms on your behalf, including lower interest rates and reduced or waived fees. Once creditors agree to these concessions, consumers begin making a single monthly payment to the nonprofit agency overseeing their debt management plan. The nonprofit agency then distributes funds to their creditors on their behalf, taking care of the grunt work for them.

Debt management plans can take up to 48 months or longer to complete. Consumers are also asked to stop using credit cards and get on a budget or spending plan during the process. Ultimately, the goal of debt management plans is helping consumers escape high interest and fees, pay down their debt over time and learn positive money habits along the way.

Pros:

  • Nonprofit credit counseling agencies will work on your behalf to negotiate lower interest rates and reduced or waived fees.
  • You may be able to preserve your credit score since you continue making payments all along, albeit through the nonprofit agency that administers your plan.
  • Debt management plans typically cost only $25 to $35 per month, whereas debt settlement can cost you 18% to 25% of your debts.
  • There is usually an educational component to complete with debt management plans, which could mean you’ll get better at budgeting and cash flow management.

Cons:

  • Debt management plans can take 48 months or longer to complete.
  • Debt management plans may be affordable, but you still have to pay for the help you receive.
  • You will ultimately pay back all the money you borrowed, whereas debt settlement lets you pay less than you owe.

Debt consolidation

Debt consolidation is another option to consider if you are financially unable to repay your debts. With debt consolidation, you will replace your existing loans with a new loan with better terms and a lower interest rate. The goals of debt consolidation can include lowering your monthly payment, saving money on interest and simplifying your finances with a single loan instead of several.

Pros:

  • You may be able to qualify for a new loan with a lower interest rate and better terms. Some 0% APR credit cards also let you transfer balances to secure zero interest for anywhere from 12 to 21 months (balance transfer fees may apply).
  • Debt consolidation lets you handle and repay your debts without third-party oversight.

Cons:

  • You may not be able to qualify for a debt consolidation loan or 0% APR cards with excellent terms if your credit score is in bad shape. Typically, the best loans and terms go to those with FICO scores of 740 or higher.
  • It takes a lot of discipline to pay off debt without any outside help. This makes this strategy difficult to execute if you’re already struggling.
  • Many debt consolidation loans, including home equity loans, personal loans and 0% balance transfer cards come with fees you have to pay to use them.

Bankruptcy

Bankruptcy is another last resort option to consider if you have considerable amounts of debt you can’t seem to handle on your own. However, it’s important to note there are two main types of bankruptcy to consider:

  • Chapter 7 bankruptcy may allow total discharge of your debts outside of other debts such as child support and back taxes. However, you may be required to sell assets to settle some of the amounts you owe.
  • Chapter 13 bankruptcy restructures your debt with a repayment plan instead of discharging your debts. You typically repay your debts over three to five years with this process, and you do not have to sell a property to settle amounts you owe.

Advantages and disadvantages of bankruptcy include:

Pros:

  • Discharge or restructure your debts depending on the bankruptcy option you choose.
  • Once your bankruptcy is complete, you can get a fresh start.
  • Certain assets such as your home, car, and retirement accounts are protected up to certain limits with Chapter 7 bankruptcy, so it’s possible you won’t lose everything in the process.

Cons:

  • There are requirements to qualify for Chapter 7 or Chapter 13 bankruptcy, meaning not everyone can access this option.
  • Chapter 13 bankruptcy stays on your credit report for seven years after you file, while Chapter 7 bankruptcy stays on your report for ten years.
  • Bankruptcy isn’t free since you will likely need to hire an attorney to walk you through the process. You must also receive credit counseling from a government-approved organization within six months before you file for bankruptcy, notes the FTC.

Frequently Asked Questions (FAQs)

As you continue researching ways to pay off your debt for good, it helps to educate yourself on debt settlement and its alternatives. This list of frequently asked questions could help you with your decision.

The FTC states that debt settlement companies are required to disclose certain information upfront such as the fees they charge, how long it will take to get results, how much you need to save before they can settle your debts and the consequences you will face when you stop making payments to your creditors. You should also be notified that the money you save — including interest — is yours and that the account you use for savings is not affiliated with the debt settlement company. You also have the right to withdraw your funds at any time for any reason without penalty.

Fees charged by debt settlement companies can vary based on how many of your debts they settle and the percentage they agree to charge upfront. However, many debt settlement companies charge 18% to 25% of their debts handled through the program. This could add up to thousands of dollars in fees once the program is complete.

