A.M. Money Guide to Student loan Refinancing
An overview of Student Loan refinancing
Refinancing Student Loans: A guide.
Graduating is an exhilarating milestone, but for many, it’s also the beginning of facing the reality of student loan debt. While federal loans often come with various repayment plans and forgiveness options, private loans don't always offer the same flexibility. If you’re juggling private student loans, refinancing might be a smart move.
Introduction
Hopefully you've read our guides on federal student loans and you've got a handle on those, but what about your private loans?
Private student loans while sometimes a necessary lifeline to get through college, can quickly become a huge burden especially if you aren't on top of them.
Refinancing can help you manage your finances more effectively by offering better interest rates, lower monthly payments, and increased convenience.
In this guide, we'll walk you through everything you need to know about refinancing private student loans. Whether you’re a recent college graduate, a working professional, or a parent of a college student, this article will provide valuable insights to help you make informed decisions.
Do You Have Private Loans? Why Should You Consider Refinancing?
1. Your Circumstances Have Changed
You graduated college. You've got a new job. You've built up your credit, and got your other finances in order. In short, you've done everything you're supposed to do. These changes can make you eligible for better loan terms than you initially received. Refinancing can help you capitalize on your improved financial situation.
2. You Have High-Cost Student Debt
At A.M. Money, we know and understand that the circumstances from which you came aren't necessarily the circumstances you would end up. However, unfortunately that's far from common. So you had to get a co-signer to get a private loan, and even then you had to pay a crazy rate. Things have changed, so should your rate.
If you initially took out loans at a high interest rate, refinancing can potentially lower your costs both in the short term and long run. A lower interest rate can save you thousands of dollars over the life of your loan.
3. You Want Lower Monthly Payments
Refinancing can reduce your monthly payments by either lowering your interest rate or extending your loan term. This can free up cash flow, making your monthly budget more manageable.
4. You Have a Co-Signer You Want to Release
Maybe your parents co-signed your loan to help you out initially. Refinancing can allow you to release them from this obligation, giving them financial relief while taking full responsibility for your loan.
5. You Want More Convenience
If you have multiple loans with different servicers, managing all those payments can be cumbersome. Refinancing allows you to consolidate your loans into a single monthly payment, simplifying your financial life.
Exploring Repayment Rates and Comparisons
A student loan refinance is not necessarily an easy process and it may take some work to go through it. So, let's first consider if it's even worth your time. In this case, we're going to explore a few high level numbers to give you a sense of the difference a student loan refinance might have on both your monthly student loan payment, and the total amount of interest payments you'll make over the life of the loan.
Let’s consider the following scenario for our Engineer, Alex. As you recall, he graduated with approximately $60,000 in student debt and has spent the past 2 years making payments on those loans to bring his balance down to approximately $50,000. For the sake of conversation, let's say his current payment is around $926 a month which puts him on track to pay off his own in 8 years.
Let's also assume that his current interest rate is around ~16%, a very high rate owing to the fact that he didn't have a quality co-signer and had to get the highest rate available on the market.
Let's discuss the ways he can lower his payments. There are two main ways: Lowering his interest rate, and increasing the term of his loan. The first way is preferable as it would result in a reduction in both the amount he pays per month, AND the amount he pays over the life of the loan. The second way, increasing your loan repayment term, would have the impact of lowering his monthly payment but would also result in him paying more over the life of the loan.
So here's what a couple of estimated payments look like on these dimensions.
Refinancing for 10 Years
At 9% Interest Rate: You’d save approximately $293 per month, totaling $12,900 in interest savings over the life of the loan.
At 6.5% Interest Rate: Monthly savings would increase to $358.7, and you’d save $20,800 in interest overall.
Refinancing for 15 Years
At 9% Interest Rate: Monthly payments would drop by $419 but you’d end up paying $2,300 more in total interest.
At 6.5% Interest Rate: Monthly savings would be $490.89, with a total interest saving of $10,538.51.
As we can see, even at the higher rates of re-finance there is still significant value in doing the refinancing. Changing the term is a little bit more risky as at some rates you may end up paying more in the long run versus a shorter term but a higher rate.
