Americans are dealing with nearly $1.6 trillion in student loan debt — and that’s just in federal loans. Throw in the job and income losses brought on by the pandemic and it’s harder than ever for many people to stay afloat.
In some cases, those struggling in the personal finance department might consider filing for bankruptcy, but there's a better way to boost savings, reduce monthly student loan payments, and cut the life of your loan: refinancing.
Whenever you consider a refinance (whether it's student loans, mortgages, or otherwise), you should rely on an expert in the field like Credible. Credible can help you determine if now is the time to refinance based on your current loan type, loan amount, and more. Plug the numbers into Credible's free online tool and get results instantly.
How does refinancing save you money?
Refinancing is a good money-saving option if you have student loans, especially if interest rates are low, as they are now. When refinancing student loans, you replace your existing loans with a new one, ideally with a lower interest rate.
Here are some benefits of refinancing your student loans:
- Lower monthly payments
- Reduce your interest rate
- Simplify the loan repayment process
- Pay down your balance faster
Refinancing into a longer-term loan reduces your monthly payments, making it more manageable during hard times.
Ultimately, the best way to choose the right student loan refinancing offer is to get quotes from multiple lenders and see which best suits your goals. Look for a lender offering low rates, a loan repayment timeline that's not too long, and a monthly payment that fits easily into your budget. Visit Credible today to shop around.
Be careful, though. If you have federal student loans, you might want to wait a few months before refinancing.
“Federally held student loans are in an automatic forbearance until the end of the year because of the pandemic,” said Leslie Tayne, a debt relief attorney at Tayne Law Group. “So it’s best to wait until this expires before considering refinancing or consolidation.”
Under the CARES Act, federal student loan borrowers can pause their payments through Dec. 31. You won’t need to make payments until at least Jan. 2021. Refinancing into a private student loan would mean forgoing these benefits.
How to get the best student loan refinancing rate
If you do decide to refinance your student loans, make sure to shop around. Rates and terms vary by lender, so shopping around can ensure you get the best deal and lowest possible payment.
Using a tool like Credible can help you compare rates from several private lenders at once.
In addition to your choice of lender, your credit score will also heavily influence what interest rate you receive when refinancing your student loan. To ensure you get the best rate, avoid falling behind on payments — both on your student loans and on other bills and accounts you have due.
You should also pull your credit report and alert the credit bureau if there are any errors. Getting these errors addressed may improve your credit score, as well as the rate you receive on your refinance.
To see what kind of rates your current credit score qualifies you for, head to Credible, and get quotes from multiple private lenders now.
Other repayment options
Because student loans are so hard to discharge through bankruptcy, it’s typically not your best option if you’re having trouble making payments. Here are some alternatives to consider:
- Income-driven repayment plan
- Student loan forbearance or deferment
- Student loan forgiveness
Income-driven repayment plan: If you have federal student loans, an income-based repayment plan may be a better choice. This lets you pay an amount based on the income you’re bringing in — anywhere from 10-15% per month.
Student loan forbearance or deferment: Student loan forbearance and deferment may also be options. Both of these let you pause payments for a certain amount of time.
Student loan forgiveness: If you’ve gone into a public service career, you might also qualify for total student loan forgiveness under the Public Service Loan Forgiveness program. To see what options you might have at your disposal, it’s important to talk to your lender or loan servicer.
“Borrowers should contact their student loan servicer and explain that they’re finding it challenging to keep up with their loan payments, and the reason why,” Tayne said. “Forbearances and deferments can postpone loan payments, but borrowers should keep in mind that accrued interest is due once a forbearance ends.”
If you've weighed all of your options and still think refinancing your student loans is the best option, then make sure you do your research on private lenders and keep an eye on interest rate trends.
While federal student loans have low fixed interest rates that are the same for every borrower regardless of credit score or income, private lenders work differently. Rates vary from one lender to the next and lenders often offer a choice of fixed or variable rate loans. Use Credible to find lower rates that fit your budget.
Can I get my student loans discharged?
While you can file for Chapter 7 or Chapter 13 bankruptcy with student loans, the chance of getting those loans discharged through bankruptcy are slim, experts say.
That’s because you have to prove the loans cause you “undue hardship.” You’ll also need to file a separation action and participate in what’s called an adversary proceeding.
“Student loans can be discharged through bankruptcy, but the process involved is incredibly challenging,” said Tayne. “It’s best to contact a lawyer specializing in bankruptcy, because proving that you have an undue hardship can be a nuanced and challenging process.”
If you hope to have your loans discharged, Tayne recommends documenting all communications with your student loan lender. This can serve as proof that you made a good-faith effort to make your payments work.