There are lots of options out there when it comes to repaying your student loans — and that’s a good thing! The competition has driven prices down for borrowers, with many private lenders able to offer lower rates to those who qualify. However, sorting through the options and finding the best fit to one’s needs can be overwhelming. We’ll take a high-level look at the options in front of you, to best position you for a successful search.
The Fed, or the private market?
A borrower’s journey often begins with choosing between Federal or private loans. The Federal interest rate for undergrads in the 2019/20 school year is 4.53%, with the average student loan interest rate among all households with student debt at 5.8%.1 Private lenders emerged about a decade ago to challenge these rates and offer some different terms for borrowers with strong credit histories. For the latter, private interest rates can sometimes be lower and provide meaningful savings. Recently, those rates could start anywhere from 2.72% for variable rates, and 3.64% for fixed.1 However, certain repayment, forgiveness and other options go away by refinancing federal loans with a private lender, so be sure to do your research to make the best decision for yourself.
All Federal loans have fixed interest rates, where the rate stays the same for the duration of the loan. This is generally the best choice for borrowers when federal interest rates are relatively low, as they are today. Once you have it, the only way to change a fixed rate loan, say to lower it, is to refinance to a private lender. Many lender’s also offer variable rates, which can be lower than their fixed, but without a fixed rate, you are subject to changes that could result in paying more over the life of the loan.
How To Manage Student Loan Debt
The most important thing to remember is that the scheduled monthly payments against your student debt should match your ability to repay the debt each month. When you can pay more than your current monthly payments, you may want to think about refinancing with a private lender to shorten the term of your loan, and with the same or lower interest rate, you could significantly save on interest charges. For Federal loans, if you are unable to afford monthly payments, adding additional income through a side hustle or second job, applying for extensions, or pursuing income-driven repayment are some options to consider. Consolidating your student debt can make managing your payments simpler and set up rates/terms that agree with your budget. For further info, check out this video from the Office of Federal Student Aid on managing your student loan debt.
Types of Student Loan Repayment Options
The standard repayment plan involves 120 equal payments over the span of 10 years. If you don’t select a plan yourself, you will be automatically placed in the standard repayment plan. Many plans that extend the payback window beyond 10 years can have lower payments. Therefore, be certain that you are able to afford the regular monthly payments before committing to this plan.
With the extended repayment plan, your repayment term is extended up to 25 years with 300 total payments. Payments will be lower than the Standard Repayment plan and could be fixed for the life of the loan, or be graduated, generally increasing every two years. Borrowers must owe at least $30k in Federal student loans to be eligible.2 Please note, with an extended repayment plan, a borrower will likely pay more interest overall than with the Standard Repayment plan, and you should consider this when picking how you want to repay your loan.
Your payments start at a lower amount and then increase every two years. This is a possible choice for those entering career paths where their salary or overall earnings are likely to go up over time.
Income-Driven Repayment (IDR)
If you have a modest income and a substantial amount of debt, an Income Driven Repayment plan could be an excellent option and is becoming increasingly popular in recent days. Income-driven plans set your payment amount at a percentage of your discretionary income, which is calculated as the difference between your adjusted gross (before taxes) income and 150% of the poverty line for your family size and state of residence. IDR plans include Income Based Repayment, Pay As You Earn, Revised Pay As You Earn, and Income-Contingent Repayment. With all four plans, any remaining loan balance is forgiven if, at the end of the Federal repayment period, your loans aren’t fully repaid. More detail on all four of these can be found at the Federal Student Aid site, or on our own resource page,
Refinance and Consolidation
Student Loan Refinancing
Student Loan Refinancing is a way to get a new loan, and a new, potentially lower rate, through a private lender. It is not exactly the same as consolidation, which can be done through Federal loans. While federal consolidation can help someone combine multiple loans into one, refinancing provides other specific benefits, like the opportunity to: A) Lower your rate to save money over the life of the loan or B) Shorten or change the term of the loan to meet your unique financial needs. However, certain repayment, forgiveness and other options go away by refinancing federal loans with a private lender, so be sure to do your research to make the best decision for yourself.
Consolidation lumps your various Federal loans into a new single Federal loan with new terms (like if you have Perkins Loan but want to make income based repayments, consolidating can allow you to do that). The rate will be a weighted average of the other previous rates, and not necessarily a lower rate, as with what you could get through a private loan.
Other Federal Loan Features
Public Service Loan Forgiveness (PSLF)
Borrowers working in public or non-profit sector jobs could have loans forgiven after 10 years of service. If you are employed in certain public service jobs, such as at a not-for-profit hospital, and have made at least 120 payments on your Direct Loans, the remaining balance may be forgiven. The Federal Student Aid website offers further information and guidance around PSLF and eligibility.
College graduates with federal student loans who are experiencing hardships may have the option to forbear, or not make payments on their student loans for up to 36 months over the life of their loan. However, during forbearance, the interest on both subsidized and unsubsidized loans is accruing and capitalizes once the forbearance period is over. As a result, borrowers accrue more interest in each subsequent time that they utilize forbearance and the loans start to snowball. Visit the Federal Student Aid website for a comprehensive overview of terms and qualifications, and other available hardship options.
Student Loan Repayment Programs
There are many programs that exist for borrowers to maximize savings on student loan repayments. Laurel Road has saved many qualified borrowers thousands over the lives of their loans through lower interest rates or terms that better fit their financial needs.3
Laurel Road offers several options based around your individual financial situation. For those with an undergraduate, graduate or professional degree, there is no limit on the amount you can apply for and, if approved, refinance.4 We also offer flexible loan terms to suit your repayment needs: If you wish to pay off your loan quickly, or stretch it out over a longer amount of time—we can help.
As a leading lender for medical students and residents, Laurel Road also offers some specific benefits to the medical student community, including the use of future earning potential when calculating income for residents. We also offer potential rate discounts and other benefits for members of certain professional associations, such as the American Medical Association and the American Dental Association.
We look forward to hopefully helping you in your efforts to lessen the burden of student loan debt, and achieve greater financial freedom through student loan refinancing
- Source: https://www.nerdwallet.com/blog/loans/student-loans/student-loan-interest-rates/
- Source: https://studentaid.gov/manage-loans/repayment/plans
- Savings vary based on rate and term of your existing and refinanced loan(s). Refinancing to a longer term may lower your monthly payments, but may also increase the total interest paid over the life of the loan. Refinancing to a shorter term may increase your monthly payments, but may lower the total interest paid over the life of the loan. Review your loan documentation for total cost of your refinanced loan.
- For associate degree holders, Laurel Road will refinance up to $50,000 of student loans taken out for associate degrees in an eligible healthcare field where the borrower has been employed for at least 12 months in that field. Eligible fields of study are the following: Cardiovascular Technologist; Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; and Surgical Technologist. Parents who are borrowing to refinance loans taken out on behalf of their children are not subject to the $50,000 loan maximum or the 12-month employment requirement.