Note: The best rates are typically available to those with good credit, high income, or a co-signer who meets these criteria.
Where Can You Refinance Private Student Loans?
At A.M. Money, we've partnered with CUSelect, which works with local not-for-profits to offer competitive refinancing options for student loans. Learn more here. Credit Unions and not-for-profits typically have a community focus and are usually focused on creating long term value for their customers. As non-profit, and member owned they have great incentives to their customers.
If you use the above links we will get a referral fee, which supports our program and efforts in this case.
You should also look around for other options that may or may not be a fit for you.
Credible
You can also explore other options through our website like Credible, which aggregates offers from various lenders to help you find the best deal. Keep in mind that each lender will have their own eligibility requirements and rates, so be sure to shop around and compare offers before making a decision.
College Avenue
ELFI Student Loan
Direct Lenders
Alternatively, you can go directly to other lenders who may offer suitable refinancing options.
Nelnet Bank
Nelnet Bank offers refinancing solutions with potentially competitive rates and flexible terms to help you manage your student loan debt effectively.
Earnest provides personalized refinancing solutions tailored to your financial profile, aiming to offer lower interest rates and flexible repayment options to fit your needs.
Note: We haven't reviewed the offers, or the products listed at this websites and A.M. is not responsible for any loss or damage of any kind incurred as a result of the use of a partner site or reliance on any information provided on the partner site. The use of a partner site and where available a partner’s mobile application, and your reliance on any information contained therein, is solely at your own risk.
Will You Qualify for Private Student Loan Refinancing?
To qualify, you generally need:
Good Credit: A solid credit history increases your chances of securing a lower interest rate.
Sufficient Income: Lenders want to ensure you have the means to repay the loan.
Graduated from College: Most lenders require you to have a degree.
Favorable Debt-to-Income Ratio: Understanding this ratio helps gauge your ability to take on new debt.
Section 5: Checklist for Refinancing Loans
Before you start the refinancing process, make sure you have:
Income Statements: Proof of your current income.
Payoff Statements: From your current loan servicers.
Good Credit: Ensure your credit score is strong.
A Plan: Know what you want to achieve with refinancing and how it fits into your broader financial goals.
Section 6: Should I Include Federal Loans in a Student Loan Refinance?
Considerations:
Lack of Forgiveness: Refinancing federal loans means losing access to federal forgiveness programs.
Loss of Subsidies and Benefits: Federal loans often come with benefits that you might lose if you refinance privately.
Future Education Plans: If you plan to go back to school, federal loans offer deferment options that private loans may not.
Conclusion
Refinancing your private student loans can be a smart financial decision, but it requires careful consideration. Do your research, compare your options, and find a partner that aligns with your long-term financial goals.
Ready to explore refinancing options? Start by checking out our partners at CU Student Select or use tools like Credible to find the best offers tailored to your needs. Your path to financial freedom starts today. a range of flexible refinancing options designed to help borrowers lower their interest rates and simplify their student loan repayments.
Introduction to Federal Student Loan Forgiveness
In a world where the cost of education seems to be perpetually on the rise, federal loan forgiveness programs emerge as a beacon of hope for many. Whether you're a recent graduate feeling the weight of your education loans or a financial advisor assisting clients in navigating their debt, understanding the intricacies of these forgiveness programs can be a game changer.
Types of Federal Loan Forgiveness
Federal loan forgiveness programs aren't one-size-fits-all. They're designed with different beneficiaries in mind, tailoring relief to varied circumstances and career choices. The most notable programs include:
Public Service Loan Forgiveness (PSLF): Aimed at those serving in public sector jobs, PSLF cancels the remaining balance on direct loans after 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.
Teacher Loan Forgiveness: Specifically for teachers who have worked full-time for five complete and consecutive academic years in a low-income school or educational service agency, this program offers forgiveness of up to $17,500 on certain federal loans.
Income-Driven Repayment (IDR) Plan Forgiveness: Under plans like REPAYE, PAYE, IBR, and ICR, loans are forgiven after 20 to 25 years of qualifying payments, depending on the specific plan and whether loans were taken out for undergraduate or graduate study.
