Refinancing with Earnest
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This report was originally published on June 2, 2015.
Graduation is an exciting time. But for many graduates, this exhilarating period also embodies the start of “real adult life,” and a big part of that means paying off student loans.
Most student loan providers offer a six-month grace period before you have to start paying off your student loans. Yet, that time comes rapidly and once the bill arrives, it can be confusing.
After I graduated with my bachelor’s degree, I milked the grace period, pretending I wasn’t actually in debt while trying to get my life together.
When the first bill arrived, I wasn’t sure who my lender was, how much I actually owed and what my repayment terms were. I was in for a surprise when I realized my original loan balance of $18,000 had ballooned to $23,000 by the time I graduated. Somehow I had blocked the reality of interest from my mind, too.
If you’re a new graduate or you’re just looking for the basics on repaying student loans, here’s your go-to guide to pay off student loans, so that you can be better informed than I was.
- Figure out the who, what, when and where of paying off student loans
- Understand your repayment options
- Choose the best repayment option for you
- Important (and not obvious) things you should know
- The bottom line
When you are just getting started, you’ll want to know the who, what, when and where of paying off student loans.
Who do you owe?
This step may sound obvious, but it can be a bit confusing as your student loan lender isn’t necessarily your student loan servicer. For example, my undergraduate loans were provided by the Department of Education but were serviced by companies called ACS, Brazos and Nelnet.
Not sure where to start? Your first step is to go to the National Student Loan Data System (NSLDS) to see who is your loan servicer — i.e., who you will be paying. Think of loan servicers as third parties that are managing your payments.
It’s crucial to know who your student loan servicer is so you can actually begin to pay back your student loans and keep in communication with the company, especially if you are struggling to make payments.
What do you owe?
As I mentioned, I thought I owed around $18,000 and didn’t even think about interest charges. It wasn’t until I saw the final number in black ink that it hit me. It can be shocking to find out how much you actually owe. And if you’re like me, your parents helped you along, and you just signed on the dotted line and set it and forget it.
To truly understand what you owe, you need to know:
- How much you owe
- How many loans you have
- What the interest rates are on the loans
Once you know who your loan servicer is, log into its website to get a clearer picture of what you owe. Each loan servicer is different, but you should be able to easily access your account to find out your loan information, including total balances and interest rates.
Student Loan Hero’s parent company, LendingTree, also offers the My LendingTree platform, which makes it easy to access all of your student loan data in one place. Not only can you see exactly how much you owe, you can also see your repayment options and get actionable tips on paying off student loans faster.
The one piece of information you will need to find out what you owe on one of the Federal Student Aid (FSA) websites is an FSA ID. In the past, you would have a Federal Student Aid PIN to access the information, but as a security update, the Department of Education is now using the FSA ID. To get started, sign up here for an FSA ID or read more about the FSA ID if you need help.
When do you make payments?
After you have verified your loan servicer and gathered all relevant information on your loans, it’s time to figure out when you make payments. As a recent graduate, you are likely entitled to a six-month grace period.
When you log into your loan servicer’s website, there should be information on when you need to make a payment. One way to make sure you stay on top of payments is by setting up calendar reminders a few days before payments are actually due.
Where do you make payments?
Typically, you can make a payment within the user portal of your loan servicer’s website. You’ll need to sync your bank account to make payments. You could also go old school and mail a check, but for easy access, you can make online payments.
When you graduate, you are automatically enrolled in the standard repayment plan for your federal student loans. This is a payment plan of fixed monthly payments over the course of 10 years. This means you will make equal payments for 10 years until your debt is gone.
If you are carrying six-figure debt, the monthly payments under the standard repayment plan could likely be four figures and difficult to handle. Using something like the extended repayment plan or Income-Based Repayment plan might be a better option. Here is a rundown of repayment options for federal loans:
- Standard repayment plan: This is the standard default plan for most student loans and gives borrowers 10 years to pay back their debt. This option has a shorter time frame than most of the other options, meaning you will pay less interest over time. If you can afford it, make more than the minimum payments to really save on interest and get out of debt faster.
- Extended repayment plan: Borrowers with more than $30,000 in debt can extend their repayment to up to 25 years. The payments under this plan can either be standard (equal monthly payments) or graduated (increasing over time). This plan is ideal for people who have lots of debt and cannot financially manage the 10-year standard repayment plan.
- Graduated repayment plan: This plan can be useful for borrowers who expect their income to continue growing over time. One caveat: Because of smaller payments early on, you’ll be paying less of your student loan balance in the beginning. This means more interest will accumulate over time on this plan than with a standard repayment plan. Monthly payments start out low and increase every two years over a 10-year repayment period.
- Income-Based Repayment (IBR) plan: For borrowers who are experiencing financial hardship or having lower incomes, IBR might be a good fit. These plans are designed so that your minimum monthly payments are capped at 15% of your discretionary monthly income.
