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Student loan refinancing is a great way to pay off student loans faster and reduce your interest rate. It means using a new loan with a lower interest rate to pay off old loans with higher interest rates. Once your old account closes, you are only responsible for the new loan. None of the rates, terms or conditions from the old loan apply to the new one. In fact, you don’t even need to use the same lender to refinance.
The benefits of student loan refinancing are too enticing to ignore. And even more so for doctors, given their starting salary and income potential. Not only is refinancing is the easiest way to lower your interest rate, but it also allows you to adjust your monthly payment and term length. When done right, refinancing can amount to thousands in savings over time.
Student loan consolidation combines multiple loans into a single loan. That means one lender. One interest rate. One monthly payment. Like refinancing, the goal of consolidation is to simplify your financial situation. But they are not the same. To understand the difference between the two, it helps to first know the difference between federal and private student loan consolidation.
Federal student loan consolidation is a program run by the Department of Education. It merges multiple federal education loans into a single direct consolidation loan. But there's a catch. Your new interest rate is the weighted average of rates from your previous loans. It will not decrease. Even with a lower monthly payment, it may require paying more interest over time. However, private student loans do no qualify for a direct consolidation loan. Criteria to qualify varies among private lenders.
The shortcomings of consolidation highlight the advantages of refinancing. For both federal and private loans. You can lower your interest rate based on credit history. You can also adjust your monthly payment and term length based on income. In essence, refinancing and consolidation seek the same end goal. To simplify and improve your financial situation. But refinancing can actually save you money long-term.
Timing. It's the key difference between the pay-as-you-earn (PAYE) and revised-pay-as-you-earn (REPAYE) programs. Of course, both have their respective pros and cons. But the length of your education may qualify you for one, but not the other.
PAYE caters to students who borrowed in 2008, graduated in 2012 and took out additional loans for graduate school. Further narrowing the application pool, only students with federal direct loans qualify for PAYE. However, combining Perkins and Federal Family Education loans also works.
Like the income-based repayment (IBR) plan, PAYE requires proof of partial financial hardship. Your payment must also be lower than what you would pay under the standard 10-year plan. If so, it's 10% of the difference between your monthly income and 150% of the federal poverty line. When your income increases, your adjusted payment caps at what you would pay on the standard plan.
REPAYE is the Department of Education’s 2015 update to PAYE. It is an income-driven repayment (IDR) program that depends on your earnings. Although similar to PAYE, it does not contain the same time restrictions to qualify. REPAYE extends PAYE’s 20-year forgiveness for graduate students to 25 years. REPAYE also does not require the borrower to prove the burden of student loan debt.
Under REPAYE, the government picks up unpaid interest on subsidized and unsubsidized direct loans. PAYE lets the government cover unpaid interest on subsidized student loans for three years if the monthly installment didn’t cover all of the interest. REPAYE matches this to expand subsidy to unsubsidized federal loans and unpaid interest on subsidized loans over the designated three years. This makes REPAYE a better choice for low-income borrowers because the 10% cap rarely covers the entire payment.
REPAYE is the more recent, relaxed version of PAYE. But if you qualify for PAYE, this is likely the more beneficial route. These programs best reflect the reality of student loan debt in America today. This makes them the most common ways to refinance.
Other income-driven repayment (IDR) plans include income-based (IBR) and income contingent (ICR). Under ICR, payments vary based on income, family size, loan balance and interest rate. Under IBR, payments strictly reflect income and family size. Payment is limited to 10-15% of your discretionary income.
There are also standard and graduated repayment plans. And there’s a reason we saved these for last. With the standard, monthly payments are fixed to pay off all loan principal and interest in 10 years. With the graduated plan, a lower initial payment increases every two years to pay off all loan principal and interest in 10 years. The reason these are less than desirable is simple. They take all the power and leverage away from the borrower.
Loan Terms 5, 7, 10, 15, 20 year options
Maximum Loan Amount $300,000
Available in 46 states
Loan Terms 5, 7, 10, 15, 20 year options
Maximum Loan Amount No Maximum
Available in all 50 states
SoFi burst onto the scene in 2011, quickly becoming one of the leaders in student loan refinancing and consolidation. The San Francisco-based company offers among the most the competitive interest rates in the industry and is known for their around-the-clock customer service.
