Refinancing with Laurel Road
Refinancing rates from 1.99% APR. Checking your rates won’t affect your credit score.
We get a lot of questions about how to lower student loan payments—and there are some legitimate reasons for wanting to do this. But in a variety of situations, it isn’t a good idea and can make repaying your loans more difficult and expensive.
The decision to lower student loan payments really depends on the reason behind it. So, why wouldn’t you want to lower monthly payments? The main reason is that you could end up paying more interest on your loans and increasing the amount of time until they’re paid off. But this isn’t always the case (more on this below).
Here’s when you might, or might not, want to consider reducing your monthly student loan payments.
Consider lowering student loan payments when…
1. Student loan payments eat up a large portion of your paycheck
Just as there are some people who can afford to pay more, others with student loan debts may have financial hardships that keep them from making standard payment amounts. Maybe you’re not earning enough to make your payments and still be able to pay for basic necessities. Or maybe you’ve lost your job or decided to go back to school.
If student loans are causing financial problems, lowering payments is likely the first step to getting things under control. And you can always increase payments later if you choose to.
While there’s no set amount or percentage of income that works for everyone, it’s good to think of payments in these terms. If you have a decent-paying job and can’t afford to pay at least 10 percent of your net income towards your student loans, you may want to reassess your spending before lowering payments.
Keep in mind: Paying more than 10 percent or paying the minimum is possible. Kristin paid off $12,000 in one year. Stephanie paid off about $35,000 in less than four years. Neither paid the minimum or tried to lower payments to pay off their loans.
2. You’re at risk for late payments or defaulting on your loan
To take the above example further, it’s likely to make even more sense to pay less on student loans when you’re at risk of missing payments or defaulting on your loans.
Missing student loan payments is never a good idea, especially if you’re able to change the repayment amount or schedule instead. Missing payments show up on your credit report and can kill your credit score. These late payments stay on your credit report for years.
Defaulting on your student loans is even worse. If you’ve missed many payments, you could end up in default and owe even more on your debt. In this case, you could see extra fees and charges tacked onto your student loan debt. These add to the cost, causing greater problems as you strive to repay your loans.
3. You’re likely to be eligible for forgiveness in the future
While every borrower will be eligible for the income-based Pay As You Earn plan later this year, only some might benefit from student loan forgiveness.
The Pay As You Earn plan caps your payments at 10 percent of your discretionary income. After 20 years of payments, you can have the remaining federal student loan balance forgiven. But the big question is: Will you have a balance left to be forgiven?
Let’s look at the example of what the U.S. Department of Education’s Repayment Estimator says is the average loan balance for the most expensive schooling options: a four-year private, for-profit university. In this case, you’d have an average balance of $34,722 with 3.9% interest.
Assuming a fairly low, starting adjusted gross income of $20,000, you’d have $38,877 forgiven after 20 years with Pay As You Earn. In total, you’d pay $22,928. This is about $19,000 less in total payments compared to the standard repayment ($41,988 total paid).
Besides the Pay As You Earn plan, there’s the Public Service Loan Forgiveness (PSLF) program. With this program, you can have select federal loans forgiven after 10 years of working at a qualified nonprofit or public sector job. In this case, you may be more likely to have debt forgiven since it’s 10 years instead of 20 until you’re eligible for forgiveness.
In any case, be sure to investigate your situation. Use student loan calculators, and do the math first before determining your eligibility to have loans forgiven.
4. When you can refinance to save money
Refinancing is one of the few instances where you can potentially lower student loan payments and save money. The reason? You’re typically lowering interest rates and reducing interest charges.
This is often the case when you refinance and consolidate to lower private student loan payments. However, this strategy can potentially work with some federal student loans too.
If you’re looking into reducing your payments, check out our student loan refinancing options, and see how your payments may change if you qualify.
Avoid lowering student loan payments when…
1. You can afford your current payments
While there are clearly some grads who need this kind of help, some don’t. But they may still be eligible for these reduced repayment options.
The real problem with these repayment plans, such as Income-Based Repayment? You’ll pay more interest and make more total payments as you repay your debt. It’s simple—any time you decrease payments without lowering the interest rate too, you’re going to accrue more interest.
This case should also be considered with the next one.
2. You likely won’t benefit from federal student loan forgiveness
I’ve seen many people get excited about student loan forgiveness. The idea is you make payments for 20 years, and after that your remaining student loan balances are forgiven. The problem is that, depending on how much debt you have, there might not be much left to forgive.
Let’s look at the previous scenario for forgiveness again ($34,722 balance with 3.9% interest).
This time, we’ll assume your adjusted gross income starts at $30,000 (rather than $20,000). Run the numbers in the Repayment Estimator again, and you’ll find you won’t have any debt left to be forgiven under Pay As You Earn.
Instead, you’ll have paid a total of $54,329 to repay your loans. This is about $12,000 more than if you had repaid your loans with the standard repayment plan ($41,988 total).
In this case, attempting to get forgiveness is a money-losing decision.
3. You’re waiting for outside help from the government
You’ve probably heard about the possibility of the government helping you to refinance loans. Senator Elizabeth Warren’s proposal includes reducing all federal student loan interest rates to the current lowest rate.
While it sounds great, don’t hold your breath. Congress has shown little willingness to pass this or any other bill, so you’re limited to the current repayment options and interest rates for the foreseeable future.
What do you think? Should you lower your student loan payments or not?
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 6.65%1||Undergrad & Graduate|
|1.99% – 7.10%2||Undergrad & Graduate|
|2.99% – 6.44%3||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 6.43%4||Undergrad & Graduate|
|3.18% – 6.07%5||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews!
1 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.
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 June 23, 2020. Information and rates are subject to change without notice.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
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 May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 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 3.19% APR (with Auto Pay) to 6.43% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.43% 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 June 15, 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 6/15/2020. 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.
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 0.19% effective June 10, 2020.