- Income-Contingent Repayment (ICR) plan: This plan calculates your monthly payment based on your salary as well as family size. Loans under this plan are also eligible for forgiveness, if unpaid after 20 to 25 years. You do not need to demonstrate financial hardship to qualify for this plan — but you will pay more in interest over time.
- Pay As You Earn (PAYE) repayment plan: Borrowers who demonstrate financial hardship can have their monthly payments limited to 10% of their discretionary income under this plan. If your loans aren’t paid off after 20 years, the balances are eligible for forgiveness. Note that if the loans are forgiven, current IRS rules say that forgiven loans can be considered as taxable income, so you may be hit with a hefty tax bill.
It is important to keep in mind that these various plans apply only to federal student loans. Private student loans often have fewer repayment options and less flexibility in switching between them. To discuss private student loan repayment options, talk to your lender.
After you get a firm grasp of what repayment options are available to you, it’s time to choose the best one to pay off your student loans. Consider your current income and employment situation, as well as how much you can afford to put toward your debt.
It’s crucial to do the math and understand how much you will be paying in interest over time with whichever plan you choose, but it’s also important not to jump into a plan that will stretch your finances too thin.
If you’re having a difficult time managing all of your federal student loans, you may want to consider consolidating through a direct Consolidation loan. This option helps make managing payments a bit easier by creating one new loan to replace several existing federal loans. You are then left with one loan, one lender and one monthly payment.
To apply, go to StudentLoans.gov and apply under the Repayment & Consolidation tab. However, if you extend your repayment period through consolidation, you will pay more interest over time.
In addition, while consolidating is helpful, you can also lose some of your borrower benefits, such as interest rate reduction and loan cancellation. If you have federal and private student loans and want to consolidate your loans, look into student loan refinancing.
Through student loan refinancing, you may be eligible for a better interest rate and you could save money in the long term while paying off your student loans. There are some good reasons to consider refinancing your student loans, especially if they’re high-interest and/or private student loans. However, you will be giving up your federal loan protections, such as IBR plans and loan forgiveness, so make this decision carefully.
Now that you’ve got the basics down, you can start your student loan repayment. But first, there are several important things you should know as a borrower:
- If at any point in time paying off student loans is difficult for you, contact your lender immediately or risk hurting your credit score. Your credit score is what lenders use to verify your creditworthiness. If you have bad credit, it will be difficult to find an apartment, get approved for a credit card or get an auto loan. Make your payments on time — and if you can’t, consider requesting deferment.
- If you have both federal and private student loans, consider paying off private student loans first. Private student loans often have higher interest rates and less-flexible repayment options.
- If you choose to defer your loans, understand that interest will continue adding up. Before you opt for deferment, determine how much the added interest will cost you.
- You can save a lot of money in interest by focusing on your highest-interest debt first — often referred to as the debt avalanche method. However, some people believe that the debt snowball method, which focuses on paying off the smallest balances first, is a good strategy because of the emotional wins.
- Bonus! Student loan interest payments are tax deductible, so include the interest amounts on your tax return.
- If you are hoping to get your student loans forgiven through a qualifying plan, it’s crucial to note that the current tax law states that the forgiven loans can be seen as income, for which you will be taxed — and that could result in a hefty tax bill. If you are pursuing Public Service Loan Forgiveness, you could be exempt from paying federal income taxes on your forgiven amount.
- Do you have a cosigner? If so, look into cosigner release. Keeping a cosigner could mean trouble if something happens to you or your cosigner down the line.
- It’s extremely difficult to discharge your student loans through bankruptcy. There are several steps to this process, including finding a lawyer and paying legal and court fees. In addition, your credit score likely will take a big hit.
When repaying your student loans, make sure you keep on top of things from the beginning so you won’t be faced with any unpleasant surprises down the line. With a few simple steps, this task, which might seem overwhelming at first, can be tackled in an easier way.
Remember to start with the basics. First, figure out how much you owe, whom you owe and when your payments are due. Then, determine additional information, including whether you are eligible for a grace period, what types of payment plans are available and which one is best for your situation.
Keep these factors in mind when making decisions about your student loans and future repayment options as you work toward paying off your student debt.
The information in this article is accurate as of the date of publishing.
This article contains links to LendingTree, our parent company.
Yael Bizouati contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for 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 will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.47% APR (with Auto Pay) to 7.59% APR (with Auto Pay). Variable rate loan rates range from 2.27% APR (with Auto Pay) to 6.89% APR (with Auto Pay). 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 10 years or less. For loan terms of 10 years 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 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of August 15, 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 08/15/2019. 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 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for 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.
5 Important Disclosures for 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. All variable rates are based on a 1-month LIBOR assumption of 2.37% effective July 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.27% – 6.89%1||Undergrad & Graduate|
|2.27% – 7.55%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.24% – 6.67%4||Undergrad & Graduate|
|2.37% – 7.95%5||Undergrad & Graduate|
|2.46% – 9.24%6||Undergrad & Graduate|