SoFi operates within fairly strict credit criteria. The company’s non-traditional underwriting process evaluates merit, employment and financial history, and monthly debt-to-income ratios. SoFi also heavily considers the applicant’s estimated cash flow, career path and level of education. The company’s ideal borrower boasts strong job stability, substantial income and a proven history of managing their budget and credit.
SoFi champions transparency and a strong sense of community in everything it does. With SoFi, what you see is what you get. The company makes sure you’re well aware of all the member benefits that entails. What sets SoFi apart from others in the crowded student loan space is its commitment to the personal growth and career development of its 500,000 members and counting.
Very competitive rates.
Free consultations.
No hidden fees or prepayment penalties.
Live customer service available nights and weekends.
Checking rates does not affect your credit score.
Refinancing is available in 49 states, plus the District of Columbia.
A swift application process allows for pre-qualification in just 15 minutes.
Capitalize on networking events, career services and complimentary financial advising.
If you lose your job for no fault of your own, SoFi will suspend your monthly payments for up to 12 months. Not only will this provide financial relief while searching for a new job, but SoFi will also connect you with job placement services. Still, the interest that accrues during this period of unemployment would be added to the loan.
Get additional rate discounts on other products like personal and mortgage loans.
SoFi offers wealth management services and SoFi Money, a new personal banking app that simplifies checkings and savings.
Loan Terms 5, 10, 15, 20 year options
Maximum Loan Amount No Maximum
Available in 36 states
Founded in 2013, Earnest seeks to bring trust back to lending for financially responsible people. Through a data-intensive background check, Earnest paints a complete financial picture of its applicants. This allows it to refinance high-interest credit card and student loan debt, including Parent PLUS loans. Earnest provides low-interest personal loans based on merit instead of credit history, as well as 30-year and 15-year fixed rate mortgages. Its user-friendly online dashboard gives customers the power to customize their loan payments with ease.
Earnest offers unemployment protection that allows deferred payments up to three months at once, and for a total of 12 months over the life of your loan. It also allows you to switch between fixed and variable rates during the life of your loan. However, you can only switch once every 6 months. After making on-time payments for six months, Earnest lets borrowers skip one payment every 12 month. This will still raise your monthly payment to adjust for the what you skipped.
Earnest goes above and beyond to help customers experiencing financial hardship. This means making its products as flexible as possible with restructuring and temporary forbearance. If you need to lower your monthly payment, you can apply to refinance again. Earnest will take another look at your terms to determine if a better quote is possible. On average, Earnest members save $30,939.
Loan Terms 5, 10, 15, 20 year options
Maximum Loan Amount $500,000
Available in all 50 states
Loan Terms 5, 7, 10, 15, 20 year options
Maximum Loan Amount No Maximum
Available in all 50 states
Based in Knoxville, Tennessee, Education Loan Finance (ELFi) is relatively new to the student loan refinancing space. It's parent company, SouthEast Bank, is a Tennessee community bank. In 2015, SouthEast Bank decided to start offering student loan refinancing to borrowers on top of its traditional products. Its product line includes checking and savings accounts, mortgage loans and credit cards.
ELFi offers competitive interest rates to borrowers that qualify for student loan refinancing. Borrowers can choose from fixed and variable rate loans available in 5-20 year terms. While ELFi does not have any restrictions on the maximum amount that borrowers can refinance, their minimum loan amount is $15,000. ELFi's works closely with MOHELA, a student loan servicer with a great track record of customer service.
No application fees, origination fees or prepayment penalties.
Forbearance allows you to postpone loan payments up to 12 months if you experience economic hardship.
New ELFi borrowers can get a $100 cash bonus through the Fast Track Bonus program if you get approved and accept your loan terms within 30 days of submitting your application. (Beginning December 1, 2018, ELFi will no longer offer the $100 Fast Track Bonus.)
ELFi borrowers earn $400 cash referral bonus for every person you successfully refer if they apply and are approved within 90 days of registration. The person you refer will also receive a $100 bonus. Learn more here.
Loan Terms 5, 7, 10, 15, 20 year options
Maximum Loan Amount $346,000
Available in all 50 states