Refinancing with Earnest
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When William Weaver graduated from college, he had over $50,000 in student loans. Because of interest, William realized he would pay back thousands more over the length of his repayment. By refinancing his debt instead, he was able to save over $10,000.
Although refinancing was a great choice for William, it’s not a one-size-fits-all solution. Depending on your loan types and interest rates, refinancing isn’t always the best idea.
This guide will help you figure out if refinancing is a good idea for your situation or not.
When refinancing makes sense
Refinancing can be beneficial in many ways. If you’re looking to save money, you might be able to get a lower interest rate and a shorter repayment term. If you need more breathing room in your budget, you can extend your repayment term to get a lower monthly payment.
If you think refinancing might be for you, here are the situations where refinancing makes the most sense.
1. You have private loans
Private student loans tend to have higher interest rates and less forgiving repayment terms than federal loans.
If you opted for a variable interest rate when you took out your loan, you could see interest rates as high as 9%. And since variable interest rates can fluctuate, that also means your monthly payment could change several times over the life of your loan.
Because of these factors, refinancing private student loans could be a good solution. If you refinance, you might be able to reduce the amount of interest you’ll pay over the length of your loan.
If you don’t like how variable rates can affect your payments, you can also opt to refinance with a fixed rate loan. You might pay more at first, but the rate is set for the length of your loan and your payments will never change.
2. You have high-interest federal loans
Depending on the type of federal loans you took out, you might be paying a lot in interest. For example, if you went to graduate school and took out PLUS loans, you could be paying 6% to nearly 8% interest, depending on the year you took them out. That interest rate can add significantly to the cost of your loan.
If you have good credit and earn a decent salary, you could refinance your federal loans and get a lower interest rate. Some lenders offer refinancing loans with fixed interest as low as 3.25%.
If you had $10,000 in PLUS loans at 6.31% interest and took 10 years to pay off your debt, you’d pay $3,510 in interest. However, if you refinanced the loans and qualified for a 3.25% interest rate, you’d pay just $1,726 in interest — and you’d have a lower monthly payment.
That switch would save you about $1,800, which you could use to pursue your other goals.
3. You have loans with a cosigner
If a parent or loved one cosigned a student loan with you, they’re responsible for the debt if you fall behind on your payments. Your cosigner’s credit could be negatively impacted if you miss a payment, making it difficult or even impossible for them to get approved for any new lines of credit, such as a car loan or a mortgage.
To prevent these kinds of issues, you can refinance the loans in your name only and release your cosigner from responsibility. If you want to help your loved one and can handle the debt on your own, refinancing can relieve them of responsibility. It could also reduce tensions between the two of you.
When you shouldn’t refinance
While refinancing can be a great way to save money, it’s not the right choice for everyone. Here are two scenarios when refinancing might not be wise.
1. You need an income-driven repayment plan
If you have federal student loans, you might qualify for an income-driven repayment (IDR) plan if you can’t keep up with your payments. Under an IDR plan, your payment is capped at a small percentage of your income and your repayment term is extended, reducing your monthly bill.
An IDR plan can be a lifeline when you’re starting out on a small income, but if you refinance your federal loans with a private lender, you lose this as an option. If you refinance and your income later decreases, your new lender might not be flexible about your payments.
2. You’re pursuing student loan forgiveness
If you plan to spend your career in public service, such as by working for a non-profit or a government agency, you could qualify for Public Service Loan Forgiveness (PSLF). After 10 years of making qualifying payments, the government will forgive your loans.
However, if you refinance your debt, you’re no longer eligible for PSLF. The program only applies to federal loans. Even though refinancing can save you money right now, it could cost you thousands in the long run if you qualify for PSLF.
Deciding if refinancing is right for you
Everyone’s situation is unique when it comes to student loans. So before refinancing, make sure you do your homework and understand how much you could save with each option. Then you can decide if the savings are worth the potential drawbacks.
Ready to refinance? Check out this list of the best banks for refinancing.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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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 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% 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 Month/Day/Year, 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 08/21/18. 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 firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent 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 Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
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.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|