Apr
24
2024

How Can Consolidating Student Loans Affect Your Credit?

By | Family Finances, Student Loans, student_loan | Comments Off on How Can Consolidating Student Loans Affect Your Credit?

The federal Direct Consolidation Loan program can help you manage your federal student loans. However, it also means a new loan account turns up on your credit report. You may be concerned about whether consolidating student loans in this way has a positive or negative impact on your credit. The short answer is that it can indirectly do both, but to varying degrees.

To help you understand exactly how your credit could change, read on. You’ll learn the ins and outs, so you can decide whether consolidating your student loans is the right financial move to make.

Can Student Loan Consolidation Have a Positive Impact on Your Credit Score?

If you are considering ways to better wrangle your debt, you may wonder, “Does consolidating student loans help my credit?”

Good question. Your borrowing activity and repayment habits do impact your credit score. One of the biggest — yet indirect — effects that consolidation has on your credit score is making your payments simpler. Consider these points:

•   Thirty-five percent of your FICO® score is based on your payment history. Making consistent and full monthly payments has the most dramatic impact on your credit score on a day-to-day basis.

•   However, your student debt is likely spread across multiple loans taken out during your years of education. Each of these loans has its own payment amount and due date, making it difficult to manage.

•   A Direct Consolidation Loan can cut through the clutter. It streamlines your repayment experience, which may mean you are less likely to miss a due date or forget a payment altogether. It can set you up for a positive payment history, which is an indirect way that you can see a credit score increase after student loan consolidation.

•   Incidentally, unlike private refinance loans, it will not involve a hard credit inquiry, which usually lowers your credit score a bit for a short period of time.



💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

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Can Student Loan Consolidation Hurt Your Credit Score?

Consolidating student loans can affect your credit score in a negative way, too. Can consolidating student loan debt hurt your credit score? To some extent, it might.

Here’s a closer look:

•   Fifteen percent of your FICO credit score calculation looks at the length of your credit history. It considers the age of your oldest credit account, like the first student loan you borrowed during your freshman year of school, and the age of your newest account. It also determines the average age of all of your open accounts.

•   Having open accounts that you’re actively repaying helps you build credit over time. Consolidating your original student loans effectively closes those older accounts.

•   This altered length of credit history could result in a less favorable treatment for your score. The impact on your score, however, is lessened over time as you make timely payments toward your consolidated loan.

Federal vs Private Student Loan Consolidation and Credit Score

Federal Direct Consolidation is exclusively a repayment option offered by the US Department of Education. This process doesn’t require a credit check, as noted above, and most federal loans can be consolidated.

In terms of private student loans, they are ineligible for Direct Loan consolidation. However, you can refinance existing federal student loans or private loans with a private lender. Understand these points:

•   If you decide to refinance student loans with a private lender, the process is similar to Direct Loan Consolidation in that it combines existing education loans into one. You can do this both as undergraduate and graduate school loan refinancing.

•   The newly refinanced loan is considered private student debt. It may be for a lower rate than you previously had, or it could offer a lower monthly payment for a longer term. (Note that when you refinance with an extended term, you may pay more interest over the life of the loan.)

•   The refinance lender pays off the student loans you’ve chosen to include and creates a new refinance loan. You’ll repay the refinance lender for the total balance of the combined loan, but at a new rate and repayment terms.

•   It’s important to recognize that when you refinance federal loans as private loans, they will no longer qualify for federal benefits and protection programs, such as deferment and forbearance. For these reasons, it’s wise to carefully consider whether refinancing federal loans is the right option for you.

Alternatives to Student Loan Consolidation

If, after weighing the pros and cons of student loan consolidation, you find it’s not for you, there are other repayment options available.

Income-Driven Repayment

One advantage of a Direct Consolidation Loan is it lets you make smaller monthly installments over a longer term. If, however, you can’t make your monthly federal loan payments for the foreseeable future, ask your servicer about income-driven repayment (IDR).

IDR offers repayment terms of 20 or 25 years, depending on the plan you’re on. Your income, family size, and chosen IDR plan determine what your reduced monthly payment is. For some eligible borrowers, your monthly payment could be as low as $0.

Additionally, if you still have a remaining balance after completing your IDR plan, the balance might qualify for loan forgiveness.

