Dealing with student loan debtDate posted: 7/20/14 08:45:00 AM
Times are starting to change. While trying to refinance a college loan was long chronicled as near impossible, more financial institutions are coming out of the woodwork and allowing borrowers to refinance their student loans.
SoFi, a student loan company based in San Francisco, is one of the leaders and has refinanced $400 million in student loans since 2012. More banks are following the trend as well.
"That's just the tip of the iceberg," Mike Cagney, SoFi's CEO, told USA Today. "There are hundreds of billions of student loans out there that have a great potential to be refinanced and we hope to get the word out."
Cagney said the average customer can save between $5,000 and $9,000 over the length of a loan.
Gil Eyal is a former student taking advantage of what's being offered. Burdened with heavy student loan debt after earning his MBA from Northwestern University, Eyal moved to New Jersey to work on a social media start-up. He told USA Today that he heard about SoFi and was able to refinance $100,000 in federal loans. He slashed his interest from 8.5 percent to 6 percent and trimmed his monthly payment by $500.
"We were barely breaking even," Eyal said. "Now, we can save some money every month, which definitely gives us breathing room and the ability to have the paycheck go a little further."
Debt by state
According to the Wisconsin Rapids Tribune, college tuition costs
The student loan borrowers in Wisconsin hold an average debt of $22,400, meaning the run-of-the-mill student pays around $388 per month for almost 19 years in order to pay off student loan debt.
If those numbers seem appalling, it's important to note the state of Wisconsin wasn't even in the top 10 states with the highest student loan debt, according to The Institute for College Access and Success.
Delaware topped the list with an average student loan debt of $33,649.
Will you be able to refinance?
Not every former student will be able to refinance their student loans. In order to qualify, you must be in better financial standing than you were when initially taking out the loans.
"You have to be employed and you're in the best position if your credit score is good, particularly if it has improved since those loans were taken out," Greg McBride, chief financial analyst with Bankrate.com, told USA Today.
But certain concerns come up when refinancing a federal loan into a private student loan. You could lose some of your benefits, including public service loan forgiveness or the ability to use income-based repayment if financial troubles were to occur.
"Honest lenders will inform you about the benefits you might be giving up, but you also have to look out for yourself, too," Rohit Chopra, assistant director at the Consumer Financial Protection Bureau, told USA Today.
Chopra said the most important thing for people looking to refinance is that you're actually getting a better deal.
"Your interest rate should go down, not just your monthly payment," Chopra said. "You might be able to get a lower payment simply by extending the term of your existing loan, but the interest rate could be higher which will cost you more in the long run. The way to save on interest is to make sure you get a lower APR."
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