Lower Your Student Loan Burden
When it comes to handling your student loan debt, both short and long-term options can help you. Whether you’re struggling with your payments today or worried about how you’re going to pay them off in the years to come, we have some valuable solutions to offer you.
As some of these strategies are somewhat complicated and have long-term consequences, we will do our best to explain them in great detail, so you have as much valuable information as possible from which to make a decision. Let’s get started!
Strategy #1: Refinance Your Student Loans at a Lower Rate and/or Longer Term
If you currently have one or multiple student loans, one option to lower your monthly payment is to consolidate and refinance them into a single new loan. This allows you to simplify both your federal and private student loans into one loan, with one monthly payment, and often a lower interest rate. This is a great strategy for those that have a stable income and good credit. It works by one of two mechanisms:
- Lowering the interest rate
- Extending the term of the loan
To consolidate or refinance your student loans through a private lender, the lender will begin by looking at three criteria:
- Steady source of income
- A Debt-to-income ratio below 40-45%
- Credit score above 660
When doing this, though, there are two key downsides to keeping in mind:
- If you refinance a federal loan into a private loan, you will lose access to the Income-Based Repayment programs
- If you extend the term, you may pay more in total interest over the new term of the loan even if you have a lower rate
Tips: As you can see, there are certain cases where consolidation and refinancing may not be the best option for you. You may also run the risk of losing some borrower benefits (such as principal rebates, interest rate discounts, etc.) when you switch from your original loans to one consolidated loan. For these reasons, it’s very important to look at the current status of your loans before you begin this process.
Strategy #2: Enroll in an IBR Program to Lower Your Payment
An IBR program has both short and long-term benefits when it comes to student loans. This is a great strategy for those with no income, low income, or uncertainty about future income. Here’s a quick summary of how the programs work:
- Only federal student loans are eligible
- Monthly payments are calculated solely on your income level, NOT on how much you owe
- Many borrowers who exit college and are unable to immediately find work are able to make $0 monthly payments (as they don’t yet have an income)
- If your new payment isn’t enough to cover the accrued interest on the subsidized amount of your loan, the government will pay it for you for up to three years once you enroll in an IBR program
- Repayment terms are between 20-25 years after which your remaining balance will be forgiven
- Even if you don’t currently have one of the federal loan types eligible for an IBR, you may be able to consolidate your student loans into one new loan that is eligible
This alone can provide immediate relief if you are struggling just to make your payments today. And with the forgiveness options attached, you will have a long-term solution as well. An IBR truly does offer those with federal student loans the best of both worlds when it comes to debt relief. Contact your loan servicer to understand your options.
Tip: Remember that as with most forgiveness and repayment programs, an IBR requires that you recertify your income and family size every year. Failure to do so can often lead to unexpected payment increases and even disqualification in certain programs. (It’s important that borrowers ensure that this information is re-certified each year as loan servicers often have a poor track record of keeping this information up-to-date!) Accordingly, your monthly payment under an IBR can change from year to year.
Tax Implications: It’s also important to remember that any forgiven loan amounts under an IBR program are then considered income and subject to taxation. Borrowers are often surprised when their forgiven student loan then triggers a massive tax bill as a consequence. For this reason, it’s important to consider this possibility when evaluating your options.
Strategy #3: Discuss Forbearance and Deferment Options With Your Lender
One option that can offer temporary relief for those with student loans is discussing forbearance or deferment with your lender. Either option is available for federal loans as well as private loans in limited cases.
Forbearance means you are allowed to temporarily stop making payments (or make reduced payments) on your loan for up to 12 months. Forbearance is typically used by those experiencing unexpected employment or income issues that affect their ability to make their student loan payments. However, interest will still accrue on your loan during your forbearance period.
Deferment is when both your principal and interest payments on your student loans are temporarily postponed. Sometimes, depending on your individual loan, the government will make your interests payments for you during your deferment period. However, as the eligibility requirements for deferment are much stricter, forbearance is the more common option and frequently used by those who aren’t eligible for deferment.
To attempt to get a forbearance or deferment call your loan servicer or your lender and ask about available options.
Strategy #4: Attempt Debt Settlement If You Have Private Loans
Unfortunately, borrowers with private student loans have fewer options when it comes to forgiveness than those with federal loans. There are currently no forgiveness options available for private student loan borrowers. However, one strategy that can occasionally be very effective is attempting to settle your debts for less than the total principal amount. Private lenders are sometimes willing to work with borrowers if they are convinced that you can’t afford to pay off the loan but will continue to pay something if a compromise can be made.
Debt settlement involves working with your lender in order to negotiate either reduced payments or a reduced principal balance on your private student loans. Borrowers have the option of either doing this directly or by working with a debt settlement company. While this process can sometimes achieve great results, it can be a very long and arduous process and many borrowers find that it’s best to work with a company to do this. If you choose to work with a company, be aware, NO ONE CAN GUARANTEE A RESULT FROM A DEBT SETTLEMENT PROCESS.
Here’s a basic outline of how the process usually works:
- The borrower will find a way to save a lump sum of money. (Note: WE DO NOT RECOMMEND OR ENDORSE THAT ANY DEBTOR CEASE MAKING PAYMENTS TO THEIR LENDERS)
- If they want, they can then approach their creditor directly to demonstrate that their payments are unaffordable then offer the lump sum amount and attempt to negotiate a settlement of their student loan debt principal for less than the total sum.
- If using a debt settlement company, the company will sometimes need to find a second creditor willing to refinance a lower amount of debt and then approach the current lender to settle for the smaller amount.
- With the possibility of a lump sum payment as opposed to nothing, the lender may be willing to accept the settlement offer.
Tips: While debt settlement can be an effective solution for student loan borrowers, there are some significant drawbacks to keep in mind. For example, debt settlement will almost certainly lower your credit score and the canceled debt will likely trigger a tax bill as a result. Also, the borrower will likely be dealing with collection agencies during the settlement process. These are all things to keep in mind when pursuing the debt settlement route.
As you can see, if you’re currently struggling with making either your federal or private student loan payments, there are both short and long-term options available to you. Make sure you understand all available options beforehand as many borrowers don’t realize how many options actually exist.
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.