Main Considerations
While the prospect of having your loans forgiven may sound enticing, it's crucial to approach with a well-informed mindset. Here are some considerations:
Eligibility Criteria: Each forgiveness program has its criteria. It's essential to ensure you meet these to avoid any disappointments down the line.
Required Paperwork and Documentation: Staying on top of your documentation is key. Regularly submitting the necessary paperwork, such as employment certification forms for PSLF, is critical.
Impact on Financial Planning: Consider how pursuing forgiveness aligns with your broader financial goals. For some, it might make sense to focus on repayment strategies that lead to forgiveness, while others might find paying off loans early more beneficial.
Value of Choosing the Right Repayment Plan
In assessing the implications of federal loan forgiveness programs, it becomes increasingly clear that the choice of repayment plan can significantly affect the total repayment amount and the potential for forgiveness. In our Student Loan Repayment overview , we analyzed three the situation for three different people under various repayment scenarios.
We saw that taking advantage of the SAVE plan creates a paints a very different picture for each of them, aligning more closely with their unique financial situations and career paths. For instance, the Doctor (Laura) saw her monthly outlay dramatically reduced and a considerable portion of her debt forgiven, showcasing the profound impact choosing the right repayment plan can have.
It’s important to remember that while navigating through these repayment options might seem daunting, you’re not alone. Many advisors and resources are available to help you assess your situation and guide you towards the best decision for your financial health and future. Making an informed choice can lead to substantial savings and a more manageable repayment experience, ensuring that your education loans don’t overshadow your career achievements and personal milestones.
The Downsides of Forgiveness programs?
While the path towards loan forgiveness can seem like a clear route to financial freedom, it's important to consider some of the potential downsides. Navigating these programs often involves a complex web of eligibility criteria, prolonged time frames, and rigorous adherence to specific repayment plans, which might not align with everyone's financial situation or goals.
President Biden has implemented several reforms to the PSLF program which has resulted in higher forgiveness rates, but it's unclear and uncertain if these will persist going forward.
As we saw in the repayment scenarios, taking on student debt on the presumption for forgiveness, but not receiving it could leave someone on the hook for hundreds of thousands of dollars more than they bargained for.
Also, it's important to consider that the required 10 to 25 years of payments under certain plans before forgiveness can apply means carrying debt for a significant portion of your professional life, which could impact long-term financial planning, including saving for retirement or a home.
Finally, forgiven amounts under some plans may be considered taxable income by the IRS, leading to a potential tax bill in the year of forgiveness. These factors underscore the importance of weighing the pros and cons of entering a forgiveness program, and why it's crucial to have a comprehensive understanding of your financial situation and goals when considering these options.
The Future of Federal Debt Forgiveness
Looking ahead, the landscape of federal debt forgiveness continues to evolve, shaped by legislative changes, political climate, and the ongoing advocacy of student borrowers.
The Biden administration has has had a mixed record in pushing student debt forgiveness. Originally, a central campaign promise lead to a limited forgiveness proposal which was struck down by the supreme court. In response, the Biden administration has pursued several tracks to provide debt forgiveness.
1) Targeted debt forgiveness, focused on canceling the accrued interest of loans who those single borrowers who make less than $120,000 ($240,000 if married).
He also proposed cancelling debt for those who took out less than $12,000 in loans, and in repayment for over 10 years, and those who have been in repayment for over 20 years.
2) Reducing the income amount owed under the save plan from 10% to 5%. As we saw in our discussion of repayment options this dramatically lowers the month to month burden of someone enrolled in this plan, but may also have the impact of significantly increasing the amount owed until forgiveness.
3) Executive Action to improve PSLF, and other loan approval rates. For instance, giving a waiver for IDR payments which allowed people with disallowed payments to have them counted within the spirit of the law. This has resulted in a significant uptick in PSLF approvals relative to where they have been historically.
At the same time, there still remains fierce opposition to the prospects of student debt forgiveness. In April, the same groups that were successful in getting Biden's first student debt plan struck down sued the administration over the changes to the SAVE program. These include the Attorney General's of Missouri, Arkansas, Florida, Georgia, North Dakota, Ohio and Oklahoma.