Federal Deferment or Forbearance

If you’re experiencing short-term financial hardship, you might be able to delay your federal student loan payments temporarily. The Department of Education offers deferment and forbearance programs that let you pause your payments without the loan going into default.

Keep in mind that while loans are in deferment, interest might accrue on certain federal loans. If you’ve requested forbearance, interest is charged during this period, regardless of the federal loan you have.

Student Loan Refinancing

Private student loans, mentioned above, aren’t eligible for the two alternatives just described. However, they may be a good solution in some situations. For instance, they might be a helpful option if you have private student loans that you are struggling to pay or have federal student loans and don’t have plans to take advantage of federal benefits (remember, you’ll forfeit those plus other protections).

Since private student loan refinancing requires a credit check, it’s best for borrowers with good credit. A student loan refinance might help you secure a lower interest rate or a lower monthly payment at a different repayment term. Private lenders have their own eligibility requirements, rates, and refinancing offers.

Shop around and try a student loan refinancing calculator to compare your offers and see if refinancing makes sense for you.

The Takeaway

Consolidating your federal loans has little direct effect on your score over the long term. Its effect on your age of credit accounts might temporarily lower your score. However, if consolidating means securing a lower, more manageable payment or unlocking federal benefits, the impact on your credit might be worth it.

However, if your main concern is getting relief from high monthly student loan payments, speak to your loan servicer or lender ASAP to see if your loans qualify for other repayment options. In some cases, refinancing with a private lender may be a good decision.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Can consolidating student loans directly raise your credit score?

No, consolidating your student loans doesn’t directly raise your credit score. It can simplify your monthly payments and possibly reduce your payment amount (though possibly extending your term and charging more interest over the life of the loan). These factors can help you maintain on-time payments, which can help build your score.

Can consolidating student loans directly lower your credit score?

Does student loan consolidation hurt your credit? It might temporarily lower your score: Loan consolidation can add a new open account to your credit record while closing an older one, which negatively affects your average length of credit history. Also, a new private loan can involve a hard credit inquiry, which can temporarily reduce your number.

Are there any indirect effects of student loan refinancing on your credit score?

Yes. Private student loan refinancing requires a hard credit check. This credit inquiry can temporarily lower your score by a few points for a short period of time. Additionally, refinancing might affect your average age of credit accounts and other factors that contribute to your credit score.

Photo credit: iStock/Ridofranz

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Apr
24
2024

Refinancing Your Student Loans for Trade School

By | Family Finances, Student Loans, student_loan | Comments Off on Refinancing Your Student Loans for Trade School

If you took out student loans to pay for trade school and are nearing graduation or have already entered the working world, you may be wondering about ways to make your debt more manageable.

Perhaps you are a recent grad renting your own home for the first time, and you have a lot of new expenses (electricity, WiFi, etc.). Or maybe you are finding that the job you will soon be starting doesn’t pay quite as much as you had hoped. Whatever the scenario, whether you have one loan or more, if money is tight, you might want to explore refinancing.

Here, you’ll learn what you need to know about refinancing your trade school loans, so you can make the best decision for your situation.

What Is Trade School?

College isn’t for everyone, and yet many people still want to train for a profession that will be fulfilling and pay well.

Many opt to go to a trade school, which is a vocational or technical institution that provides training and technical skills. These skills prepare people for jobs as mechanics, health technicians, cosmetologists, plumbers, electricians, truck drivers, and more.

Trade school programs often last one to two years, depending on the program. You may also hear them referred to as vocational schools. The curriculum is usually a mix of coursework and hands-on requirements. Again, depending on the program you take and the school you attend, you may be a part- or full-time student.


💡 Quick Tip: Some student loan refinance lenders offer no fees, saving borrowers money.

Take control of your student loans.
Ditch student loan debt for good.

Trade School Student Loan Options

Just like with colleges and universities, trade schools cost money, and when students can’t afford to pay out of pocket, they often take out student loans to help with the cost of trade school. One study recently found that the average trade school student takes on $10,000 in debt.

Let’s look at two options for trade school loans.

Federal Student Loans

Student loans for trade schools may be federal loans, though not all trade school programs qualify for these loans offered by the US Department of Education.

