Define Your Student Loan Type
It is important to know what type of loans you have and then decide what course is best for you. You can learn about your loans by checking your credit report for free at Annual Credit Reports. You are entitled under Federal Law to check your report at each Credit Bureau once per year for free. Do not sign up for any extra services. You can find the same services for free at many online credit companies. Your report will list all your loans.
If you’re interested in checking just your Federal Loans the Federal Government’s site can help with that. It’s also full of useful information including income sensitive repayment plans and Federal consolidation (more on that later).
These are the two most common types of loans:
- Federal Loans: These are loans from the Federal Government. They have names like, Stafford, Direct, Subsidized, Unsubsidized, Perkins, Grad PLUS, etc. They are backed by the U.S. Government and some have many benefits such as deferments, forbearances, death and disability forgiveness, income sensitive repayment plans and potentially loan forgiveness.
- Private student loans: These are loans taken out usually after exhausting federal loans from private banks. These loans are credit based and do not have as many benefits as Federal loans.
Review Interest Rates
Understand Refinancing vs. Consolidating
Buckle-up, this next part is a bit bumpy, but hang with us. We’ve got some tips and suggestions coming:
- Refinancing is when you take your existing loans and qualify for a new interest rate. It is a credit-based loan and Lenders look at your credit, income, Debt to Income and ability to repay your loan.
- Consolidating is usually used for Federal Loans. The Consolidation loan combines all your Federal loans, Not Private Loans, into one new loan. You get a weighted average interest rate, so you might get a savings in interest. The term can extend up to 30 years based on the amount consolidated. You can consolidate your Federal loans to keep your benefits and Refinance your Private loans to potentially get a better interest rate.
Weigh your Options
Now that you’ve got the info, it’s time to weigh your options and determine your next steps to tackle those student loans. Here are a few routes you can take:
- Refinance all loans into one – This is best for those looking to get out of debt sooner and are not worried about losing federal benefits.
- Do nothing with your Federal loans and Refinance your Private Loans
- Consolidate your Federal loans and Refinance your Private Loans – Best for those looking to lower payments. Take the longest term on both loans
- Do nothing – You don’t know what you don’t know! What if you could save $50, 100, or more per month just be shopping around? It might be worth a few minutes to apply.
Pandemic Specific Impact
The Federal Government has suspended payments on Federal Loans through 9/30/2021 and set the rate at 0%. This is a historically low rate, making it a good time to consider refinancing. However, this does NOT apply to Private loans. You can read the most current information here.
Student Loan Forgiveness
Student loan forgiveness is already in action. The solutions focus on federal loans and not private loans. Rather than re-hashing the details, the Federal Student Aid website, does a great job explaining everything and gives you a link to apply for forgiveness.
Tips for Refinancing
- Ultimately your goal is to pay down student loan debt and still keep your bank account flush. With that in mind, here are a few tips for doing just that:
- Historically low rates are available now due to the pandemic. Consider a fixed rate, even if it is higher than the variable since rates may increase.
- Shop lenders for the best rate. Do this within 30 days so hard inquiries do not affect your credit score. Some lenders use soft credit pulls which do not affect your credit.
- If you can add a credit-worthy cosigner to your loan, your approval is better, and you may get a better interest rate. Get the most credit worthy person to cosign. It may be tough to ask your parents to cosign again, but if they are on the underlying loan and you can save money – just ask.
- Many lenders allow you to refinance your Federal Loans with your Private loans. Seriously consider if giving up your federal benefits are worth the rate savings or income sensitive repayment options.
- If you have multiple lenders and multiple payments, this option allows for just one payment to the new lender.
- Terms from 5 years to 20 years. Typically, the shorter the term, the lower the interest rate.
- See Current Lender Rates for Refinancing
Tips for Consolidating
- Know what type of loans you have (see above).
- Define your goal: Are you looking to reduce payments and pay loans longer, trying to get out of debt faster, or reduce your interest rate?
- Consider the income sensitive repayment options. Currently there are numerous plans offered by the Government. You can read about them here.
We know this is a lot to digest. You do not need take action on your student loans right now, but we hope this has planted a seed to get you thinking. Remember what it felt like taking the leap from a staff position to a travel job? Like leaving that staff position, navigating student loans can be overwhelming (or even scary), but once you do it, you’ll be happy you made the decision. Taking charge of your budget, setting deliberate goals, and finding solutions to pay down debt is the best way to conquer financial independence!