If successful this suit would reverse many of the administrative changes the Biden Admin has implemented which could take away the prospect of cancellation, and the ability to make lower payments in the short run.
Regardless of the outcome in the courts, this underscores the fragility of the changes the Biden Administration has made and makes it hard to predict what forgiveness will look like next year, let alone 20-25 years from now.
If you have been in repayment for a long time now, or are months away from a loan forgiveness then the best course of action may be to just hold on and hope for the best.
However, if you're a college student, parent or recent graduate today it's important to assess your options and understand the downside risks of taking on a lot of student debt on the presumption of future forgiveness.
As Student loan Rates creep higher and higher, the long run burden of student debt is only going up. That's why its important to plan ahead and come up with a solution that works best for you.
Finding More Information
Navigating the maze of loan forgiveness can feel daunting, but resources are available to help you every step of the way. The U.S. Department of Education's Federal Student Aid website is the most authoritative and comprehensive source for information on all federal student loan forgiveness programs. Additionally, consult with a financial advisor who specializes in student loans to get tailored advice and guidance based on your unique situation.
In Conclusion
Federal loan forgiveness offers a lifeline to those burdened by educational debt, providing a pathway to financial freedom. By understanding the types of forgiveness available, considering personal circumstances against program requirements, and utilizing available resources, achieving loan forgiveness is not just a possibility but a reality for many.
Navigating Your Federal Student Loan Repayment Plans
Graduating from college is an accomplishment that comes with a mix of emotions—pride, excitement, and often, the anxiety of facing student loan debt. Understanding how to manage and repay your federal student loans can alleviate some of that financial stress and empower you to make informed decisions about your future. In this guide, we’ll explore the standard repayment plan and the SAVE plan (an income driven repayment plan), and analyze what these options mean for three different borrowers.
The Standard Repayment Plan
The standard repayment plan is straightforward. Under this plan, your payments are calculated based on your total loan amount, interest rate, and a term of 10 years. It's designed to pay off your debt quickly, reducing the amount of interest you pay over time.
SAVE Repayment Plan
The Save Plan is the most generous payment plan offered by the Federal Student Administration. Like other IDR plans, the SAVE Plan calculates your monthly payment amount based on your income and family size. In addition, the SAVE Plan has unique benefits that will lower payments for many borrowers.
Real-World Scenarios
To illustrate how these plans work in practice, consider three diverse professionals facing their own student loan challenges:
Borrower 1: The Engineer
Meet Alex, a highly skilled engineer with an annual income of $150,000. Like many professionals, Alex embarked on their career carrying $60,000 in student loan debt, a substantial but manageable amount given their lucrative salary. For Alex, strategizing repayment means finding a balance between maximizing their income's potential while efficiently clearing their debt. Given the relatively high income and manageable debt level, Alex might lean towards aggressive repayment plans to save on interest over time and achieve financial freedom sooner rather than later.
Borrower 2: The Teacher
Meet Jordan, a dedicated teacher shaping the minds of future generations, with an annual income of $75,000. Jordan’s commitment to education extended to their own, resulting in $45,000 in student loan debt. Teachers often work in roles that provide immense societal value but may not always be compensated to match—making the choice of a suitable repayment plan crucial. For Jordan, balancing a middle-income level with a moderate amount of debt means finding a repayment strategy that allows financial stability without sacrificing too much of their monthly earnings.
Borrower 3: The Doctor
Meet Laura, a dedicated physician whose career in medicine not only fulfills a lifelong passion but also incurs a significant financial commitment. With an annual income of $300,000, Sam's financial situation appears robust at first glance. However, the path to becoming a doctor often comes with a steep price tag, leaving Laura with $450,000 in student loan debt. This substantial debt, though daunting, is navigated with careful planning and a strategic approach to repayment. For Laura, exploring repayment options that account for high debt yet promising income trajectory is essential. Balancing such a hefty financial obligation with the potential for substantial earnings makes Laura's repayment strategy a critical aspect of their financial health and overall wellbeing.