If your school is accredited and you qualify for federal loans, take time to understand the different types of federal student loans before you fill out the FAFSA (Free Application for Federal Student Aid) to see how much you can borrow.

Recommended: Important FAFSA Deadlines to Know

Private Student Loans

If your trade school isn’t accredited and you can’t get a federal loan, or you simply decide that a private student loan suits your needs better, there are private trade school student loan options. It’s important to understand how private student loans work because they are different from federal loans.

The interest on private loans may be higher than with federal loans, and unlike federal loans, you may be required to start paying back your loan immediately. Federal loans typically give you a grace period to finish your studies before beginning to pay back the loan. Federal loans also offer certain benefits and protections, unlike private student loans.

It may also be more difficult to qualify for a private loan, since you will need to prove you are creditworthy, and you may need a cosigner to get one.

Average Trade School Cost in the U.S.

Before you can look at trade school loans, you need to understand how much trade schools cost to attend.

On average, the net cost for a trade school is $17,600. This is the cost after receiving scholarships or grants.
The range of net costs is $12,000 to $20,000 depending on the field of study and where the school is located.

For example, the average net cost to become an auto technician is $17,000 to $22,000. The cost to become a veterinary technician is about $5,000 to $13,000.

5 Tips for Staying on Top of Your Trade School Loan Payments

When it comes to managing your financial wellbeing, paying off your debt, including trade school loans, should be among your top priorities. If you fall behind in your payments, you risk having a negative mark on your credit report, which could make it difficult for you to take out other loans or open credit cards later.

Here are a few tips to ensure you stay on top of paying for trade school loans.

1. Build It Into Your Budget

Your daily Starbucks fix isn’t a necessity; paying your trade school loan is. Make sure that loan payment is part of your monthly budget so that you always have enough to cover it.

2. Pay More Than the Minimum Payment

If you can afford even an extra $5 a month, pay the extra toward your loan. This will help reduce the time you spend paying it off. It can also lower the amount of interest you pay since you can pay the loan off early.

3. Automate Payments

You never have to worry about making your payment on time if you automate your finances. With your student loans, you can likely either do so through the lender’s website or as a bill pay from your bank. Some lenders even give you a reduction in interest if you sign up for automatic payments.

4. Choose the Date You Pay

Another thing many lenders do is allow you to select the day each month you’ll pay your bill. If you know you get paid on the fifth of each month, it makes sense to choose a date after that, like the eighth, so you are always sure you have enough in your account to cover the payment.

5. Refinance to Have a Single Payment

If you have multiple loans with different amounts due and different interest rates and payment dates, it may take you longer to pay them all off, not to mention increase your money stress. Refinancing your trade school student loan allows you to pay off the different loans and gives you another one with a single payment and interest rate.

However, it’s important to note that if you refinance for an extended term, you may pay more interest over the life of the loan. Also, when you refinance federal loans via a private loan, you forfeit federal benefits and protections.

Refinancing Loans for Trade School

If you’re considering refinancing student loans for trade school, there are many benefits to consider.

•   First, as mentioned, if you took out multiple loans for trade school, refinancing can be convenient. It can replace them all with a single new loan. You’ll now make just one payment each month, and you’ll have one interest rate.

•   Speaking of interest, depending on what the interest rate was when you took out your loans, refinancing them could help you get a lower interest rate.

•   If you’ve been struggling to make a high payment on your loan each month, refinancing for a longer period of time could help you lower your student loan payments (though you may pay more interest over the life of the loan).

If refinancing makes sense, explore lenders who offer refinance loans. Be sure to shop around, because interest rates and terms can vary considerably from one lender to another.

And before you apply, check your credit. The higher your credit score, the better the rates and terms you’ll qualify for. If your credit isn’t great, you might consider paying down some of your debt and waiting for your score to rise before applying for a loan so you can get a lower interest rate.

The Takeaway

Trade school can be a valuable way to train for a variety of career paths. But paying off trade school loans shouldn’t be a long-term struggle. In some situations, refinancing your trade school student debt can be a helpful option, as can adopting habits (like automating your finances) that help you prioritize your debt repayment.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Does FAFSA cover trade school?