Because debt settlement companies ask you to stop making payments on your debts and save up to settle them instead, your credit score will take a hit. Considering that your payment history makes up 35% of your FICO score, it should be no surprise that letting all your accounts go into default would damage your credit score.

While the answer is different for everyone, debt settlement is best for consumers with considerable unsecured debts they can’t seem to pay off on their own. These programs are often the last resort for consumers who struggle to keep up with minimum monthly payments and know they need help from a third party to avoid bankruptcy.

Debt settlement can take 36 months or longer to complete depending on how much debt you owe, how long your creditors take to negotiate and how long it takes you to save up the money you need to settle. Longer timelines are typically reserved for individuals with considerable debt and many creditors.

While you can settle your debts on your own, it’s not very common. Not only will you need to communicate back and forth with each creditor for many months, but you’ll have to negotiate with them to repay less than you owe. Many consumers don’t have the knowledge or confidence to negotiate on their own behalf, so they turn to debt settlement companies or nonprofit credit counseling agencies for help.

Typically, unsecured debts qualify for debt settlement. This can include credit card debt, unsecured personal loans, some private student loan debt, medical bills, auto repossessions, cell phone and utility bills from past providers and department and store charge card debt.

Debts that don’t work with debt settlement typically include secured debts. Common debts that don’t qualify are car loans, mortgage loans, federal student loans, utility bills from current providers, overdue taxes, gambling debts and debts resulting from lawsuits.

Debt consolidation involves getting a new loan with a lower interest rate and better terms with the goal of combining old, higher interest debts into a single new debt. Common financial products used in debt consolidation include personal loans, home equity loans, home equity lines of credit (HELOCs) and balance transfer credit cards.

Debt settlement is a long-term process that involves having a third-party debt settlement company settle debts on your behalf while you save the cash for your settlement instead of making payments on your debts. With debt settlement, you may be able to repay less than the amounts you owe.

A debt management plan is a third-party debt repayment plan that is typically administered by a nonprofit credit counseling agency. With a debt management plan, the credit counseling agency will negotiate with your creditors to lower your interest rate and remove late fees or over-the-limit fees from your account. During the program, you’ll make a single monthly payment to the nonprofit credit counseling agency who will disburse the funds on your behalf.

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

Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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Pay Down My Debt

Couponing 101: How to Get Started So You Can Eliminate Debt

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

Think couponing is a waste of time? Think again. Taking a moment to clip a coupon or ask for a deal can go a long way toward getting out of debt.

The Federal Reserve’s most recent Survey of Consumer Finances shows that 77% of Americans have some form of debt, with credit card debt being the most common. And, according to financial attorney Leslie H. Tayne, founder of Tayne Law Group P.C., there is no downward trend in sight. With the cost of goods on the rise, and income levels not keeping pace, the Melville, N.Y., lawyer says that people become trapped in the paycheck to paycheck cycle. Their debt severely limits their opportunities — both financially and in life.

Lauren Greutman, Syracuse, N.Y.-based consumer savings expert and founder of That Lady Media, once knew that struggle. With $40,000 in debt and an underwater mortgage, she turned to couponing to slash her grocery bill from $2,000 to $200 per month, allocating those savings to her debt. She coupled her couponing strategies with some side hustles and eliminated that burden in three years.

“By couponing, you can give yourself a $5,000-a-year raise that you can use to pay down debt or put towards your other financial goals,” Greutman said.

Here’s how to get your start.

How to start couponing

Greutman said that it’s important for you to first learn when to use a coupon and when not to. For example, she pointed out, buying a generic good may still be cheaper than buying a name brand good with a coupon. She adds that you should hold on to coupons until the items are on sale to increase your savings. Consumer.gov takes it a step further and advises you to avoid buying things just because you have a coupon. It’s not a good deal if you don’t want or need the item.

Next, Greutman encourages you to learn the couponing policies of your favorite stores. Do they let you double up on coupons? At one point, she was getting $500 worth of groceries for $40 by taking advantage of triple coupon sales that her preferred grocer ran once per month.

Greutman’s go-to strategy to get coupons? She emails her favorite manufacturers directly, who, nine times out of 10, send her free products or a high-value coupon. Tayne concurs and often asks companies what deals they have running. If it’s quick and simple, she “loves the idea of trying to pay less.” Consumer.gov says that coupons can also be found in newspapers, magazines, on manufacturer’s websites, or on websites specifically dedicated to coupons.

