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Can You Refinance Student Loans While in School?

May 26, 2020

If you have student loans you probably have wondered what’s the best way to handle them. Should you wait to pay them after graduation or start paying them while in school? Or maybe you have heard about student loan refinancing and are wondering if it is right for you. Read on to find out one way you can manage your student loans that will benefit you right now.

 

What is Student Loan Refinancing?

When you refinance student loans you take out a new loan to pay off one or multiple federal or private student loans. You will have a new loan term and presumably a lower interest rate. You can refinance to a new loan with the same amount of years left as your old loan or stretch out the term to allow a longer time for repayment. If you increase the amount of time to repay this will lower your monthly payment but likely will cause you to pay more interest over the loan term. 

 

Can You Refinance Student Loans While in School?  

The short answer is yes, but it may be difficult to find a lender that you can refinance with if you are still in college. Many lenders require a Bachelor’s degree as an eligibility requirement for refinancing. The other requirements to refinance* with ELFI include: 

  • You must have a credit score of at least 680 and a minimum yearly income of $35,000. 
  • Must have a minimum credit history of 36 months.
  • Must be a U.S. citizen, the age of majority. 

 

If you cannot currently meet these requirements, you can have a cosigner that fits these requirements.  

 

If you have federal student loans some may argue you should wait to refinance them until you graduate because they offer more flexibility with deferment and forbearance. However, some private lenders also offer deferment and forbearance options. Some other things to consider are:

  • If you think you will get a job in the public sector that would qualify for Public Service Loan Forgiveness, you may not want to refinance because you would lose the benefit of having your federal student loans forgiven under the program. 
  • If you think you will want to take advantage of an income-driven repayment plan when you graduate, you may not want to refinance because this is only offered for federal student loans. Tip: Be aware that when you take advantage of income-driven repayment plans, your monthly payment is lower, but you will end up paying more for the loan in interest costs.   

 

There are many benefits to refinancing while in school to put you on a better financial path when you graduate. The average college graduate has $31,172 in student loans. However, you can work to reduce that amount by refinancing. Student loan refinancing can be beneficial for many reasons: 

  • Consolidate – Refinancing allows you to consolidate multiple federal and private student loans into one new loan. You can refinance some or all of your loans. Consolidation makes it easier to manage one loan as opposed to multiple loans. With only one loan you will be less likely to miss a due date, and avoid any associated late fees. 
  • Lowers Interest Rate – When you refinance you can potentially qualify for a lower interest rate. A lower interest rate saves you in interest costs over the life of the loan. 
    • If you have unsubsidized federal student loans (the ones where interest accrues while you are in school) your loans could be growing by an average of 4.53%. But if you refinance you may qualify for a lower rate, as low as 3.86%, and less interest would be accruing. 
  • Lower Monthly Payment – If you score a lower interest rate when you refinance you will be paying a lower monthly payment. To find out how much you could potentially save, use our Student Loan Refinance Calculator.*  
  • New Lender – Do you always have trouble with customer service when you want to ask a question about your loan? When you refinance, you can get a new lender if you choose. It’s great to find a lender with high customer reviews. At ELFI we pride ourselves on providing award-winning customer service. 
  • Fixed Interest Rate – if you have a loan with a variable interest rate it may be more advantageous to refinance and lock in a fixed interest rate. With a variable interest rate your payment can increase when interest rates increase, which could put a financial strain on your budget. 

 

Important tip: if you refinance while in school and after graduation your credit score and income increase, you can always try refinancing your loan again to possibly get an even lower rate.* 

 

Conclusion

Researching how to handle your student loans while still in school is a great initiative to set yourself up for a strong financial future after graduation. Student loans may seem like a heavy burden, but utilizing resources available to you will make the monthly payments easier on your budget.

 

 

*Subject to credit approval. Terms and conditions apply.

 

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Woman thinking about using credit card to pay down student loans
2020-11-30
Should I Pay Student Loans with a Credit Card?
Paying off student loans can be a challenging process, so it’s natural to look for creative ways to accomplish your goal. One question some student loan borrowers have asked is whether they can use a credit card to pay student loans.    Technically, it is possible, but it’s generally not a good idea. Here’s what you should know before you try it.  

Can You Use a Credit Card to Pay Student Loans?