The FAFSA (Free Application for Federal Student Aid) does cover trade schools, but only if they are accredited institutions.

How do you get trade school paid for?

If you don’t have the funds to pay for trade school out of pocket, there may be both federal and private student loans for trade school available. You can also research scholarships for trade schools.

Can you use student loans for trade school?

Yes. Student loans can be used to pay for trade school. Look into whether a trade school is accredited or not to determine what options may be available.

Photo credit: iStock/frantic00

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Apr
24
2024

Retiring With Student Loan Debt

By | Preparing for Retirement, Student Loans, student_loan | Comments Off on Retiring With Student Loan Debt

Congratulations on being ready to retire! You’ve spent a lifetime working hard, and it’s just about time to sit back and relax.

Before you do, though, you’ll want to make sure you can afford to retire. If you have outstanding debts, these could put a damper on your plans.

If you’re still paying your student loans, you probably are wondering: do you have to pay student loans after retirement? And if so, how does that debt negatively impact your plans to retire?

Keep reading to learn more on paying back student loans in retirement, including options for forgiveness and how to save money on your loans.

Paying Back Student Loans After Retirement

You’ve been saving for retirement for years, and you’re ready to reap the rewards…except you’ve got student loan debt hanging over your head.

Student loans, just like any kind of debt, are financial obligations you must take care of. If not, you risk negative marks on your credit report.

If you’re planning to retire soon, make sure to factor that monthly student loan payment into your budget, as you will still be obligated to make your payments in retirement.

Pros of Paying Back Student Loans After Retirement

The first benefit to paying off student loans after retirement is keeping your credit report squeaky clean. When you pay your loan each month, the positive behavior of an on-time payment and a reduction in your debt is reflected on your credit report. This could help your score rise, which could help you qualify for better interest rates on mortgages, personal loans, and credit cards.

Also, you want to pay off your student loans as quickly as possible to minimize the interest you pay. The sooner you pay off the loan, the less interest you’ll pay overall.

And of course, clearing any debt you have will leave you with more disposable income. Take a cruise with a loved one, pay off your house, or do anything else you’ve always dreamed of doing in retirement!

Cons of Paying Back Student Loans After Retirement

Things get tricky when it comes to student loans and retirement. Because you now have a limited income, it may be challenging to make those monthly payments or to pay off the loan in its entirety.

However, just like the benefit to paying back your loan was positive marks on your credit report, skipping payments or making late payments could have a negative impact on your credit.

And making those payments to your student loan will limit what you can afford to spend your money on. You may have to defer some of your retirement plans until your student loans are paid off.

At What Age Can You Stop Paying Student Loans?

Unfortunately, there is no age when you can stop paying your student loans. Retirement has no impact on the requirement for you to pay off your student loan debts, and your monthly payment will continue to be due each month until the loan is paid off.

Student Loan Forgiveness Options

There are several student loan forgiveness programs offered by the U.S. Department of Education. One is the Public Service Loan Forgiveness, which forgives student loans for professionals who work in public services (teachers, government employees, and nonprofits, for example). There are also income-driven repayment (IDR) plans that also may qualify for loan forgiveness.

Check with your student loan account holder to see if you qualify for any loan forgiveness options.

Options for Paying Off Student Loans During Retirement

When it comes to student loans and retirement, the sooner you pay off your loan, the sooner you can enjoy retirement. It’s important to get a plan for how you’ll pay off your student loan when preparing for retirement.
Start with a student loan calculator so you know how much you owe and how much you’ll pay in interest over time. Then, explore the following options.

Lump Sum

If you can afford to do so, pay off your loan all at once. You’ll cut out the interest you would have paid if you paid it out over time, and you’ll immediately have access to more monthly disposable income since it won’t be going toward a monthly loan payment.

Consolidate Your Loans

If you have multiple student loans from different providers, consider student loan consolidation. With this option, you combine multiple federal student loans into one new loan with one new monthly payment. The interest rate is typically the average of the interest rates on the loans you’re consolidating. While consolidating student loans streamlines your monthly payments, it typically won’t save you money overall.

Note: You can only consolidate federal student loans that qualify. You aren’t able to consolidate private student loans.

