How Consolidating and Refinancing Student Loans Helps These 3 Borrowers

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Refinancing with Laurel Road

Refinancing rates from 1.89% APR. Checking your rates won’t affect your credit score.

Check out Laurel road

You may know what it means to consolidate student loans. Or, you may have it confused with refinancing. Regardless, student loan consolidation and refinancing are potentially helpful tools for managing your debt.

Let’s look at which types of borrowers for whom refinancing or consolidating makes sense.

3 times it makes sense to refinance or consolidate loans

First things 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.

Student loan refinancing, on the other hand, 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 the life of 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 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
2. A recent grad moves into public service
3. A high-earner with an excellent credit score

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.

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% 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. In fact, 12% of recent graduates asked about life goals reported that their debt inhibited becoming an entrepreneur.

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.

Pros and cons of our small business owner’s plan to consolidate
Pro:Con:
Single monthly paymentStatic interest rate
Eligibility for PAYELonger repayment term
Reduced monthly duesHigher interest charge over time
Financial flexibilityLingering student debt

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 lower her interest rate, it will have a weighted average of her previous five loans’ rates.

Our borrower also decides to switch to Income-Based Repayment (IBR). 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.

Pros and cons of our nonprofit employee’s plan to consolidate
Pro:Con:
Single monthly paymentStatic interest rate
Eligible for IBRLonger repayment term
On track for PSLFCareer limited to PSLF-eligible employers
Eventual forgivenessPSLF status in doubt

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 over the life of his loan.

The big picture: Refinancing student debt isn’t for everyone. But with a great credit score, you may 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.

Pros and cons of our lawyer’s plan to refinance
Pro:Con:
Single monthly paymentLack of repayment plan flexibility
Reduced interest rateIncreased monthly payment, potentially
Choice of lender offering forbearanceForfeiting federal repayment safeguards
Cheaper and/or faster debt payoff

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 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 our consolidation versus refinancing 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 2020!
LenderVariable APREligible Degrees 
1.99% – 5.64%1Undergrad
& Graduate

Visit Earnest

1.89% – 5.90%2Undergrad
& Graduate

Visit Laurel Road

2.25% – 6.09%3Undergrad
& Graduate

Visit SoFi

1.89% – 6.77%4Undergrad
& Graduate

Visit Splash

2.39% – 6.01%Undergrad
& Graduate

Visit Elfi

1.99% – 5.41%5Undergrad
& Graduate

Visit CommonBond

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.

Earnest Disclosures

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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, 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 7/31/2020. 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 protected], or call 888-601-2801 for more information on our student loan refinance product.

© 2020 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

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.

As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.

  1. Checking your rate with Laurel Road only requires a soft credit pull, 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.
  2. Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
  3. After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship. During any period of forbearance interest will continue to accrue. At the end of the forbearance period, any unpaid accrued interest will be capitalized and be added to the remaining principle amount of the loan.
  4. Automatic Payment (“AutoPay”) Discount: if the borrower chooses to make monthly payments automatically from a bank account, the interest rate will decrease by 0.25% and will increase back if the borrower stops making (or we stop accepting) monthly payments automatically from the borrower’s bank account. The 0.25% AutoPay discount will not reduce the monthly payment; instead, the discount is applied to the principal to help pay the loan down faster.

Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.

Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.

Interest Rate: A simple annual rate that is applied to an unpaid balance.

Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.

KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.

This information is current as of September 9, 2020. Information and rates are subject to change without notice.
 


3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance: Fixed rates from 2.99% APR to 6.09% APR (with AutoPay). Variable rates from 2.25% APR to 6.09% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.25% APR assumes current 1 month LIBOR rate of 0.18% plus 2.32% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. See eligibility details. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. 

4 Important Disclosures for Splash Financial.

Splash Financial Disclosures

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. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.

The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.

To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.


5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. 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 0.16% effective August 10, 2020.

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.