Refinancing with Earnest
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One of the special benefits of federal student loans versus private loans is that you can adjust your payments or term by switching repayment plans.
The question is, how do you choose the right plan?
There are eight options available, including the 10-year Standard Repayment Plan you were handed when you initially borrowed.
It can be challenging to decide between the remaining options, even if you’ve narrowed it down to just a couple. How do you pick between Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR) or between IBR and Pay As You Earn (PAYE)?
One particularly common — and difficult — choice involves deciding whether to join the PAYE plan or its successor, Revised Pay As You Earn (REPAYE). Fortunately for you, we’ve done all the homework on PAYE versus REPAYE so that you can make an easier choice.
PAYE vs. REPAYE: How are they similar?
PAYE and REPAYE are both “income-driven repayment plans,” meaning that they adjust your monthly payment based on changes you report annually about your income and family size.
While earning a raise at work might increase your monthly payment, for example, having a baby would decrease it.
In fact, your payment would be calculated as a percentage of your discretionary income — that is, the amount of cash you have left after accounting for taxes and other routine expenses such as rent.
Both PAYE and REPAYE would max out your monthly payment at 10% of your discretionary income.
Four types of federal loans are eligible for PAYE and REPAYE:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Direct PLUS Loans made to students
- Direct Consolidation Loans (not including PLUS Loans made to parents)
Additionally, PAYE and REPAYE both span 20 years if you borrowed your loans for undergraduate study. After two decades of making timely payments, your remaining balance would be forgiven under both of these plans.
You could cut down that time frame to 10 years if you also qualify for Public Service Loan Forgiveness by working at a nonprofit, for example.
Keep in mind that with these longer repayment terms, more interest will accrue on your loan amount. You’ll also likely be stuck paying income tax imposed on any forgiven amount.
What’s unique about PAYE?
Although PAYE would cap your monthly payment at 10% of your discretionary income, that amount must also be less than what you’d pay under the Standard Repayment Plan.
Say your monthly payment under PAYE would be $350, and your monthly payment under your standard plan is $300. You wouldn’t benefit from the break of the repayment plan and thus would be ineligible for PAYE.
There’s one more unique eligibility rule for PAYE: It’s only for those who borrowed for the first time on or after Oct. 1, 2007, and received a Direct Loan on or after Oct. 1, 2011.
What’s unique about REPAYE?
Unlike with PAYE, your monthly payment under REPAYE can be more than what you shell out through the Standard Repayment Plan. So if your REPAYE monthly dues are $50 more than your original plan payment, for example, you’d still be eligible for REPAYE.
Still, most borrowers who access REPAYE end up paying significantly more over 20 years than they would over 10 years under the Standard Repayment Plan. Blame accruing interest for that fact.
With REPAYE, your loan term could extend to 25 years if you borrowed federal loans for graduate or professional school.
PAYE vs. REPAYE: Which is right for you?
If your debt is starting to dwarf your income and you’re seeking the lowest possible monthly payment, PAYE is likely your best option. It’ll cap your monthly payments at 10%, never asking you to pay more than what you’d owe via a Standard Repayment Plan.
But perhaps you like the idea of tying your loan payments to a proportion of your income (or adjusting it for your increasing family size) — and want to pay down your debt more promptly. In that case, you might opt for REPAYE.
Since REPAYE allows you to pay more each month than under the Standard Repayment Plan, you could zero out your debt more quickly than if you went the PAYE route.
Before choosing PAYE or REPAYE, calculate your potential payment amount for each plan using Federal Student Aid’s repayment estimator.
Also consider the long term, including your career trajectory, family plans, and financial goals. If they shift over time, you could always switch your repayment plan again.
Another way to lower your monthly payment: Student loan refinancing
Before contacting your federal loan servicer about how to apply for income-driven repayment, consider one more option.
Like income-driven repayment, student loan refinancing could allow you to lower your monthly payment, either by extending your repayment term or lowering your interest rate. To qualify, you typically need to have a strong credit history and debt-to-income ratio.
Refinancing also comes with benefits similarly offered by federal student loan consolidation. You could trade in all your loans for one new loan, and you’d receive the convenience of making one monthly payment to one lender. The key difference from the programs above, however, is that you can also refinance private student loans, not just federal loans.
Just remember that once you go private, you can’t go back. For one, you’d lose that important ability to switch repayment plans — say, between PAYE and REPAYE.
But if you have strong credit or owe private student loans, then it’s worth checking what refinance offers are available besides PAYE, REPAYE, and other federal programs.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|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 3.89% 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|