Refinance Student Loans

If you have private student loans, or a combination of federal and private loans, you might want to consider refinancing your student loans. This involves taking out a new loan you can then use to pay off your outstanding student loans. Ideally, you’ll receive a lower interest rate or shorten your loan term.

Keep in mind, though, that if you refinance federal loans, you lose eligibility for federal benefits, such as income-driven repayment plans and student loan forgiveness.

Student Loan Refinancing Tips from SoFi

If you go the refinancing route, be sure to shop around for the best rate. The better your credit, the lower the interest you may qualify for. But not all lenders are the same — some charge origination fees and other fees that can add up. So it’s worth a little effort to find the best lender for you.

Even though your finances may be limited in retirement, it’s important to prioritize your student loan debt. This may mean cutting out luxuries for a while until the debt is paid off.

And if you haven’t yet retired, consider continuing to work a little longer so you have the means to pay off your student loans before retiring. It may seem like a major sacrifice to work another year, but you’ll be glad you did when you’ve completely wiped out your student loan debt!

Take control of your student loans.
Ditch student loan debt for good.

The Takeaway

Student loans and retirement may not go hand-in-hand, but you’re far from alone if you’re still struggling with your debt when you’re ready to retire. The important thing is to get a plan for paying it off, either all at once or over the shortest period possible.

One way to reduce your student loan debt is to refinance your student loans. By refinancing, you may be able to secure a lower interest rate or shorter loan term, enabling you to pay off your debt faster.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Do you have to pay back student loans when you retire?

Yes, you are still responsible for paying back student loans, even in retirement.

How many years do you have to pay student loans?

There is no limit to how long you have to pay off student loans, but be aware that the longer it takes you, the more you will pay in interest.

Does your student loan get written off at 50?

No, your student loans do not get written off or canceled at any age.

Photo credit: iStock/maruco

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.


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Apr
24
2024

Does Refinancing Student Loans Save Money?

By | Fresh Out of School, Student Loans, student_loan | Comments Off on Does Refinancing Student Loans Save Money?

Depending on your specific financial circumstances, refinancing your student loans could save you money — though how much depends on your credit history, how much you owe, what kind of refinancing plan you choose, and more.

In this article, we’ll walk you through how student loan refinancing works and the various ways in which it may save you money in the long term.

What Is Student Loan Refinancing?

Refinancing your student loans essentially means taking out a new loan to cover the cost of your existing loans, and then paying that new loan off instead. You can think of it as trading your old student loan, or loans, for a new one.

Along with saving money, one of the primary reasons people refinance their student loans is to simplify their life and repayment schedule if they have multiple different student loans they’re paying each month. Refinancing may allow the borrower to get a lower interest rate or change their loan terms. Keep in mind, though, that refinancing federal student loans with a private lender makes you ineligible for federal benefits, such as income-driven repayment plans and student loan forgiveness.

The money-saving aspect of refinancing student loans can work a couple of different ways — let’s take a closer look.

How Does Refinancing Student Loans Save You Money?

Student loan refinancing can save you money in a couple of different ways:

•   Refinancing may score you a lower monthly payment, which means you’ll have more income available in your budget each pay period.

•   Depending on your credit score and how it’s shifted since you took out your original loans, refinancing could also result in a lower interest rate, which may help you spend less on your student loans as a whole (as well as potentially lowering your monthly payment amount).

•   Finally, refinancing your student loans may also allow you to repay the loan over a shorter time span (in other words, get a shorter loan term), which can be an easy way to save money in interest over the course of the loan’s overall lifetime and simply help you get out of debt faster.

Of course, all of these various outcomes will depend on your credit history, what kind of refinancing loans you qualify for, and how they stack up compared to your original loan. And keep in mind that lowering your monthly payment might also mean a longer loan term — which means it doesn’t actually save you money in the long run.

Still, for some, a lower monthly payment is a critical path to a healthier overall financial life, so it may still be worthwhile depending on your circumstances.

The best way to figure out if refinancing your student loans will actually save you money is to use a loan calculator to determine how much you’ll pay over the remaining term of your original loan versus the total amount you’ll pay over the entire lifetime of the new loan.

Whichever loan comes up with a lower overall number is the one that saves you the most, but again, under some circumstances, paying more over the long run may make your present-day financial life easier.