Exploring Repayment Options
For borrowers examining their repayment options, the FSA Student Loan Simulator offers a personalized analysis to help envision how each plan affects their financial future. By inputting personal and financial information, borrowers can explore different scenarios, providing insights into monthly payments, total repayment amounts, and potential loan forgiveness.
We use this to explore the various repayment options for these borrowers. For the purposes of these calculations I use a standard 3% income growth rate, and 8.05% interest rate which represents the Plus Rate Parent or Graduate Student rates. Most people are likely to have multiple federal student loans or different loan types which might include lower interest rates or subsidies.
Under the standard repayment plan, their respective projected payments and outcomes would be as follows:
Alex, the Engineer would pay $730 monthly, totaling $87,546.
Jordan, the Teacher would have monthly payments of $443, totaling $60,720, with $9,117 forgiven at the end.
Laura, the Doctor faces a steeper scenario with monthly payments of $5,472, totaling $656,597, without any forgiveness.
Switching to the SAVE Plan changes their perspectives significantly:
The Engineer's payments increase slightly to $977 a month but leads to paying off the loan by May 2030, totaling $76,483 which is less than they would pay under the Standard Repayment Plan.
The Teacher benefits greatly, with monthly payments dropping to $352 and a total repayment of $49,445, including a forgiveness of $26,475 under the Public Service Loan Forgiveness Program.
The Doctor’s monthly payment decreases to $2,227, resulting in a total repayment of $307,382, with over $450,000 forgiven.
I want to highlight a couple of things here. Alex under the Save plan is able to pay off their loan earlier because their income is high enough to justify doing so. With a shorter Repayment period Alex is able to save money in the long run.
They're spending a comparable amount per month as their counterparts even though a regular loan repayment would be smaller.
The Public Service Loan Program is obviously a great deal for Jordan and Laura if they can get it. However, 10 years is a long time and to date many people have not gotten their loans forgiven.
There are many good reasons why someone might leave public service, they might decide to raise a family, take a job in the private sector or in some cases switch employers who might not be eligible despite doing the same thing. My wife actually had this issue, while we were able to resolve it because a) she's married to me, someone who works on this stuff and b) she was profiled in the Wall Street journal, not everyone is going to be so lucky.
President Biden has implemented several reforms to the PSLF program which has resulted in higher forgiveness rates, but it's unclear and uncertain if these will persist going forward.
When imagining these options without forgiveness, the scenarios alter dramatically:
The Engineer sees no change, as they were not depending on forgiveness anyway.
The Teacher would face a significant burden, with total repayments increasing to $82,017, extending their payoff date to June 2039.
The Doctor would end up paying a staggering $983,430 over time, extending the loan term till April 2049. At the end of this team, they do have another $250, 596 "forgiven"
The Public Service Loan Forgiveness Program is obviously a great deal if you can get it. However, before depending on it I would think long and hard about the downsides of pursuing that pathway without seeing it through.
This should give you a sense of the long-term trade offs of reducing your student loan repayment over an extended period of time.
For these reasons I remain highly skeptical about the benefits of the long-tail forgiveness of these programs. If you are struggling to make payments for a period of time, then these are great options. However, on the long term you might end up paying substantially more than you would have done otherwise.
Saying you'll be "forgiven" $250,596 AFTER you've paid an additional $326,833 over another 15 years doesn't really strike me as very valuable.
Conclusion
Choosing the right repayment plan for your federal student loans is a critical decision that can affect your financial well-being for years to come. Whether you’re the engineer, the teacher, or the doctor in our examples, or you find yourself with a different set of circumstances, understanding each plan’s nuances and how they apply to your particular situation is key.
Armed with knowledge and the right tools, you can create a strategy that not only manages your debt effectively but also supports your broader financial goals. Remember, there’s support available, and taking the time to explore your options today can lead to a healthier financial future.
Note: The specific values for monthly payment, total amount paid, and total forgiven can vary significantly based on individual income, family size, and total debt. The Date Debt is Paid Off for income-driven repayment plans also depends on when the borrower first took out their loans. This table is designed as an overview; borrowers should consult the Federal Student Aid website or a financial advisor for personalized calculations.