Unfortunately, making monthly student loan payments with your credit card isn't an option. The U.S. Department of the Treasury does not allow federal student loan servicers to accept credit cards as a payment method for monthly loan payments.   While that restriction doesn’t extend to private student loan companies, you’ll be hard-pressed to find one that will offer it.   That said, paying off student loans with a credit card is technically possible through a balance transfer. Many credit cards offer this feature primarily as a way to transfer one credit card balance to another, and if you’re submitting a request directly to your card issuer, that’s typically the only option.   However, some card issuers will send customers blank balance transfer checks, which gives you some more flexibility. For example, you can simply write a check to your student loan servicer or lender and send it as payment. Alternatively, you can write a check to yourself, deposit it into your checking account, and make a payment from there.   Balance transfer checks often come with introductory 0% APR promotions, which give you some time to pay off the debt interest-free. That said, here are some reasons why you should generally avoid this option:  
  • Once the promotional period ends, your interest rate will jump to your card’s regular APR. The full APR will likely be higher than what your student loans charge.
  • Balance transfers come with a fee, typically up to 5% of the transfer amount, which eats into your savings.
  • Credit cards don’t have a set repayment schedule, so it’s easy to get complacent. You may end up paying back that balance at a higher interest rate for years to come.
  • Credit cards have low minimum payments to encourage customers to carry a balance, which could cause more problems. 
  • You won’t earn credit card rewards on a balance transfer, so you can’t count on that feature to help mitigate the costs.
  So if you’re wondering how to pay student loans with a credit card, it is possible. But you’re better off considering other options to pay down your debt faster.  

Can You Use a Student Loan to Pay Credit Cards?

If you’re still in school, you may be wondering if it’s possible to use your student loans to pay your credit card bill. Again, technically, yes, it is possible. But there are some things to keep in mind.    The Office of Federal Student Aid lists acceptable uses for federal student loans, and private student lenders typically follow the same guidelines. Your loans must be used for the following:  
  • Tuition and fees
  • Room and board
  • Textbooks
  • Supplies and equipment necessary for study
  • Transportation to and from school
  • Child care expenses
  If you incur any of these expenses with your credit card, you can use student loan money to pay your bill. However, if you’re also using your credit card for expenses that aren’t eligible for student loan use, it’s important to separate those so you aren’t using your loans inappropriately.   Also, the Office of Federal Student Aid doesn’t list credit card interest as an eligible expense. So if you’re not paying your bill on time every month and incurring interest, be careful to avoid using your student loan money for those expenses.  

How to Pay Down Your Student Loans More Effectively

If you’re looking for a way to potentially save money while paying down your student loans, consider student loan refinancing.    This process involves replacing one or more existing student loans with a new one through a private lender like ELFI. Depending on your credit score, income, and other factors, you may be able to qualify for a lower interest rate than what you’re paying on your loans right now.    If that happens, you’d not only save money on interest charges, but you could also get a lower monthly payment.    Refinancing also gives you some flexibility with your monthly payments and repayment goal. For example, if you can afford to pay more and want to eliminate your debt faster, you can opt for a shorter repayment schedule than the standard 10-year repayment plan.    Alternatively, if you’re struggling to keep up with your payments or want to reduce your debt-to-income ratio, you could extend your repayment term to up to 20 or even 25 years, depending on the lender.    Keep in mind, though, that different refinance lenders have varying eligibility requirements. Also, just because you qualify, it doesn’t necessarily mean you can get more favorable terms than what you have now.   However, if you’re having a hard time getting approved for qualifying for better terms, most lenders will allow you to apply with a creditworthy cosigner to improve your odds of getting what you’re looking for.   Before you start the process, however, note that if you have federal loans, refinancing will cause you to lose access to certain programs, including student loan forgiveness and income-driven repayment plans. But if you don’t anticipate needing either of those benefits, it won’t be an issue.  

The Bottom Line

If you’re looking for ways to pay off your student loans more effectively, you may have wondered whether you can use your credit cards. While it’s possible, it’s generally not a good idea. Also, if you’re still in school, it’s important to be mindful of how you’re allowed to use your student loan funds, especially when it comes to making credit card payments.   A better approach to paying down your student loan debt is through refinancing. Take some time to consider whether refinancing your student loans is right for you, and consider getting prequalified to see whether you can get better terms than what you have on your current loans.
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Graduate student sitting in class
2020-11-19
The Differences Between Undergraduate and Graduate Student Loans
If you are thinking about getting a graduate degree and you have undergraduate student loans, you probably have some familiarity with borrowing student loans for school. However, when you are deciding how to pay for graduate school, there are some key differences you should know that can help you save some money.   

