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California has seen several recent legislative efforts to ease the financial burden of college. This includes San Francisco’s free community college for all and the Degrees Not Debt Act to limit California students’ loans.
A new bill aims to help borrowers who have existing private student debt. Here’s what Californians should know about Senate Bill (SB) 674, known as the ReLIEF (Loan Improvement for Enhanced Futures) Act.
The ReLIEF Act will secure refinanced student loans
A new legislative proposal in California could help more of the state’s borrowers refinance private student loans with lower interest rates. According to a press release from the California State Treasurer’s office, SB 674 would create a $25 million fund to partially secure refinanced student loans.
California State Treasurer John Chiang and California Sen. Ben Allen, D-Santa Monica, are co-sponsors of the ReLIEF Act. They announced the bill in a Tuesday press conference at the state capitol in Sacramento.
“Student loan debt is a toxin to the American dream,” said Treasurer Chiang at the press conference. “It prevents people from buying homes, starting a business or saving for retirement.”
How the ReLIEF Act works
The ReLIEF Act seeks to help borrowers with high-interest private student loans refinance to lower rates. According to the Los Angeles Times:
- Borrowers apply to refinance student loans at a financial institution.
- If approved, the lender contacts the California Educational Financing Authority to authorize participation in the plan.
- The California Educational Financing Authority guarantees 10 percent of the loan’s balance. That means it will repay this portion to the lender if the borrower defaults.
With the loan partially secured by the California treasure, lenders face less risk. They might, in turn, offer a borrower a lower interest rate.
“[The bill] is going to create better financial opportunities for so many more Californians,” Chiang said.
How much relief can borrowers expect?
It’s unclear how much relief borrowers can actually expect from the ReLIEF Act. The 10 percent guarantee on student loans could help borrowers get lower student loan rates — but not by much.
Chiang shared an example of a hypothetical young woman, “Jane,” who refinances $25,000 in private student loans with a 10-year repayment period.
If she used the ReLIEF Act to lower interest rates from 8.50% to 6.50%, her monthly payments would drop from $310 to $284. She would save an impressive $3,132 over the life of the loan.
However, many borrowers already get similar savings by refinancing student loans on their own. So the real question is: how much lower would Jane’s refinanced student loan rates be with SB 674 than without it?
The difference between rates through the ReLIEF Act might only be 0.50%, according to an estimate in the LA Times. In Jane’s example, that 0.50% would amount to a $6 difference in monthly payments and $768 in total student loan interest savings.
Who is eligible for the ReLIEF Act?
Borrowers have to meet the following requirements to be eligible to use the ReLIEF Act to secure loans:
- Refinance $25,000 or less in private student loans.
- Hold an associate, bachelor’s, graduate, or technical degree.
- Be currently employed.
Unfortunately, student loan borrowers who are unemployed or drop out of college are among the most likely to default on student debt. Yet the ReLIEF Act requires employment and a degree. Therefore, the bill would potentially exclude the borrowers with the greatest need for assistance.
Give state legislators feedback on SB 674
SB 674 is a sign that lawmakers have heard your concerns. They are working to address the student debt crisis — at least at the state level. The California legislature will need to vote on the bill before it becomes law, as well as find the funding for the program in the state budget.
If you live in California, reach out to your state legislator to comment on SB 674. Let them know student loans are an important issue to you; legislators will advocate for borrowers to earn your support.
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 SoFi.
2 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 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% 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 firstname.lastname@example.org, 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.
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 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|