The content below is from CommonBond.co, explaining all the need-to-know information for us students taking out loans! We will post each day of the 10 days of Student Loan Boot Camp once a week.
You've learned the basics of student loans and the difference between student loan refinancing and student loan consolidation. Now we will dive deeper into whether you should use student loan refinancing for your private student loans.
Day 6: Private Student Loans
First, let's start with what a private student loan is. Private student loans are student loans that are not provided by the federal government. Some of the most common private student lenders include Sallie Mae, Wells Fargo, and Discover, among others.
Often times you would have taken out these private student loans to pay for college or graduate school. You also may have had to add a cosigner, such as a parent, to qualify for the loan.
But once you've graduated and started working, you may be able to refinance your loans to a lower interest rate and save thousands. The reason is that companies, like CommonBond, can use data, such as employment and credit history, to tailor a new interest rate specific to you and where you are in your life today, not where you were years ago when you took out loans for school.
If you choose to refinance federal student loans, you sacrifice federal borrower protections, such as income-driven repayment plans and public service loan forgiveness. (We will learn more about these protections on Day 7 and Day 8 of the CommonBond Student Loan Boot Camp.) However, when you refinance private student loans, federal protections don't apply, so it makes sense to refinance your private loans for a lower rate and better customer service.
Here's an example of how much you could save: Last year, the average rate for a private student loan from Sallie Mae, which is the largest lender of private student loans, was 7.93%. If you have $50,000 in private student loans from graduate school at a 7.93% fixed rate, you would pay $22,575 in interest plus the $50,000 in principal under the standard 10-year repayment plan. If you refinance that loan with a private lender at 4.5% ARP, you would pay $12,183 in interest plus $50,000 in principal over the life of the loan. So refinancing your private student loans would save you $10,365 in interest payments.
So, refinancing certainly can make sense from a savings standpoint, but there can be other benefits as well:
Your education is likely the most significant financial commitment you have made, and you'll potentially be working with your student lender for years, so customer service is critical. Some companies that offer student loan refinancing, like CommonBond, also focus on providing excellent customer service to make sure you get any questions you have answered over the life of your loan.
Change your repayment period:
You can shorten or extend your repayment term by refinancing your private student loans. Shortening your repayment period may lower the total cost of your student loans because you are paying less interest over a shorter period of time. Extending your repayment period allows you to lower your monthly payment, but you will pay more in interest over the life of your loan.
Many private lenders provide a rate discount if you have your student loan payments automatically deducted from your bank account, helping you save even more. Add a cosigner: Some lenders will allow you to add a cosigner to your loans to qualify for an even lower interest rate.
Remove a cosigner:
Refinancing your private student loans may enable you to release cosigners from your previous private student loans.
Beyond interest rates, customer service and the other factors above, some private lenders offer other benefits to their borrowers. At CommonBond, we provide two special benefits to our members: the CommonBond Community and our Social Promise.
CommonBridge allows you to postpone monthly payments in 3-month increments for up to 12 months consecutively and 24 months total if you lose your job. And CommonBond goes even further to help you if you find yourself in between jobs by working with you to create a tailored job search strategy and introducing you to contacts within our network.Through our Social Promise, for every loan funded on CommonBond's platform, we fund the education of a child in need. It's the first 1-for-1 model in finance and education.
Refinancing your private student loans can lower your interest rate and save you thousands. Selecting the right lender to refinance your private student loans can make the experience simple and efficient.
Come back tomorrow for Day 7 of the Student Loan Boot Camp to learn about how your federal student loans can be forgiven through public service.