Refinance/Consolidate Student Loans

[Anonymous]

I have two stdent loans (one subsidized and the other other unsusidized) that are both at 6% interest and total approximately $90k through Navient.  Both these loans were consolidated back in 2017.  My FICO score is around 800.  Should I look into refinancing/consolidating these two or is 6% a good interest rate?  Thanks!

[LakeLife]

I can't imagine you doing any better than 6% for an unsecured personal loan regardless of your credit.  The only way to do better would be balance transfers which would require a 3% up front fee and be due in 12 to 18 months.  If I were you, I'd pay as much on them as I could every month and cut down on expenses until they were paid in full.  

[calyx]

Some companies (Earnest, Sofi, etc.) have prequalifiers and you can look at what you qualify for, both in terms of limits and interest rate.
The only thing that would make me hesitate is that you lose a lot of protections and flexibility if you transition from federal to private loans.

At 6%, if I could get it down to less than 4, I might think about it if I had a very solid/stable income stream, but that's me, I'm not as risk averse as others.  Shop around, see what you can get, and see if it would be worth it to you.

[Anonymous]

Thanks!  So what is the main differences between federal and private loans?  Are private loans more like personal loans?  Is there a way to roll both the student loans and an outstanding land loan (at 10%) into one private loan?

[calyx]

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@Anonymous wrote:

Thanks!  So what is the main differences between federal and private loans?  Are private loans more like personal loans?  Is there a way to roll both the student loans and an outstanding land loan (at 10%) into one private loan?

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Federal student loans are guaranteed by the federal government and ruled by the HEA (Higher Education Act).   They have multiple payment plans (IBR, Standard, RePAYE) and can be eligible for forgiveness under certain circumstances and after a certain period of time (depending on the kind of repayment/loan you have).  In case of hardship, you can qualify for deferrals and forebearance, too.     The rate is also set by Congress, so it tends to be lower than conventional/personal loans.   The downside is that if you do default, it can be reported forever and they can garnish your wages, tax returns, etc.

You can get as big of a private loan as you can qualify for to pay for whatever you want.    The downside is that the rates might vary, they could be higher, and there is no protection in case of hardships.   I know someone who took out a larger personal loan and paid off her student loans as well as credit cards and just paid that one loan off because it was easier her for her, so it's definitely something you can do if you want.   

[Anonymous]

Thanks!  What are the best places/sites to look for personal loans?

[calyx]

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@Anonymous wrote:

Thanks!  What are the best places/sites to look for personal loans?

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You can look around online (Sofi, etc.), check area and national banks, and also check credit unions.  I'm personally a fan of credit unions because of their service, but you must be a member.

Credit marketing websites (CreditKarma, Nerdwallet, etc.) may have some recommendations you might be able to prequalify for.

[Anonymous]

Hello,
I read through your information to give you a more informed answer. I hope that doesn't offend you. Yes, if you qualify, there is a possibility of getting a private loan. You will lose the possible protections of a federal loan such as loan forgiveness, discharge, Income-driven repayment plans, subsidies, forbearances and deferments. If the unexpected happens or you can't afford a payment one month, it's unlikely you'll find a loan that will be as flexible. Additionally, plans like REPAYE guarantee that a) your interest will never be based on more than the original principal and b) that as long as you re-certify your income on time your interest will never capitalize.

You may or may not qualify for a $90k loan. They will take into account more than just your credit score. The loans offered might have a variable rate or might a penalty rate, fees if you miss a payment. You also might not be offered the lowest rates they advertise. Credit unions are a good interest rates, although you can probably find others.

Over the past year or so, since you've consolidated I think I read your balance had increased from ~$79k to $90k+. Given that you have to be on an Income-driven repayment plan after federal loan consolidation, are you currently projected to have the loan forgiven or to pay it off early?

I think you've got a good interest rate locked in and if it were me I'd attempt to make significant progress on the loan for a year or two before attempting to refinance it. If the interest continued to accrue, I would instead stuck with whatever Income-driven repayment plan would provide the most forgiveness. Forgiveness would make any interest rate irrelevant.

One last thing, did you know that plans such as REPAYE and IBR have an interest subsidy? On REPAYE, for the first three years they will pay all the interest that isn't covered by your payments on your subsidized loans. After that they'll pay half. For your unsubsidized loans, they'll pay half of the Interest not covered by your payments, for the duration of the loan. This would, in effect, reduce your interest rate.
(Ok, I'm biased against private loans, but I hope this helps).

[calyx]

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@Anonymous wrote:

One last thing, did you know that plans such as REPAYE and IBR have an interest subsidy? On REPAYE, for the first three years they will pay all the interest that isn't covered by your payments on your subsidized loans. After that they'll pay half. For your unsubsidized loans, they'll pay half of the Interest not covered by your payments, for the duration of the loan. This would, in effect, reduce your interest rate.
(Ok, I'm biased against private loans, but I hope this helps).

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THAT interest subsidy is really interesting.   I make too much money to worry about it, but thank you for the information so I can share that with others.

I am also not a fan of private loans if you can stay federal - I think it's a big mistake in case you get yourself in financial difficulties.

[Anonymous]

calyx:
Student Loan Hero has been a much more informative website than the government website probably ever will be. They mentioned the subsidy and when I contacted them, they gave me a very detailed answer with the referenced regulations. D of E chat was useless.

I think the only people who can possibly benefit from private loans are people with incredibly high incomes with no debt and enough emergency funds to cover payments for a while. I think it's too risky.
Edit: IDR Q&A
" I understand that under the REPAYE, PAYE, and IBR plans, I may not have to pay some of the interest on my loans. How does this work?" ...
https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven/questions