Refinancing with Earnest
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Whether grad school is just around the corner or a couple years down the road, you may be wondering what to do with your undergraduate student loans as you take the next step in your education.
There are a few main options for dealing with your undergraduate loans while in grad school:
- Continue paying your loans
- Choose forbearance or deferment (delaying repayment completely while in school)
- Refinance your undergraduate student loans (which can also include deferring payment while in school)
Before deciding which route is best for you, you should consider the type of loan you have currently (federal or private), what your income will be during graduate school and what additional accommodations you will have to make if you choose to refinance.
Refinancing undergraduate student loans in grad school: the basics
Refinancing your undergraduate student loans involves getting a new loan from a private lender and using it to pay off your current federal or private debt. The goals of refinancing include consolidating multiple student loans payments into a single monthly bill, possibly scoring a better interest rate, lowering your monthly payment, or all of the above.
You can refinance one loan or several at a time, but there are some downsides to consider, especially if you have federal student loans. Once you refinance with a private lender, you lose benefits that come with federal student loans, such as federal loan forgiveness and income-driven repayment eligibility.
If you don’t need these benefits, however, refinancing might help you save money on interest or lower your monthly payment.
Pros and cons of refinancing your student loans before grad school
When you refinance your undergraduate student loans, the terms of your new loan may be different from your original ones. Depending on your needs, this might be beneficial or detrimental for your long-term finances.
When you refinance, you might get a lower interest rate, saving you money as you pay down your undergraduate student loans. You can get an idea of how much you could potentially save by taking a look at some of the rates on offer and then plugging the figures into our refinance calculator.
Be aware, though, that the best rates are reserved for the most creditworthy borrowers, and unless you have a strong credit history, you might need a cosigner to qualify for any refinancing loan at all.
Besides switching your interest rate, student loan refinancing lenders also offer various repayment terms, giving you more control over your monthly payments. If you lengthen the term of your loan, you’ll end up with lower monthly payments. This could ease the pressure on your finances, though keep in mind that this will also likely result in your paying more in interest over the life of the loan.
And what if you can’t afford any payment, especially while working your way through grad school? Although private refinance loans don’t have the same super-flexible forbearance options that federal loans do, many refinancing companies will give you the option to defer your student loans while in grad school.
For example, CommonBond, SoFi and Earnest allow academic deferment on your undergraduate loans while you’re in grad school. Plus, some refinancing lenders also offer forbearance programs for when you experience economic hardship, although interest will still accrue on your loan.
The biggest downside of refinancing undergraduate student loans in grad school involves missing out on federal protections.
“You lose all of the programs offered by federal loans: income-driven repayment plans, student loan forgiveness programs, and hardship options like deferments and forbearance,” Robert Farrington, creator of personal finance website The College Investor, told Student Loan Hero. “This can be really detrimental to most borrowers. As such, you should only refinance when you don’t plan on using any of these options.”
For example, you won’t be able to pick from the flexible federal repayment plans, including income-driven repayment that caps your monthly bill at a percentage of your disposable income. “If your income is low enough, your monthly payment could be $0,” Farrington noted.
In addition, private loans aren’t eligible for programs such as Public Service Loan Forgiveness, which can wipe away your remaining balance after 10 years of qualifying employment.
Pausing your loan payments while in graduate school might still be possible with a private lender, but as mentioned, interest will pile up during this period. If you have subsidized federal student loans, however, the government will cover your interest during an in-school deferment.
Should you refinance undergraduate loans while in grad school?
All things considered, Farrington generally advised against refinancing federal loans, because you can more easily defer your undergraduate student loans in school and avoid making payments entirely if you can’t afford it, while still holding on to your federal loan protections.
However, he acknowledged that for private loans, refinancing may be a more viable option, as long as it is financially feasible.
But whether you refinance or not, you’ll also need to decide whether to make any payments on your loans while you’re pursuing your graduate degree — as mentioned, many refinancing lenders offer in-school deferment, and all (non-refinanced) federal loans have this option.
Since pausing your repayment will rack up interest and cost you extra money — except for subsidized federal loans — it could be wise to throw some money at your debt if you can. The main exception is if you’re seeking student loan forgiveness.
As Farrington put it, “if you plan on receiving loan forgiveness through a program like Public Service Loan Forgiveness, you shouldn’t pay anything extra towards your loans. You’ll want to maximize your loan forgiveness by keeping your payments low, and making sure you meet the program requirements.”
On the other hand, he said, “if you’re not getting loan forgiveness, if you can afford it (and you don’t have subsidized loans), anything you can pay towards your student loans is a good thing.”
Meanwhile, if you decide to refinance — whether to save money on interest or adjust your monthly payments — make sure to shop around so you can get the best deal possible.
Ben Luthi and Chaunie Brusie contributed to this article.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|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 3.36% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.41% APR (with Auto Pay) to 6.99% 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 April 17, 2019, 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 04/17/2019. 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 our student 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 SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
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.
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.
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 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.41% – 6.99%1||Undergrad & Graduate|
|2.41% – 7.89%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.38% – 6.81%4||Undergrad & Graduate|
|2.41% – 8.19%5||Undergrad & Graduate|
|2.60% – 9.60%6||Undergrad & Graduate|