Take control of your student loans.
Ditch student loan debt for good.

How Much Could You Save By Refinancing Student Loans?

The specific amount you might save by refinancing your student loans depends on many factors, including how much you have left to pay off on your original loan (and its interest rate), your credit history, and your current financial standing.

However, in most cases, if your current loan’s interest rate is 10% or higher, and you have a credit score of 670 and up, chances are you could save some money by refinancing. Let’s take a look at an example.

Let’s say you have $30,000 in outstanding student loans with eight years left on the loan’s term and a 10% interest rate. Over those eight years, with interest, you’d pay a total of $43,701.59, which means $13,701.59 in interest alone.

Now, say you refinance that loan and instead get a new one for the same amount — $30,000 — but with a five-year loan term and a 5% interest rate. Over the lifetime of that loan, you’d pay a total of $33,968.22, or only $3,968.22 in interest. That’s a pretty substantial savings!

However, your monthly payment would go up over $100 for the second loan, from $455.22 to $566.14 — and that’s not including any origination fees or other expenses related to taking out the new loan.

Still, a savings of almost $10,000 in total interest might be worth it for some borrowers.

How Can I Refinance My Student Loans?

Refinancing your student loans is pretty simple these days, thanks to the internet. You’ve already embarked on the first step: research.

Along with researching what it means to refinance your student loans and how doing so might save you money, you should also research different banks and financial institutions that offer student loan refinancing. This allows you to compare and contrast the various programs, including their interest rates, their loan term options, and other features.

Once you’ve found a few companies you feel comfortable with, it may be worth requesting quotes from each of them to learn which will offer the lowest interest rate or monthly payment.

In the majority of cases, you’ll be able to complete the entire application process, from the initial rate quote to the official application, online. You’ll need to provide documentation proving your identity, residence, college graduation (or enrollment), and the loan payoff statements from your current lender.

Other Student Loan Refinancing Tips from SoFi

Ready to take the leap into refinancing for yourself? Here are some tips to help make the process as smooth (and helpful) as possible:

•   Shop around for more than just rates. While low interest rates or monthly payments may be attractive, there are other important factors when choosing whom to call your student loan refinancing servicer — such as whether or not you’re able to pay off the loan early without facing penalties.

•   Get as many of your ducks in a row as possible ahead of time. The higher your credit score, the better your employment situation, and the lower your other existing debts, the more money you stand to save by refinancing your student loans. Tackle as many of those projects and save as much money as you can ahead of time before applying.

•   Consider a cosigner. If your credit history could still use some shining up, adding a cosigner to your application could help boost your chances of getting approved, and possibly for a better rate. But proceed with caution: your cosigner is legally responsible for your loan to the same extent you are, and if you fall behind on your payments, it can impact their credit score, too.

The Takeaway

Refinancing your student loans can help you save money by lowering your interest rate, shortening your loan term, or both. Refinancing may also help you make ends meet in the short-term by lowering your monthly payment.

Note that by refinancing federal student loans, you lose access to federal benefits, such as income-driven repayment plans and student loan forgiveness. If you’re using or plan on using these benefits, it’s best to hold off on refinancing.

However, if you don’t plan on using federal benefits and are hoping to refinance your student loans, consider SoFi. With just a single application, you can compare loan offers from top lenders in just a few minutes.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

What is not a good reason to refinance student loans?

Everyone’s financial circumstances and needs are different, but it’s important to keep in mind that if you refinance federal student loans with a private lender, you may lose access to income-driven repayment plans and federal student loan forgiveness programs, which are not available to those with private loans. However, some private lenders may offer hardship assistance and deferments.

Does refinancing student loans lower monthly payments?

It depends! Refinancing your student loans can lead to many different outcomes depending on your current loans, your credit history, and other factors to do with your financial situation — but yes, in some cases, refinancing your student loans can lower your monthly payments. (However, lower payments may also mean you end up paying more interest on the loan overall.)

How much do you have to make to refinance student loans?

Each bank and lender has its own specific requirements as far as student loan refinance eligibility, and they may or may not specify a minimum income. It’s best to contact the lenders you’re considering and ask them directly what the income requirements are.

