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For some college graduates, grad school is just around the corner. For others, it may be a couple years down the road. If you’re planning on taking that next step in your education, you may be wondering what to do with your undergraduate loans while in grad school.
If you’ll have a steady income during your graduate studies, it may be best to just continue to make payments. If not, deferment and forbearance are options you can consider.
But if your student loan interest rates are high or you’re unsatisfied with the loans or lender, it may be worthwhile to refinance.
If you’re thinking about refinancing your student loans before heading to graduate school, here’s what you need to consider.
The basics of student loan refinancing
With student loan refinancing, you pay off your current student loans using a new loan from a private lender. The goals of refinancing include consolidating your student loans, scoring a better interest rate, lower your monthly payment, or all of the above.
You can refinance one loan or several, as well as both federal and private loans. However, deciding whether to refinance student loans can be difficult, 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, though, refinancing can 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, those new terms might be good or bad.
When you refinance, you might get a lower interest rate, saving you money as you pay down your loan. Student loan refinancing lenders also offer various repayment terms, giving you more control over your monthly payments. With a lower monthly payment, you can put more money toward other financial priorities. Note, however, that you will likely end up paying more in interest over time.
In many cases, 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.
Many refinancing lenders also offer forbearance programs for when you experience economic hardship. Unlike deferment with some federal student loans, interest accrues with forbearance regardless of the type of loan.
Also, forbearance eligibility requirements are at the discretion of the lender. If you put your loan into forbearance, consider making payments on just the interest to keep your balance from growing.
If you have federal student loans, you might lose certain perks if you refinance. For example, you can’t access income-driven repayment plans, which cap your payments at a percentage of your income if they’re too high. And if you’re eligible for any of the federal government student loan forgiveness programs, such as Public Service Loan Forgiveness, you’ll lose that option, too.
Federal student loans also allow you to apply for deferment if you’re attending grad school at least half-time. What’s more, certain types of federal student loans don’t accrue interest in deferment (but some do).
Unfortunately, while some refinancing companies do offer benefits similar to federal loan deferment, it might not be an option with some lenders. These benefits and perks are up to the individual lenders to offer.
That means you might have to keep making payments on your undergraduate loans while in grad school. If you’re financially able to do that, no problem. But if you can’t afford the monthly payments, your finances can suffer.
Your lender of choice might also offer some type of forbearance option, but the policy might not cover you for the entire time you’re in grad school. Avoid assuming that your lender will approve your request for forbearance if you head back to school.
Should you refinance undergraduate loans while in grad school?
At the end of the day, anything you do to lower your payments has the potential to extend how long you’re in debt and cost you more in interest.
If you’re approved for deferment or forbearance on your refinanced loan, interest might still accrue on your loan. If that’s the case, making interest-only payments while you’re in grad school can save you money in the long run.
If you choose to refinance, don’t go with the first offer you see. Calculate the potential savings and shop around for the best deal. Start by comparing rates from the top refinancing lenders and make sure the terms fit your needs.
Ben Luthi contributed to this article.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|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 3.89% 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
|2.57% – 6.98%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|