With an increasing number of students embracing student loan refinancing, student loan forgiveness, and other options to ease the process of handling student debt, it is essential to discuss this subject in a fair amount of detail. If you are a student who is about to enter university and want to plan your student loan repayment as best you can, this is for you.
Student Loan Refinancing
Student loan refinancing involves you clearing your current loan and getting a new one at a different rate of interest and with varying terms of repayment. Some of these loans come with an IDR plan. An IDR plan or Income Driven Repayment plan allows you to repay your loan according to a specific percentage of your monthly income. Both Federal and Private loans can be refinanced, but if you refinance a Federal student loan you will be liable to lose benefits that come with a Federal loan like, the IDR plan, loan forgiveness programs, and other features that come with a Federal student loan.
What are Federal Loans?
Federal loans are provided by the government, whereas private loans are offered by private lenders. Both types have their merits and demerits. You will have to consider the repayment terms, your priorities, goals, and eligibility criteria to choose the right loan from the right lender.
Federal loans are further classified into subsidized and unsubsidized loans.
Subsidized loans are federal loans that students can apply for that, do not accrue interest when you are in college or even if they are deferred after graduation. The interest rates on subsidized loans are fixed by the government. Fortunately, you do not need a minimum credit score to be eligible. However, you need to keep in mind that there is a specific limit as to how much students can borrow. You will also have to complete the Free Application for Student Aid (FAFSA) form if you want to apply for a subsidized loan. Here are a few merits of subsidized loans:
- The government will cover the interest on your loans as long as you are enrolled at half-time status.
- Secondly, the government will cover the interest during the deferment and forbearance periods for loans.
- Additionally, you are not obligated to make repayments until six months after you graduate.
Here are some demerits of Subsidized Loans:
- You cannot apply for a subsidized loan if you are a graduate.
- If you happen to be a student who cannot show a financial need, you will not be eligible for subsidized loans. In simple terms, if your parents earn well, you will not be able to avail these loans.
- Subsidized loans have lower annual loan limits compared to unsubsidized loans.
While the government does offer unsubsidized loans, it will not cover the interest on them. You will have to take care of the interest. This happens to be the main difference between the two. Here are a few merits of unsubsidized loans:
- You may avail unsubsidized loans irrespective of whether you happen to be a graduate or not.
- You are not obligated to show a financial need to avail these loans.
- The annual loan limit for these loans is undoubtedly higher than that of subsidized loans.
However, there is one noticeable disadvantage. You bear the responsibility of repaying the loans along with interest even after you graduate or when in forbearance or deferment.
What are Private Loans?
Private loans are loans offered by private lenders like credit unions and banks. Private loan lenders generally need you to make loan repayments when you are still in college. Private loans are known to have variable (and often, high) interest rates.
What is the National Student Loan Data System?
The National Student Loan Data System (NSLDS), is fundamentally, a database that the U.S. Department of Education maintains to assimilate the grant and loan data for students who use federal funds to pay their college fees. The NSLDS allows you to see your federal loan and grant data. When you log in, you should have no problem seeing the different types of loans you are eligible for, the loan amount that you may have borrowed, the loan balance you have to pay, status, and so on.
There are a bunch of things about the NSLDS that you need to keep in mind:
- Do not expect private loans to be reported. If you happen to have borrowed a federal loan, it will be displayed on the NSLDS.
- Additionally, the database does not display loans that are refinanced. If you happen to refinance loans that were federal or private, they will not be displayed on the NSLDS.
Student Loan Refinance Lenders that you check out
SoFi is an impressive student loan refinancing lender that offers the option of refinancing for students who have a debt of at least $5.000. SoFi also charges unbelievable low late fees of a mere $5. Furthermore, you will be liable to pay this only if you are late by 15 days. If you make a new referral, you could receive a maximum of $300. If this was not enough to convince you to go for SoFi, you might want to check out a SoFi student loans review.
If you are eligible for student loan refinancing without having to get a cosigner, Earnest is probably a better bet for you. Earnest is better suited for people with better financial and credit histories. To determine if you are eligible, Earnest considers a multitude of factors, out of which your credit score is only one. Some of the other factors are your earning power and the way you save your money. However, you will need a great credit score because Earnest does not allow you to apply with a cosigner.
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