Photo credit: iStock/hobo_018

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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Apr
06
2024
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Using a Co-Borrower on a Joint Personal Loan

By | Debt Payoff, Home Ownership, personal_loan | No Comments

If your credit is not quite up to a lender’s preferred level to get favorable interest rates and terms on your own, you may be considering a joint personal loan. Using a co-borrower may be one option to help you qualify for a personal loan.

A co-borrower is an additional borrower on a loan who is obligated to repay the loan alongside the primary borrower and shares the responsibility of paying it back. And a co-borrower — if they have great credit and income, among other factors — may have the added benefit of helping to make the original borrower seem less of a risk to a lender.

Here are key things to know about using a co-borrower on a personal loan.

What Are Joint Personal Loans?

Joint personal loans are loans that take into account multiple borrowers’ creditworthiness in the approval process. There are typically two borrowers on this type of loan — a primary and a secondary borrower — to establish joint personal loan eligibility.

Being a co-borrower on a loan comes with different rights and responsibilities than being a cosigner on a loan.

•   Co-borrowers, along with the primary borrower, have equal ownership of loan funds or what is purchased with the loan funds and are equally responsible for repayment of the loan over the life of the loan.

•   Cosigners have no ownership of the loan funds or what they’re used to purchase, and they are responsible for repayment only if the primary borrower fails to make payments.



💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

How To Use Joint Personal Loans

If you don’t feel confident about qualifying for a loan, or have concerns about a potentially higher interest rate due to your overall creditworthiness or other reasons, finding a reliable co-borrower might help improve your chances of approval, along with the interest rate and terms you’re offered.

Couples can use a joint personal loan for a wide variety of purposes, including consolidating high-interest debts, paying for a large expense or event (like a wedding), or funding a remodeling project.

Why Do People Use Joint Personal Loans?

One common reason why someone might consider a joint personal loan is that they cannot qualify for a loan on their own, or they would like to qualify for a lower interest rate or more favorable loan terms than they could on their own.

Some reasons people may seek a co-borrower are:

•   They don’t have a long credit history.

•   They’ve just entered the workforce.

•   They’re in the process of rebuilding their credit.

•   They would like to qualify for a larger loan than they could on their own.

How Much Can You Save With Joint Personal Loans?

Having two borrowers on one personal loan may help you to qualify for a more favorable interest rate than if just one person’s income and credit are considered. Different lenders will have different qualification requirements, though, so it’s a good idea to compare lenders.

Using a joint personal loan for debt consolidation can be one way to lower the amount of interest paid on outstanding debt. Again, how much savings is accomplished depends on multiple factors, such as the borrower’s creditworthiness, how long it takes to pay down the debt, and others.

What Credit Score Is Required for a Joint Personal Loan?

There is no definite answer to this question, but, in general, applicants with higher credit scores qualify for loans with lower average personal loan interest rates. And, vice versa, applicants with lower credit scores generally qualify for loans with higher interest rates.

Lenders tend to be risk averse and prefer to lend money to people who they believe will repay it in full and on time. An applicant’s credit report — a summary of how responsible they are with credit that has been extended to them in the past — and credit score are tools lenders use to assess risk.

Before applying for a joint personal loan, it’s a good idea to review your credit report. If there are errors or discrepancies, you can file a dispute with the credit reporting agency. If you have poor credit or a limited credit history, you might consider taking some time to improve your credit profile before applying for a loan. Lenders will look at both applicants’ credit reports during the joint personal loan approval process, so it’s worth it for your credit to be in good shape.

Recommended: What Credit Score Do You Need for a Personal Loan?

Individual vs Joint Loan Applications

The basic process of applying for a loan is the same no matter the number of applicants. Lenders will typically request the same information on either an individual or a joint loan application: proof of identity and address and verification of employment and income, in addition to any lender-specific information. For an individual loan application, there is just one person’s information to verify. Joint loan applications require information for each applicant.

Individual

 Joint
Only one applicant’s creditworthiness is considered in the approval process. Creditworthiness of both applicants is considered in the approval process.
One income is considered in the approval process. Combined incomes of all applicants are considered in the approval process.
Only one applicant signs the loan application. The loan application is specifically for more than one applicant, and both must sign it.
One borrower is responsible for repaying the loan. All borrowers are responsible for repaying the loan.

