Don’t let high interest interfere with your other interests.
Student loan debt is crushing young people coming out of school. Many students are being saddled with huge amounts of debt that won’t be paid off for ten, sometimes twenty years. Assuming a good paying job is even available!
Do you have student loan debt? Learn about consolidating your student debt, and programs that can get rid of your college loans altogether.
Here are a couple options that will help relieve your debt burden and help you on your path to financial freedom.
1. Refinance your student loans
You’re probably aware you can refinance your house at a lower rate, shorter loan period, or even a longer loan period if you want.
There is a new batch of companies sprouting up that provide refinancing of your student loans.
What types of loans can be refinanced?
If you have private student loans or federal student loans, refinancing is available to you.
Refinancing is a great option if you have federal loans with 6.5% interest rates or higher or private loans that may carry a 10% or higher interest rate.
Even if you have a ragtag collection of multiple private and federal student loans, you can consolidate and refinance them into a single, lower monthly payment with a better interest rate.
How you can get started
You can start by visiting Credible to compare multiple lenders with one application.
Take five minutes to fill out an application and see what you might be able to refinance for. You could save huge amounts of interest over the life of your loan.
Here are several other websites you should also check out for refinancing:
My experiment
I tried out the process of signing up with Lendedu to see how the process worked. I filled out the initial information gathering form in under five minutes to see what quotes I would get.
Because I have a security freeze on my credit reports, my application didn’t process correctly but I did get one loan option.
Given a $50,000 student loan made up of both Federal and Private loans I got one quote:
- 15-year term
- Variable rate
- APR as low as 2.76%
There are a couple things I want to point out here. The APR of 2.76% wasn’t guaranteed. If you go through the application process and you have lousy credit, you might find your APR is much higher. It could even be higher than your existing student loan rates.
The variable rate scares me. When I see variable I’m reminded of adjustable rate mortgages (stay away!).
Interest rates are historically low right now. But if you think you’re going to take ten years to pay off your student loans, what are interest rates going to be 3, 5, 8 years from now? You don’t know.
If you have a fixed interest rate of 6.5% right now, you don’t know on a refi if you’ll be paying 2.76% in 8 years or 12.76%.
I would not refinance to a variable rate loan. Even if you have to pay a higher APR for a fixed rate, the fixed rate is less risky.
How long should I refinance?
It sounds odd, but I like the idea of refinancing for a longer term with the intent of paying it off as fast as possible.
For example pretend you have $50,000 in student loans and are married, no kids, with a household income of $100,000 a year. You want the lowest APR possible, so you pick a 5-year repayment term. You and your partner decided to live on PB&J sandwiches and throw every available dollar at your student loans.
What happens if you have an emergency? Someone can’t work. Your income is cut in half. The stork drops a baby on the doorstep.
You’re stuck paying back the loan in five years but don’t have the money to do it. (Sure, you might be able to refinance again).
Instead, I would have started with the loan refinanced for ten years, but pay it off in five years by doubling up the payments each month.
If an emergency does happen, you can drop back to single monthly payments and take your excess cash for other expenses. Make sense?
I did this when I refinanced my mortgage one time. I lived in my house for a couple years, and interest rates came down. I refinanced to a new 30-year loan with a lower interest rate than I was paying. But I paid my mortgage as if I had a 15-year loan.
2. Income-based repayment
Income-based Repayment and Pay As You Earn are a couple options to make your student loans more affordable based on your income and family size. These options can help you when you’re just getting into the workforce.
There are a lot of stipulations for these two programs to be eligible. For more information check out the following websites:
- Visit studentloans.gov to apply and compare to other repayment options.
- IBRinfo is an income-based-repayment for federal student loans.
If you can get your student loans adjusted to where the rates are the same, but you have longer to pay them off, your monthly payments would go down.
Again, I do not advise people to change the terms of their loans with the intent of using the extra time to pay off the loan. The intent should be to lower the monthly payment and take the extra – temporarily – to pay off other debts. Then when the other debts are paid off start attacking the student loans again to get rid of them.
3. Student loan forgiveness
If you’re a teacher or work in government or at a nonprofit (501(c)(3)) organization, you might qualify public service loan forgiveness (PSLF) after 10 years of eligible payments and employment.
Public service loan forgiveness is only available for federal loans, and you have to work in the public sector. Private student loans are not eligible.
The kicker is you have to pay your loans for ten years before the remainder is forgiven. You might have to sit down with someone to see if it’s worthwhile to make minimum payments for ten years to have the remainder forgiven. You might be better off paying off the loans yourself depending on the amount of debt you have.
With the amount of student loan debt some of you may be carrying, new options are emerging to help you out. Qualifying for one of these options may be your way to saving thousands of dollars over the life of your loans.
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