Refinancing with Earnest
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I was so close.
Almost five years ago, I went through all the steps to complete a student loan refinance. All the steps, that is, except for signing the paperwork.
I knew that, should I refinance my student loans, I would save a considerable sum of money in the end. But I was scared to convert my federal loans into private. In the end, I made a major financial decision out of fear.
And that decision has cost me.
Should I refinance my student loans? Why I bailed at the last second
I originally found out about the ability to refinance student loans through SoFi. I met one of their team members on the streets of San Francisco during my walk to work one morning and applied as soon as I got to my office.
Once I saw the new rate I could get, there was no question of “should I refinance my student loans?” With a five year plan (versus my 20) and a rate 1 percent lower than mine, the answer was obvious.
All I had left to do was send in paperwork, which I planned to do that night. But by the time I got home, fear crept in:
What if I lose my job? I’ll lose my deferment and forbearance options if my loans aren’t federal anymore. Can I afford to take that risk? Should I refinance my student loans after all?
While this was a valid fear, my student loan payments were manageable enough to endure even when I was younger and seriously strapped for cash. This is partly because I had the graduated repayment plan but also because I took out as little as I possibly could. So the worry was sensible but didn’t make sense at a time when my career was becoming more stable.
On top of that, I was recently engaged. That meant I was soon to have a partner in life and a partner in finances, thus ensuring more ability to handle an economic hit should one happen to me. But it didn’t matter. I was simply too scared to move forward.
In the end, I didn’t refinance my student loans.
Why I should have refinanced my student loans
So why am I now regretting my decision? A few things, but notably, a shift in my payments.
Because my payments have now increased
Since I’m on the graduated repayment plan, I knew my monthly payments would increase at five years and again at ten. But here’s the thing: ten years came so fast.
Once I saw my payment increase a few months ago, the memory of my almost-refinance came flooding back. Had I refinanced, my payments would have never gone up because they would have been locked in at the refinanced amount. And, what’s even more painful to realize, those payments would soon be a thing of the past.
Because I would have been debt-free as of this year
As mentioned, I was looking at a five-year repayment plan when I considered refinancing. And guess what? That was four and a half years ago.
Had I gone through with the refinance, I’d be debt-free as of this year. Instead, I have another ten years ahead of me.
And those fears that held me back? They were valid but didn’t justify my decision. I did experience a few economic shifts in several moves and a few job changes. But, thanks to savings I never had to miss a payment. Therefore, I would have been fine on that new plan.
Should you refinance your student loans?
Answering “no” to the question” should I refinance my student loans” turned out to be one of the biggest financial mistakes of my life. And it all happened because I let fear drive my financial decision-making.
Fear can be healthy at times. After all, it’s the reason we do things like buy insurance and save up an emergency fund. But letting fear override logic? Not good.
If you’re thinking about refinancing your student loans and aren’t sure if it’s a good idea for you, here are a few questions to consider.
Can you afford to give up federal protections?
If you only have private student loans, this doesn’t apply to you. But if you have federal loans, understand that refinancing your loans converts them to private loans. And with that, you lose all federal protections, such as the ability to defer or forbear.
Consider your financial outlook for the next five years. Is your job or career stable? Do you have a healthy emergency fund? Do you think you can handle payments on your loans even if you become unemployed? If the answer to these questions is “no,” then refinancing might be a risk for you.
Are you eligible for forgiveness?
Speaking of federal loans, some are also eligible for forgiveness, based on your line of work, or whether or not you take on an income-driven repayment plan. If you refinance, you’ll lose that eligibility.
Do you want to pay your debt off faster?
It pains me to know that I could have been debt-free this year. But what about you? Are you motivated by the idea of paying your loans off faster?
If so, refinancing could be a good option, since the terms can go as low as five years. Just keep in mind you’ll pay more per month. The good thing is you’ll be able to see all of your options before you agree to anything.
Are you paying more or less interest than the refinance offer?
In light of my recent frustration, I decided to try again with refinancing. Sadly, the results were not the same.
Now, should I refinance my student loans, it would only be at a rate higher than I’m currently paying. I could get a lower rate if I’m willing to go for a variable rate, but I’m not (predictability on payments is important to me – but that’s something that is different for everyone). Therefore, this time I’m definitely not going to refinance. A shorter repayment term would be nice, but I’m not willing to pay more for it.
Don’t let financial fear lead to financial mistakes
No matter what you decide to do in the end, don’t let fear lead you to financial mistakes. Evaluate the pros and cons, understand what you can and can’t afford now and into the next few years, and then decide.
Financial decisions don’t have to be scary as long as you have a clear understanding of what you’re able to handle. And, if you decide you do want to refinance your student loans, here are a few options to help you. If you decide not to go that route, here’s some advice to help you figure out how else you can manage your student loans.
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 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% 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
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% – 6.23%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|