Refinancing with Earnest
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You may know what it means to consolidate student loans. Or, you may have it confused with refinancing. But student loan consolidation and refinancing are important tools for managing your debt.
Let’s look at three types of borrowers for whom refinancing or consolidating makes sense.
3 times it makes sense to refinance or consolidate loans
First thing’s first: Do you know the difference between consolidating and refinancing?
When you consolidate student loans — such as with a Direct Consolidation Loan — you group multiple loans into one. The interest rate you receive on consolidation student loans may be the average of the previous loans’ rates. You may consolidate to switch from a variable rate to a fixed rate or change your repayment term.
Refinancing is only available through private lenders. When you refinance, you get a new loan to pay off your other student loans. You may refinance to get a loan with a shorter or longer repayment term or lower interest rate.
As a result, refinancing may save you more money over your student loans.
Keep in mind the federal government’s Direct Loan Consolidation program can only group federal student loans together. Private lenders can consolidate and refinance both federal and private student loans.
Of course, there are are other differences in federal and private consolidation. The important thing to know here is why someone would want to consolidate loans at all.
That’s where our three sample borrowers come into play:
1. A small-business owner with big debt
Consider this: A dentist has six federal loans from her time spent in college and dental school. She’s having trouble keeping track of and making payments on six student loans since she started her own business.
Consolidation: She decides to consolidate her student loans using a Direct Consolidation Loan. That allows her to make a single monthly payment each month.
Consolidation also happens to allow her to qualify for Pay As You Earn (PAYE). Further, the PAYE plan limits her student loan bill to 10 percent of her discretionary income. That helps her a lot, since she’s taking a small salary while her new business grows.
The big picture: Rising education costs may be deterring millennials from starting businesses, according to the Kauffman Foundation.
Entrepreneurs tend to have a higher-than-average debt-to-income ratio. For them, smaller monthly payments on student loans over a longer term may make sense. That way, they can divert more money to a business that, if successful, could pay off their loans in the long run.
2. A recent grad moves into public service
Consider this: A recent grad has five federal loans. Unfortunately, her salary at a nonprofit won’t allow her to pay down her higher-interest accounts.
Consolidation: She decides to take out a Direct Consolidation Loan. Although it won’t necessarily lower her interest rate, it will have a weighted average of her previous five loans’ rates.
Our borrower also decides to switch to an Income-Based Repayment (IBR) plan. That extends her repayment term, lowering her monthly payments.
With $55,000 in debt, the IBR plan is helpful because it puts her on the track to loan forgiveness. After all, she’s hoping to qualify for Public Service Loan Forgiveness (PSLF), which will forgive her debt after 10 years.
The big picture: While the future of PSLF may be uncertain, it’s important for low-salaried civil servants to choose a long-term repayment strategy that has a path to forgiveness. This is particularly true if their debt exceeds their ability to pay it. Consolidation of student loans could be just the solution.
3. A high-earner with an excellent credit score
Consider this: A young attorney has three federal loans and three private loans. Tired of going to work with student loans on his mind, he turns to refinancing. With a six-figure salary and excellent credit score, he knows he can save a lot of money by refinancing.
Refinancing: Our lawyer takes his loan portfolio to a private lender that his colleagues recommend. He isn’t worried about losing federal loan protections since he found a private lender that offers forbearance in case he loses his job.
The lender consolidates and refinances his six loans into one. Because of his excellent credit, he qualifies for a lower interest rate. That will save him thousands on his six-figure debt.
The big picture: Refinancing isn’t for everyone. But with a great credit score, you can qualify for low rates that lower the long-term costs of your loan.
If you have federal and private student loans, refinancing can help you take control of your debt — as long as you don’t mind losing access to federal loan protections.
Should you consolidate or refinance your loans?
Many student loan borrowers can benefit from refinancing or consolidating. If you want to lower your monthly payments, you can refinance to extend your repayment term. If you’re drowning in federal student loans, you can consolidate into a single monthly payment.
If you’re uncertain whether you’ll benefit from either repayment strategy, do further research. To start, try this calculator. It can help you decide whether refinancing or consolidating is a better option for you.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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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 email@example.com, 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
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
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|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.51% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|