student loan debt

What Borrowers Should Know About Refinancing Student Loan Debt

If you are facing reduced income as the coronavirus spreads, keeping up with your bills may become increasingly challenging—especially if you are among the more than 43 million people in the US who have student loan debt.

Student loan borrowers regularly receive email advertisements regarding the possibility of saving money on their loans by refinancing their student loan debt. The possibility of saving thousands in student loan interest paid on the debt is tempting, but not every refinancing option is legitimate. However, for borrowers who are paying on loans with rather high interest rates, refinancing through a reputable source can be an excellent way to lower how much interest they pay in the end.

The U.S. Federal Reserve cut interest rates three times during 2019, and with this current epidemic, the Feds cut interest rates again recently, bringing student loan rates to the lowest they have been in years. Currently, the average fixed rate for a 10-year refinanced loan as of February 2020 was 4.80 percent. This number is up only a small amount from December 2019 when rates were 4.76 percent.

The number of lenders offering to refinance student loans has been growing. As of 2019, four major lenders held $26 billion in securitized refinanced loans, while other companies offering refinancing do exist. The benefit to having multiple companies out there is that borrowers can be more selective when choosing the right company for them.

The bulk of most student’s borrowing includes federal student loans. It is estimated that over 90 percent of the country’s total student loan debt is federal. However, when a borrower chooses to refinance his or her student loans, he or she is taking their money from a federal borrower to a private lender to refinance. This decision is not always the best one to make, especially since federal borrowers are able to work with the government on repayment plans, including setting up repayment plans that work with their incomes and other plans that allow borrowers to eventually have their federal loans forgiven. The federal government also offers several different options for forbearance and deferment if the borrower runs into hard financial times. Therefore, it often turns into a game of weighing the benefits versus the negative aspects of seeking a lower interest rate and giving up these opportunities.

One factor when deciding whether to refinance includes whether the borrower works in the private or public sector. Public sector jobs often offer student loan forgiveness programs, which require the borrower to stay in the public sector. If the borrower has an emergency fund and also earns a salary of at least 1.5 times what they owe in loans, refinancing could be a good option if the borrower is comfortable with losing the protections offered by federal loans.

The decision to refinance is not as difficult for borrowers paying back private student loans. Private loans tend to have a higher interest rates and do not offer as many protections as federal student loans do.

The better rates for refinancing are normally offered to borrowers who have a solid history of making loan payments on time under their current repayment plans. Having a low debt-to-income ratio is also beneficial when seeking refinancing. Keep in mind that not all applicants are approved for refinancing. The higher the debt-to-income ratio the more likely it is that the borrower will be declined.

Keep in mind that every lender is different. One denial does not mean that all lenders will deny that borrower. It does not hurt to try more than one lender if the first application is unsuccessful. Also, review the different options available when it comes to term lengths. The longer repayment terms tend to yield slightly higher interest rates. For example, a 10-year repayment term may offer interest rates between three to four percent while a five-year plan may offer fixed interest rates below three percent, which is why it pays to shop around.

On March 13, 2020 President Donald Trump announced that until further notice, interest would be waived on all student loans held by the federal government.  The waiver applies to all student loans held at the federal level, including:

  • Direct Unsubsidized Loans
  • Direct Subsidized Loans
  • Direct PLUS Loans
  • Direct Consolidation Loans
  • Federal Family Education Loans (FFEL) held by the federal government
  • Perkins loans held by the federal government

If you are unsure about the type of federal loans you have, you can check by logging in to the National Student Loan Data System with your Federal Student Aid (FSA) ID.  You will see a dashboard that lists your loan information, including details about your loan service provider.

For borrowers who are struggling with student loan debt, relief options are available.  Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. There are ways to file for bankruptcy with student loan debt.  It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.

Related Resources:

Student Loan Interest Waived Due to Coronavirus– Wirecutter

Money.com

 

 

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