Cosigned Loan vs Joint Personal Loan: The Differences

Both cosigned and joint loans include an additional borrower. However, a co-borrower taking out a joint loan has different rights and responsibilities than a cosigner.

The Disadvantages of Choosing a Cosigned Loan

The disadvantages of a cosigned loan lie mostly with the cosigner, not the primary borrower. The cosigner does not have any ownership rights to the loan funds or anything purchased with the loan funds. They are, however, responsible for repayment of the loan if the primary borrower fails to make payments.

The cosigner’s credit can be negatively affected if the primary borrower defaults on the loan, and their future borrowing power could be affected if a lender decides extending more credit would be too risky.

The Disadvantages of Choosing a Joint Personal Loan

Since joint personal loans take into account both applicants’ credit, and ownership and repayment responsibility is equal for both borrowers, the disadvantages of this type of arrangement are less lopsided than for a cosigned loan. People who already share financial responsibilities — married couples or parents and children, for example — may consider joint personal loans, so there is typically some familiarity present.

Even so, it’s important to have confidence in a co-borrower’s ability to repay the loan because each borrower is equally responsible for repayment over the entire life of the loan. Co-borrowers also have equal ownership rights to the loan funds or what the loan funds purchased, so trust is a big factor in choosing a co-borrower.

Recommended: How Much of a Personal Loan Can I Get?

Cosigned Loan vs Joint Personal Loan: The Advantages

Arguably, the primary borrower on either a cosigned loan or a joint personal loan has a bigger advantage than the cosigner or co-borrower. Depending on one’s perspective, however, all parties involved can reap benefits from these partnerships.

The Advantages of Choosing a Cosigned Loan

The advantage lies almost exclusively with the primary borrower on a cosigned loan. If they default, the cosigner is responsible for repaying the loan, although the primary borrower’s credit will likely be negatively affected. Ownership of the loan funds or what they purchased is solely the primary borrower’s.

A personal loan cosigner’s main advantage may be in the form of a benevolent feeling. This is not to discount a cosigner’s contribution, since compassion is important to humanity.

The Advantages of Choosing a Joint Personal Loan

The main advantage of a joint loan is that there is equal ownership of the loan funds or the property purchased with those funds. Choosing a joint loan means you are able to present a higher total income than you could alone, signaling to lenders that it’s more likely someone will be able to make the monthly loan payments.

Because joint loans give both co-borrowers equal rights, they are well-suited for people who already have joint finances or own assets together.


💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

What’s the Better Loan Option?

If you’re seeking a loan with a spouse or relative, and one of you has the strong credit history needed to get a low interest rate and terms you’d prefer, then a joint loan as co-borrowers may be right for you.

However, if you’d rather have a loan in your name with a little added security, then having a cosigner may make more sense.

No matter which situation you find yourself in, it’s important to weigh all of the options and do the necessary research that will allow you to arrive at the best joint personal loan option for you. After all, taking out a loan and repaying it responsibly has the power to put someone on a path to a more secure financial future, but it can also come with risks if each party hasn’t thoroughly vetted the other.

Recommended: Exploring the Pros & Cons of Personal Loans

Where Do You Find a Joint Personal Loan?

It’s not uncommon for lenders to offer joint personal loans, but some research is necessary to find a lender who will work with your unique financial situation.

Looking at lenders of joint personal loans online is a good first step. Prequalifying to check joint personal loan eligibility is a fairly quick and easy process.

If you’re already an established customer at a local bank or credit union, you may also want to look at loan options there.

The Takeaway

Though co-borrowers may bring with them peace of mind, they also require a great deal of forethought — especially regarding who to ask. And regardless of whether or not someone opts for a co-borrower, it’s still important for the primary borrower to get their own credit in the best shape possible.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Can you apply for joint personal loans?

As long as the lender allows co-borrowers, you can apply for a joint personal loan.

What is the maximum amount of people for a joint personal loan?

Typically, a joint personal loan has two co-borrowers, but the maximum number of co-borrowers is up to the individual lender.

Do joint personal loans get approved faster?

It’s likely to take more time for a joint personal loan to be approved than an individual loan because the lender will check the credit of each applicant.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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