Couponing strategies from the pros

Greutman offers the following pro couponing tips:

  • Stack savings by pairing a store coupon with a manufacturer’s coupon to purchase a sale item that has a mail-in rebate.
  • Learn the sales cycles of your favorite brands (competitors will never have their goods on sale at the same time).
  • Meal plan around deals to feed your family for super cheap.

Tayne also likes the planning aspect of couponing. She said that the process helps you stick to a budget because you’re thinking about your purchases before you get to the store. This can prevent overspending and taking on additional debt. The Consumer Financial Protection Bureau (CFPB) encourages you to make frugal shopping a family endeavor and teach your children about the value of using coupons early on.

On her website, Greutman urges you to realize that couponing is a skill that takes time to hone. She encourages you to not give up just because you’re not scoring the mega deals right out of the gate. With patience, couponing, and meal planning, the whole frugal shopping experience can eventually become automatic to you.

A word of caution on couponing

On couponing, Greutman said that “short term sacrifice will give you long term gain.” However, both she and Tayne agree that extreme couponing may not be cost effective due to the time commitment. If the process is quick and simple, it absolutely makes sense to try and pay less, Tayne said. But, she cautioned, “don’t let [couponing] take over your life and impact your ability to earn money, which may be more valuable than couponing.”

Once Greutman mastered couponing, she started her business to help other women get out of debt using the tools that she learned. By doing this, she increased her household’s income, further hastening the process of becoming debt free. The moral? Your best way to get out of debt appears to be a two-pronged approach of saving money (through coupons or other means) and earning more of it.

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

Laura Gariepy |

Laura Gariepy is a writer at MagnifyMoney. You can email Laura here

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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 or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Updated: December 2, 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

3.90% - 8.02%


Fixed Rate*

2.56% - 7.30%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on SoFi’s secure website

EarnestA+

20


Years

3.89% - 7.89%


Fixed Rate

2.47% - 6.97%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on Earnest’s secure website

CommonBondA+

20


Years

3.67% - 7.25%


Fixed Rate

2.70% - 7.44%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on CommonBond’s secure website

LendKeyA+

20


Years

5.10% - 8.93%


Fixed Rate

2.68% - 8.96%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan
Learn more Secured

on LendKey’s secure website

Laurel Road BankA+

20


Years

3.50% - 7.02%


Fixed Rate

3.23% - 6.65%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on Laurel Road Bank’s secure website

Citizens BankA+

20


Years

3.90% - 9.99%


Fixed Rate

3.00% - 9.74%


Variable Rate

$90k / $350k


Undergraduate /
Graduate
Learn more Secured

on Citizens Bank (RI)’s secure website

Discover Student LoansA+

20


Years

5.74% - 8.49%


Fixed Rate

4.99% - 7.99%


Variable Rate

$150k


Undergraduate /
Graduate
Learn more Secured

on Discover Bank’s secure website

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

on SoFi’s secure website

Earnest

660

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on Earnest’s secure website

CommonBond

660

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on CommonBond’s secure website

LendKey

680

Undergraduate
& Graduate

Private & Federal

$24K

Yes

Learn more Secured

on LendKey’s secure website

Laurel Road Bank

Not published

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on Laurel Road Bank’s secure website

Citizens Bank

680

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

$24K

Yes

Learn more Secured

on Citizens Bank (RI)’s secure website

Discover Student Loans

Not published

Undergraduate
& Graduate

Private & Federal

None

Yes

Learn more Secured

on Discover Bank’s secure website

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

LEARN MORE Secured

on SoFi’s secure website

Read Full Review

SoFi : Variable rates from 2.56% and Fixed Rates from 3.90% (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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Earnest : Variable Rates from 2.47% and Fixed Rates from 3.89% (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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CommonBond : Variable Rates from 2.70% and Fixed Rates from 3.67% (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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LendKey : Variable Rates from 2.68% and Fixed Rates from 5.10% (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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Laurel Road Bank : Variable Rates from 3.23% and Fixed Rates from 3.50% (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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Citizens Bank (RI) : Variable Rates from 3.00% and Fixed Rates from 3.90% (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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Discover Student Loans : Variable Rates from 4.99% and Fixed Rates from 5.74% (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% – 4.45% 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 3.75% 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 4.13% 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 4.29% (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 2.80% – 6.01% APR and fixed rates ranging from 3.39% – 6.69% APR.
  • 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 4.53% – 7.20% (fixed) and 4.58% – 7.25% 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 2.82%-8.42% APR and fixed interest rates ranging from 3.75% – 9.66% 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 products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

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

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