There are a number of people who avail a loan to pay for a good education. With the price of college admission fees steadily increasing year by year, more students are going into debt.
Once this occurs, it can be a long, hard and vicious cycle to get your financial situation back to normal as debt can eat into your savings as well as negatively affect your credit score.
If you are someone who is in debt as a result of your student loan, there are certain ways you can reduce your existing loan amount, one such method is the process of student loan refinancing. This is when a loan provider will pay off the amount you owe and will then replace that loan with a new one. The advantage of refinancing a loan is that there will be a different repayment plan as well as a different rate of interest when compared to your existing loan.
With certain loans, you can opt for an Income Driven Repayment or IDR plan, where the monthly loan amount you make will be based on the monthly income you receive. It does not matter if the loan you availed is federal or private as both types can be refinanced.
However, if you are someone who heavily relies on the benefits that come with a federal loan, it is advisable not to opt for the loan refinancing process you will lose all the benefits packages associated with it. This includes the loan forgiveness programs as well as the Income Driven Repayment program.
What are the Differences Between Subsidized and Unsubsidized Loans?
Let’s start with what federal and private loans are first. These type of loans are provided by the government and private loans are, as the name suggests, offered by private lending organizations. Federal loans are further categorized into subsidized and unsubsidized loans.
Now, subsidized loans are nothing but federal loans that students are eligible to apply for. These loans do not increase the rate of interest until the student has completed 6 months since their graduation. The interest rates on these loans are decided upon by the government itself. There are certain advantages of subsidized loans, some of them are listed below.
- The government will cover the interest amount in the case of forbearance and deferment periods for subsidized loans.
- The government will cover the interest amount as long as the applicant has been enrolled at half-time status.
- The student is not required to make any loan repayments until 6 months have passed since the time of graduation.
There are also a few disadvantages of availing this loan such as in the case of you having parents who are employed and who earn a substantial amount. Also, if you are a graduate, you are not eligible to apply for subsidized loans. Keep in mind that subsidized loans tend to have lower yearly loan amount limits when compared with unsubsidized loans.
The government does also offer certain types of unsubsidized loans but the interest amount will not be covered by them unlike as it is with subsidized loans. Apart from this being the main difference between these loan types, unsubsidized loans also have their own advantages, these are listed below.
- Regardless of your student status (undergraduate or graduate), you can still avail unsubsidized loans.
- The yearly loan amount limit for unsubsidized loans is much higher when compared to subsidized loans.
- When availing an unsubsidized loan, there is no need to show proof of a financial need.
When it comes to the disadvantages of these type of loans, there are not many. However, the main one is that the borrower must take full responsibility to repay the loan amount due as well as the interest once they have graduated from university.
What are Some of the Loan Providers Who Offer Student Loan Refinancing?
Once you have decided to go ahead with refinancing your student loan, ensure that you are eligible without the need for a cosigner. Loan providers such as Earnest, is the best bet when it comes to people who have a good credit score and good financial records.
The eligibility criteria that Earnest requires is quite different as it is based on certain factors such as the amount of income you receive on a monthly basis, your spending habits and the amount of money you save regularly. All these factors along with your credit score will be closely scrutinized to see if you are a trustworthy individual who can handle the loan amount responsibly.
SoFi is another well known loan provider who offers the option to refinance your student loans. They offer the refinancing option to students who have a minimum existing debt of $5000. SoFi student loans can be availed but keep in mind that they charge a very low late fee (when compared to other loan providers) of $5. The late fee is only applicable if the borrower has delayed the payment by 15 days.
They also reward customers by waving off a maximum amount of $300 if they make a new referral. Check out their website which lists all the benefits and packages they offer when it comes to refinancing you student loans.