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Unsecured Debt vs. Secured Debt: What’s the Difference?

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When talking about debt, it’s important to understand the two major forms: unsecured debt and secured debt. Knowing what types of debt you owe, and the differences between secured and unsecured debt, is crucial when it comes to personal finance. This article will define each type of debt, discuss the differences, highlight pros and cons and provide ways to manage it in your budget.

What is unsecured debt?

Unsecured debt is borrowed money that has no collateral — something pledged as security for repayment — attached in case the borrower defaults on the loan. If the borrower defaults on the debt, the bank or lender has nothing to take back as repayment for the debt. Interest rates are usually higher with unsecured loans because they are riskier for the lender.

Common forms of unsecured debt include:

  • Student loans: A student loan is money given by a financial institution or the federal government to a student to pay for advanced education. A student does not have to put down collateral in order to obtain a student loan.
  • Personal loans: Personal loans are another form of unsecured debt. An individual can take out a personal loan for a variety of financial reasons without having to put down collateral — like a home or car — in exchange for the initial loan.
  • Credit cards: Credit cards allow people to borrow money from the bank to make any purchase on credit, with the stipulation that you’ll pay the amount back within a certain period of time. If you pay the bank back in full within the appointed amount of time (no less than 21 days), you will not owe any interest or additional payments on the card. If you fail to pay off your debt during the grace period, you will owe interest money in addition to the original amount owed.

As with all things, there are pros and cons to unsecured debt.

Pros of unsecured debt

1. Unsecured debt is less risky for the borrower
Unsecured debt is less risky for the borrower and more risky for the lender. Because lenders do not have any collateral for your unsecured debt, you cannot lose any of your assets if you cannot make a payment. A lender is not able to take back the purchases you charged on your credit card, but there are other consequences to not repaying unsecured debt.

2. Unsecured debt could improve your credit score if paid in full
If borrowers are diligent about paying their monthly payments on time, this can improve their overall credit score. By regularly paying the debt in full, you’re proving that you are reliable, trustworthy and a safe bet for future loans.

3. Unsecured loans can be used at your discretion
Unsecured loans can be used to pay for a variety of items. Though debt like student loans is limited in its uses, borrowers can use personal loans or credit cards to pay for almost anything, including medical bills, home remodels or debt consolidation. These types of unsecured loans offer borrowers flexibility and more choices on how they use the money borrowed.

Cons of unsecured debt

1. Missed payments can negatively impact your credit
While paying an unsecured debt on time can improve your credit score, missing payments can negatively impact your credit. Lenders can report your failure to pay to a credit bureau, which can lower your credit score and make it more difficult to obtain loans in the future.

2. Unsecured debt can be reported to a debt collector
If you’re unable to pay back your unsecured debt, the lender will likely hire a debt collector to press you to pay back your debt. Debt collectors can aggressively hound you to receive payment for your unsecured debt, and failure to pay it back may also result in legal issues where you can be sued.

What is secured debt?

Secured debt is backed with or guaranteed by collateral and assets. Should a borrower default on a secured loan, the lender has the legal right to take said collateral as payback for the debt owed.

Common forms of secured debt are:

  • Mortgages: A mortgage is a loan from a bank or a mortgage lender that helps you finance the purchase of a home. Borrowers acquire a mortgage knowing that if they default on their monthly payments, the bank can take the house from them as payment for the debt. The house is the collateral that secures the debt.
  • Vehicle loans: Like a mortgage, a loan for a car is a secured form of debt. Vehicle loans are money given to a borrower to put towards a vehicle. Should the borrower not make the required car payment, the lender can repossess the car to satisfy the debt.
  • Car title loans: Once you have paid off your vehicle loan in full, you will own the car outright and receive the car title. A car title can then be used as collateral for future loans. The borrower can give the lender the car title as an asset. Should the borrower default on said loan, they would not receive the car title back until the debt was repaid in full.

Pros of secured debt

1. Secured debt usually has lower interest rates
Secured debts are less risky for lenders because the loan is secured by an asset. If you don’t pay up, the lender can take your collateral to earn back the money it lost on their loan to you. Because the loan is a safer bet, banks and lenders usually offer better interest rates. Lower interest rates allow you to pay more to the principle each month, which in turn, allows you to pay off the loan faster.

For example, the average interest rate on a 30-year mortgage is 4.83% (as of Nov. 1 2018), according to Freddie Mac. In comparison, the interest rate on a personal loan can vary anywhere from 4.99% to 29.99%, according to Lending Tree, which owns Magnify Money.

2. Secured loans can be easier to obtain
Secured loans are a relatively safe option for lenders. By securing your loan with collateral, you’re telling the bank that if you default, they can take said collateral as payment.

Because of this, secured loans are often easier for borrowers to obtain. Unsecured loans are often dependent on your credit score, so not everyone can qualify. While credit score does play a role in obtaining any type of loan, secured loans may have less stringent requirements for borrowers to meet.

3. Secured debt allows you to build credit
When you pay your monthly mortgage or vehicle payment on time, you’re showing lenders that you are a reliable borrower. This in turn boosts your credit score and allows you to improve your credit for future loans.

Cons of secured debt

1. Failure to pay secured debts results in loss of assets
Unlike unsecured debt, failure to pay secured debts results in loss of your collateral. Should you miss payments on your mortgage or vehicle, the lender can foreclose on your home or repossess your car.

2. Default on secured loans can damage your credit
While paying your secured debt on time can build your credit and improve your credit score, failure to pay your secured debt can result in major damage to your credit and affect your ability to get a loan in the future. In addition to losing physical assets with a secured loan, you can also damage your credit score, which can have serious financial repercussions.

Which form of debt is better?

All debt — secured and unsecured — should be taken seriously. Mismanaged debt can negatively impact your credit score, affect your ability to get any kind of future loan and wreck your budget and personal finances.

Secured debt is necessary for obtaining a mortgage or a vehicle loan. You’ll often receive a lower interest rate and higher loan amount, but will have larger consequences — like losing your assets — for missing a payment or defaulting on the debt. Unsecured debt requires no up-front collateral, but failure to pay can result in battles with debt collectors and the courts, and can also damage your credit score and financial history.

Whether you’re paying off secured or unsecured debt, it’s important to ensure you’re making your monthly payments and paying them on time. Failure to pay off debt can result in unnecessary interest payments, loss of assets, damage to your credit score, financial stress and serious legal issues.

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.

Sage Evans
Sage Evans |

Sage Evans is a writer at MagnifyMoney. You can email Sage here

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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.

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

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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

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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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on Earnest’s secure website

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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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on CommonBond’s secure website

Read Full Review

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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on LendKey’s secure website

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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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on Laurel Road Bank’s secure website

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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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on Citizens Bank (RI)’s secure website

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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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on Discover Student Loans’s secure website

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.

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Nick Clements
Nick Clements |

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

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