What to Consider to Lower Your Student Loan Interest Rates
With the reaction from the covid-19 we have seen decreases in interest rates, including student loans. Is 2020 the time to refinance your student loans?
It depends on what type of student loans you have. If you have previously refinanced your student loans, than you might be able to get a lower interest rate by refinancing them again.
Refinancing Private Student Loans
A quick and easy way to see interest rates from multiple lenders is to check on Credible. They have a useful tool that allows you to see what current interest rates are with your credit score.
If you see a lot of options that are lower than what you currently are paying than it might be time to consider refinancing your student loans. You should also check with Leveredge to see if they can offer a better rate on your loans through group negotiation strategies.
If you have not refinanced your student loans and you were able to pay for PA school with federal student loans, than you might want to think twice before refinancing. When you refinance student loans, you will get a new loan from a private lender. Some of your student loans might be from a private lender already, but most of them are probably from the federal government.
Refinancing Federal Student Loans
Federal student loans offer many benefits that private loans do not offer: student loan forgiveness, deferment, forbearance, income based repayment and now, interest waiver.
There are arguments for and against waiving student loan interest in the wake of Covid-19. In the long run it helps lower the amount a borrower would pay on their student loans, even if it doesn’t help the financial strain currently. It is relief that you would not get if you had refinanced your student loans with a private lender.
Although, there are benefits to federal student loans, there are reasons why you might want to refinance them anyway. Depending on how far interest rates drop and how much your student loans are, you might save more by refinancing than what you would through the waiver. It also depends on how long the waiver goes. They have not set a time line for the waiver, so if it is for a short time, you could save more by lowering your interest rate.
[jetpack_subscription_form title=”Get more information on the PA student loans” subscribe_text=”Enter your email address to receive future posts by email for FREE” subscribe_button=”Sign Me Up”]
Savings with Student Loan Refinance vs Federal Loan Benefits
Most PA students rely on school loans to pay for PA school, with a median amount around $100,000 in 2017. Using a student loan calculator, monthly payments on $100,000 with 7% interest (approximate rate for federal grad plus loan) on a standard 10 year repayment plan would be $1,161.08, with $577.75 going to principal and $583.33 going to interest. As you make payments the amount that is going toward principal would increase, as the total amount of the loan decreases.
If you were to refinance that loan to 2.5%, the amount of interest you are paying is greatly reduced. Instead of paying $583.33 in interest per month you’d only be paying $208.33 per month in interest and the rest of your payment would be going towards the principal. That’s a significant difference.
Now looking at the waiver. If the waiver was to last 6 months that would be at total of $3,499.98 in savings on your interest. If you refinanced in the scenario above it would take you 9 months to get the same amount of savings. If the waiver was for a shorter time it would take less time to get equal savings. If you have more than 9 months left of student loan payments, your savings in the long run will be much greater by refinancing to a very low rate, compared to keeping your federal student loans just for the interest waiver.
The answer to refinance, or not is going to be different for everyone and depends on many factors. You should consider these things before deciding on refinancing: your current student loan amount, your current interest rate compared to a refinance rate, how long you have to pay off your loans and what benefits you might lose by refinancing.
If you’re not sure what’s best, the first step is to see what the interest rates are with a lender such as, LeverEdge. From there you can compare with your current interest rate and make a decision on what to do from there.
Are you planning on refinancing you student loans soon? Please comment below the original post, sign up to receive future posts by email and share with your friends!
