The exact amount of the loans of the private students is unknown, but recent estimates have around $ 100 billion.
The increase in the amount of private -student loans is not surprising, because there are a few large drivers in the trend.
Firstly, the costs of the college continue to rise. This includes the costs of living, for which many students take loans. As the costs of the university rise, the amount of debt students must also increase. That drives many students to private student loans.
There is also a large increase in advertisements with regard to private student loans. Both startups and banks have started offering refinancing of student loans and product. This of course has led many students to refinance federal student loans, which then become of private student loans.
Refinancing federal student loans is not always a bad thing, but federal student loans have a number of major differences compared to private. We start this guide for private studies by talking about how they differ from federal loans, then go to options for dealing with private student loans and ultimately come into how you can possibly save thousands on your private studies.
Let’s go there!
Federal Student Loans versus Private Student Loans
Federal Study Units are owned by the federal government, while private student loans are owned by a private company. Federal student loans are supplied with a number of benefits, including.
- Interest advantage during delay – Subsidized federal student loans (not Non-subsidized federal loans) do not build up any interest when they are in an eligible postponement period, such as while you are at school at school and during your respite period (the first six months after you leave the school).
Being interested cannot lead to large savings, so direct subsidized federal student loans are the best option. Non -subsidized federal student loans do not come up with this advantage, nor private -student loans.
- Income -driven options for repayments for loans -Winders have the option of moving federal loans to an income -driven reimbursement plan, which in essence lowers the required minimum monthly payment at 10% -20% of your discretionary income.
- Opportunities for forgiveness of loans -Federal Student loans are eligible for public services forgiveness, or PSLF, which eligible borrowers offers tax -free loan forgiveness after 120 qualified monthly payments.
Another option for forgiveness for loans is income -driven loan forgiveness. If you go on one of the four income-driven reimbursement plans and make payments for 20-25 years, the remaining loan balance and the accrued interest is forgiven. With this option you owe taxes on the forgiven amount, but it is still much better than not Get your loans forgiven.
There are some other options for loan enhancement with federal loans, but these are the two most important. Private student loans have no opportunities for forgiveness of loans.
Student loans are almost impossible to dismiss in bankruptcy, but at least federal student loans offer a way to forgiveness. They also offer the most flexibility in reimbursement.
These are just a few of the reasons why I am very to the advice of priority to repaying private student loans over federal study loans.
But this brings another important point to the fore: in general it is logical not to refinance federal student loans. That does not mean that federal student loans should never be refinanced, but you will be sure that this is the right decision before you refinance. This post can be a bit repetitive, but I will go deeper into the refinancing of the federal student loan in this message.
However, let’s put the focus on private student loans about federal loans. Which options are available?
Options for dealing with private student loans
Private student loans must be repaid, so the first question is whether you can pay your payment or not? If not, here are a few options:
Work together with your current lender – See if your current lender is willing to restructure your loan, either with a lower interest rate, longer payback time or both.
Refinancing with another company – There is a growing number of banks that offer refinancing of student loans. If your current lender is not willing to work out a reasonable repayment plan, there are many other banks that compete for your company. A company is credible that gives you free tariff quotes from several companies. If you use my link and ultimately refinance your student loans, you will get one $ 300 cash bonus If you have less than $ 100k and refinancing $ 750 cash bonus If you refinance more than $ 100k. (All bonus payments are per gift voucher. See conditions.)
Even if you can afford your private payment of student loans, it makes sense to look at which refinance offers are available for you. You can refinance your private studies again and again, so I recommend looking at which rates you are offered every 6-12 months. Put it on your agenda (seriously).
Let’s look at a quick example of what kind of savings you could watch.
Jeff has $ 60,000 private student loans with an interest rate of 9.0%. He would pay on the standard ten -year reimbursement plan $ 31,207 in interest.
If he refinanced to 5.0%, he would only pay $ 16,367 in interest. That’s one Savings of $ 14,840.
It is also worth pointing out that Jeff increased his monthly cash flow by $ 124 a month by refinancing.
Let’s say that Jeff wants to get rid of these loans even faster. He started a side and he distracts part of his income to his debts of student loans. If he refinanced at 5.0% And Voluntarily made a monthly payment of $ 900 instead of the required $ 636.
The result is paying only $ 7,067 in interest, one Savings of $ 24,410 Compared to the original loan of 9.0%. He also eliminates his loans after seven years and five months instead of ten years.
Clearly refinancing student loans can be a powerful tool. It is so logical to refinance private student loans. You may have fewer options, but it also makes clear what you should do if you want to save money on interest.
Your credit score becomes important when it comes to gaining access to the best rates. I recently wrote a message about a colleague blogger who increased their credit score in eight months by more than 150 points. In the post I share what worked for him, as well as tips for improving your credit score.
A few extra notes:
- You may be able to free the cash flow to switch off your private student loans faster by moving your federal student loans to an income-driven reimbursement plan. Whatever cash flow savings you have to make the switch can be diverted to pay off your private student loans faster. This does not have to be a permanent step, you can relocate your loans to the standard of ten years of reimbursement plan once you have eliminated your private student loans if it makes sense for your financial situation.
- If you drown in debt and none of these strategies work for you, consider contacting Leslie Tayne. She is a debt lawyer who has experience with helping people with an overwhelming amount of student loans. I interviewed her in this message on the subject what to expect when working with a debt lawyer?