Student Loan Refinancing to Private Lender

If you’re considering refinancing your student loans, it’s important to weigh the pros and cons before deciding. Refinancing your private student loans could help you get a better interest rate, reduce your monthly payments, or pay off your loans faster. However, the low-interest rate environment that we witnessed since the 2009/2010 period has quickly evaporated, so finding favorable private lending rates may be hard to come by in today’s higher rate environment.

When doing an analysis, you’ll want to look at several key metrics like the interest rate, the monthly payment, the difference between the private loan payment and your current payment, and the total interest saved over the period, among others. But remember, if you have federal student loans, refinancing them with a private lender would mean losing out on federal protections such as income-driven repayment plans and debt forgiveness programs. Some private lenders (not affiliated with and not an endorsement by EAM) to check current student loan lending rates are SoFi and Laurel Road.

Keep Federal Student Loan(s)

If you do decide to keep your federal student loans, there are a few options described below that may provide you with some flexibility in loan payments.

Federal Student Loan(s) – Loan Consolidation

While consolidating your federal loans won’t lower your interest rate or save you money, it will simplify your payments by combining multiple federal loans into one loan with a single monthly payment. Furthermore, loan consolidation may be required to apply for the income-driven repayment (IDR) plans offered.

Federal Student Loan(s) – Income-Driven Repayment (IDR) Plans

IDR plans were set up to help borrowers manage their student loan payments which are based on borrower’s income levels and family size. Some IDR plans include Revised Pay-As-You-Earn (REPAYE), Pay-As-You-Earn (PAYE), and Income-Based Repayment (IBR), and Income-Contingent Repayment (ICR). Most recently, the Biden-Harris administration launched the Savings on a Valuable Education (SAVE) program, which is meant to supersede the REPAYE program.

Many borrowers may find SAVE attractive. It’s estimated that SAVE will cut payments on undergraduate loans in half compared to other IDR plans, ensure that borrowers never see their balance grow if they keep up with their required payments, and protect more of a borrower’s income.

Under this plan, a borrower who makes less than $15 an hour will not have to make any payments. Borrowers earning above that amount may save more than $1,000 a year on their payments when compared to other IDR plans. Borrowers who are already on the REPAYE plan will be automatically enrolled in the SAVE plan and see their payments automatically adjusted with no action on their part. However, borrowers enrolled in other IDR programs may enroll into the SAVE plan.

Furthermore, under the SAVE plan, borrowers whose original principal balances were $12,000 or less will receive forgiveness after 120 payments (the equivalent of 10 years in repayment). And for each additional $1,000 borrowed above that level, the plan adds an additional 12 payments (equivalent of 1 year of payments) for up to a maximum of 20 or 25 years.

Federal Student Loan(s) – PSLF Program

For those borrowers who work in public service jobs such as government agencies and non-profit organizations there is the Public Service Loan Forgiveness (PSLF) program. This program is designed to forgive the remaining balance on eligible Direct Loans after 120 qualifying payments (10 years) for borrowers who work full-time for qualifying employers. To apply for PSLF, you need to complete and submit the PSLF form, which you can access through the PSLF Help Tool on the StudentAid.gov website. The PSLF Help Tool will guide you through the process of determining your eligibility, finding your employer’s EIN, and digitally signing the form with your employer.

Making the Right Moves

Student loan payments can be a challenging and confusing topic for many borrowers. It can be difficult to determine the right moves for student loan payments and to stay informed of the latest changes and opportunities. Working with a financial advisor can help you simplify and optimize your student loan strategy and plan for your future. However, you should be careful and diligent when choosing a financial advisor and make sure they have the expertise and experience to help you with your specific needs.