Federal Graduate Student Loan Considerations

Interest Rates

Federal graduate student loans often have higher interest rates than federal undergraduate student loans. A higher interest rate results in more interest costs, meaning you are paying more money to borrow the loan. Interest rates can change annually, so it’s important to know the current rates when you’re considering taking out student loans.   The difference in interest rates can add up to thousands of dollars in interest over the life of the loan. When borrowing federal graduate student loans you want to be cognizant of only borrowing the amount you actually need since you will be paying a much higher interest rate on the loan.    

FAFSA

When applying for Federal Student Aid, you are required to fill out the FAFSA form, as you likely did for your undergraduate degree. The major difference is graduate students are considered independent students as opposed to dependent students, and therefore, your parent’s financial information is not needed. In addition, as an independent student, you may earn less than your parents, which could make additional financial aid available.   

Higher Borrowing Limits 

Federal graduate student loans have higher borrowing limits to cover the higher cost of tuition. For undergraduates, the maximum that can be borrowed depends on your year in school and whether you are a dependent or independent student, with limits ranging from $9,500 to $12,500 per year. Graduate students can borrow up to $20,500 per year in direct unsubsidized loans. There is no limit to how much can be borrowed in Grad PLUS loans, except for the cost of attendance.    These higher limits can be helpful when you need to cover all the expenses related to graduate school. However, this can lead to borrowing large loans at high interest rates that may be difficult to repay. Since graduate loans can be used to pay living expenses it is important to continue living on a budget and only borrowing the amount necessary.    

No Subsidized Loans 

With subsidized loans, interest does not accrue while you are in school. Unfortunately, that option is not available for federal graduate student loans. Your graduate student loan options include Direct Unsubsidized loans and Direct PLUS loans, which both begin accruing interest as soon as they are disbursed.   To avoid accruing more interest than necessary, be sure to minimize your graduate school expenses and loans. Also, if you are able to pay at least the interest costs while you are in school this will prevent you from having a larger total to pay back after graduation.   If you find yourself in need of greater financial flexibility, then consider student loan refinancing with a private lender after graduation. This option could decrease your interest rate and monthly student loan payment.  

Additional Graduate Student Loan Considerations

Financial Aid More Limited 

Undergraduates have several financial aid options based on need, such as the Federal Pell Grant, which in many cases does not have to be repaid.   Although grants and other forms of financial aid are sometimes available to graduate students, these options are more limited. Some financial aid options that may be available for graduate school include grants, scholarships, fellowships and federal and private student loans.  

Loan Fees

You may pay higher origination fees for federal graduate student loans versus undergraduate student loans. The origination fees are a percentage of the total loan amount you borrow. This fee will be taken out of your loan disbursement which lowers the actual amount you will receive, but the full amount of the loan is required to be paid back.    Some private lenders, like ELFI, do not charge an origination fee for loans, so be sure to consider that when comparing loan options.   

The Benefit of Private Graduate Student Loans

Private student loans may be more beneficial for graduate school than undergraduate student loans. That's because you may be able to score a lower interest rate on a private student loan if you have an excellent credit history. Private student loan interest rates are based on your income and credit history, so if you are looking to return to school while you are still employed, they may be a good option for you.  

Refinancing Your Graduate Student Loans

If you already have undergraduate and graduate student loans, student loan refinancing could help you to save money on your monthly payment and on interest costs. Refinancing is when you obtain a new loan to pay off previous student loans. You can refinance both federal and private undergraduate and graduate student loans.  

The Bottom Line

Understanding the differences between undergraduate and graduate student loans can help you make an informed decision about the best way to fund your education. If you have significant student debt, student loan refinancing could help you to save money and pay down your loans more quickly.
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Woman refinancing her student loans
2020-11-18
Student Loan Refinancing vs. Income-Driven Repayment Plans   
Student loans can be a real budget killer, with the average student loan payment being $393 per month. Over time, you may want to lower your monthly payment to make it more manageable or to put your savings toward other financial goals. Depending on the types of loans you have, you may choose to pursue income-driven repayment or student loan refinancing.   If you have federal student loans, you may be eligible to select an Income-Driven Repayment plan. Alternatively, for private and federal loans, student loan refinancing could be a better choice. To figure out whether you have federal student loans, check the Federal Student Aid site where all the information on federal loans will be available. To determine whether you have private student loans, request your credit report to see any reported private loans.   Once you know the types of loans you have, here are a few options that may reduce your student loan payment:  