Federal Student Loan Rates for SY 2024-2025
Understanding Federal Student Loan Rates for 2024-2025
Federal student loan interest rates are determined annually based on the 10-year Treasury note auction results, plus a fixed margin. This approach ensures that the rates reflect the government's cost of borrowing, albeit with an added percentage to cover administrative costs and mitigate risk. The rates are fixed for the life of the loan, providing predictability for borrowers. Each year, the new rates take effect on July 1 and apply only to loans disbursed for the upcoming academic year, not affecting the rates of existing loans.
Uptick in Student Loan Rates
For the academic year 2024-2025, we're seeing a significant update to the interest rates on federal student loans. Here's a breakdown of what's coming:
Undergraduate Federal Direct Stafford Loans will now carry an interest rate of 6.533%, a leap from the previous 5.5%.
Graduate Federal Direct Stafford Loans see an increase to 8.083%, up from 7.05%.
Parent PLUS and Grad PLUS Loans will be set at 9.083%, which is higher than the former rate of 8.05%.
The increase in federal student loan interest rates for the 2024-2025 academic year will inevitably compound the financial strain on students and families already navigating the challenges of higher education costs. With rates climbing across all loan categories, borrowers will face higher monthly repayments and an increased total cost of borrowing over the lifetime of their loans. This uptick could deter prospective students from enrolling in higher education programs, exacerbate the debt burden on graduates, and potentially influence career choices as individuals may prioritize high-paying roles to manage their loan repayments.
Comparing with Alternative Loan Options
A.M. Money Loans and other Private
A.M. Money has its rates currently set at 7.95%, with the Annual Percentage Rate (APR) ranging from 8.34% to 8.87% depending on the situation of the student. We're able to do this through our partnership with the McCormick Foundation, and the Chicago Community Trust.
However, our reach and capacity is limited and other private loan options are unlikely to have comparable rates. As such, its important to find the best rate you possibly can if you are looking at private student loans as a viable option for your higher education.
Federal loans, even with the newly adjusted rates, bring a suite of advantages that are not typically matched by private lenders. For instance, students benefit from features such as subsidized interest while enrolled in school, a grace period post-graduation, and access to a variety of repayment plans tailored to fit different financial situations, including income-driven repayment plans.
Why Federal Loans Remain a Strong Choice
Despite the uptick in interest rates, federal student loans retain their appeal due to several key factors:
Subsidized Interest
For eligible undergraduate students, the government covers interest charges while you're in school and during other specified periods. This feature can significantly lower the overall cost of your loan.
Flexible Repayment Options
The federal system offers multiple repayment plans, ensuring you can find one that aligns with your financial capability. Income-driven repayment plans adjust your monthly payments based on your income and family size, potentially leading to more manageable monthly expenses.
Potential for Forgiveness
Under certain conditions, such as public service work or qualifying repayment plans, borrowers may have their remaining loan balance forgiven. This opportunity is generally not available with private loans.
Navigating the Changes
Understanding these rate changes and their implications is the first step in effective financial planning for education. While the increases might seem overwhelming, the overarching benefits of federal student loans — including protection and flexibility rarely matched by private loans — maintain their value for students and families navigating the complexities of funding higher education.
Seeking Guidance
It’s advisable for students, parents, and advisors to explore all available information and resources when crafting a financial strategy for college. Guidance counselors and financial aid advisors can offer personalized advice that considers an individual’s or family’s unique situation.
Conclusion
The increase in federal student loan rates for the 2024-2025 academic year underscores the importance of informed financial planning. Despite higher rates, the intrinsic benefits of federal loans, such as subsidized interest, flexible repayment options, and the potential for forgiveness, uphold their fundamental advantage. By understanding these changes and consulting with financial advisors, students and families can devise a plan that ensures educational aspirations are supported by a sound financial strategy.
For those navigating the complexities of student loans and financial planning for education, remember you are not alone. Resources and advisors are available to guide you through these changes, assisting you in making decisions that best suit your financial and educational goals.