Student Loan Refinancing

When you refinance your student loans, you obtain a new loan with a different lender, often a bank, credit union or third party. You can refinance your private or federal student loans, or a combination of both. Your refinanced loan will have a new interest rate, term length and monthly payment. Here are a few important things to know about student loan refinancing:  

Eligibility

To qualify for student loan refinancing, you must meet certain eligibility requirements.   Most lenders require:
  • A minimum credit score in the high 600s
  • Stable employment with proof of income
  • A minimum student loan amount
  • Debt-to-income ratio of less than 50%
 

Interest Rate

One benefit of refinancing your student loans is that you may earn a reduced interest rate, which can save you thousands of dollars. Here’s how it works:   If you have $65,000 in total student loan debt, a 15-year term and an interest rate of 6.8%, your monthly payment will be approximately $577. When you refinance, if you keep the 15-year term and qualify for an interest rate of 3.77%, your payment will be reduced by $104 per month. This results in $18,000 in interest savings over the life of the loan!  

Loan Terms

In addition to potentially reducing your interest rate, another benefit of refinancing student loans is you have more control over the terms of your repayment. You can select a fixed or variable interest rate, choose the loan provider that best meets your needs, and choose the amount of years of the loan.   If you want to pay your loan off more quickly, you can select a shorter student loan repayment term, although this will most likely increase your monthly payment. If you want to reduce your monthly payment, you can lengthen your student loan repayment term, but this may result in paying more in interest over the life of the loan. Try ELFI’s Student Loan Refinance Calculator* to see how much you could save.  

Income-Driven Repayment Plans

These plans are only available for federal student loans. There are four Income-Driven Repayment (IDR) plans offered, and with each plan, the payment is based on income and family size. Here are a few important things to know about Income-Driven Repayment:  

Recertification

To select an IDR plan, you must apply through your loan servicer. Once an IDR plan is established, you’ll be required to recertify each year by submitting documents to prove your income and family size.  

Types of Income-Driven Repayment Plans

Once you recertify the monthly payment can go up or down depending on your income. The IDR plans available are:  

Revised Pay As You Earn (REPAYE)

The payment is always based on your income and family size. Your payment can increase to be higher than your payment on the standard repayment plan if your income increases significantly. The term length is 20 years for undergraduate loans and 25 for graduate loans.  

Pay As You Earn (PAYE)

The payment is 10% of your discretionary income but your payment cannot increase to be more than the payment on the standard 10 year repayment plan. The term length is 20 years for all loans.  

Income-Based Repayment (IBR)

The payment is 10% or 15% of your discretionary income, depending on when you borrowed the loans. Your payment will never be more than the 10-year standard repayment amount. The term length is 20 or 25 years depending on when you borrowed the loans.  

Income-Contingent Repayment (ICR)

The payment can be up to 20% of your discretionary income and the loan term is 25 years.  

Student Loan Refinancing vs. Income-Driven Repayment

To determine which option is best for you, it is helpful to evaluate the differences between student loan refinancing and income-driven repayment plans:  

Interest Rate

Although either option may reduce your monthly student loan payment, the major difference between Income-Driven Repayment and student loan refinancing is the interest rate change.   Income-Driven Repayment will not lower your interest rate. Rather, it will remain the same throughout the life of the loan. Student loan refinancing, on the other hand, may reduce your interest rate for the remaining life of the loan.  

Federal Benefits

With IDR plans, you are still eligible for federal benefits such as deferment, forbearance and forgiveness, although some private lenders also offer deferment and forbearance options.  

Financial Costs

There is no cost to refinance, and you may even save on interest costs if you qualify for a lower rate. With an IDR plan, there is no cost to apply for a plan, but your loan balance may actually increase on certain plans. This can happen when your minimum payment based on your income is not large enough to cover the interest costs that are accumulating. The interest costs can be added to your loan and your loan amount will actually increase rather than decrease.  

Payment

When you refinance, you have the option to select a fixed interest rate, as opposed to a variable rate, that will keep the payment the same throughout the life of the loan. On an IDR plan, there is uncertainty to what your payment amount will be each year, since you are required to update your income and family size. Your payment can change each year and your budget must account for it.  

Bottom Line

When you want to lower your student loan payment, evaluate the options and decide which works best for your financial plans. Both options can make your payment more manageable, but each have different long-term outcomes.
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