college debt

The Pros and Cons of Refinancing Your Student Loan Debt

June 8, 2021 By Vicky Monroe Leave a Comment

With interest rates at all-time lows, now may be a good time to refinance your student loan debt. Securing a lower interest rate could save you thousands over the life of your loan, allowing you to make progress toward your other financial goals. But before you start comparing lenders, it’s important to consider the pros and cons of refinancing your student loan debt to decide if this is the right move for you.

Pros and Cons of Refinancing Student Loan Debt

There are lots of benefits to refinancing your student loan debt. You may be able to get a lower interest rate, pay off your debt early, and consolidate multiple loans into a single one to streamline your finances. But if you’re trading in your federal loans for private ones, you’ll lose some loan forgiveness options and repayment protections.

So before you take the plunge, it’s important to consider all of the pros and cons of refinancing student loan debt. Here’s a more detailed overview of the benefits and drawbacks to help you make an informed choice.

Pro: Lower Interest Rate

One of the biggest pros of refinancing your student loan debt is the chance to get a lower interest rate. Even reducing your rate by 1% to 2% could save you thousands over the term of your loan.

Say you have a student loan balance of $28,950 at a rate of 8% that you’ll be done paying off in a decade. If you refinance into a loan with the same term but a 2% lower interest rate, you’ll save $3,581 over the life of the loan.

Pro: Change Your Repayment Period

Another benefit of refinancing is the ability to change your repayment period. If you choose a shorter loan term, you’ll be able to pay off your loan early and save on interest. Going back to the example above, if you refinance into a loan with a 5 year repayment period instead of a 10 year term, you’ll save $8,568 total.

If you’d rather have lower monthly payments, you can extend your loan term instead. Keep in mind that you’ll usually end up paying more interest in the long run. But it may be worth it to have more financial breathing room.

Pro: Consolidate Your Loans

If you have both federal and private student loans, you may have multiple payments to manage every month. Having several loans from different servicers can make it hard to remember to make your payments on time.

If you want to streamline your finances, refinancing your loans through a private lender is a great way to do it. Instead of juggling multiple loans, you’ll have just one monthly payment you’ll need to budget for.

Con: Strict Eligibility Requirements

Although refinancing your student loans can get you a lower interest rate, you’ll need solid credit to qualify. Lenders want to see good credit scores of 660 and above. If you haven’t had a chance to build up your credit history yet, you might miss the cutoff.

Most lenders will allow you to boost your application by getting a cosigner. But if you don’t know someone with good credit who’s willing to vouch for you, you may not qualify for refinancing.

Con: Lose Federal Loan Protections

If you refinance your federal student loans with a private lender, you’ll lose the protections that come with them. For example, you’ll no longer be eligible for public service loan forgiveness. You’ll also miss out on the student loan interest freeze that Biden extended until September 30, 2021.

Another con of refinancing is losing out on federal repayment protections. Although private lenders usually have deferment and forbearance options, they may not be as generous as the ones offered by the government.

The government does offer its own direct consolidation loans. This allows you to combine multiple federal loans into a single loan to streamline your finances and retain your repayment protections.

But you can’t include any private loans in your federal consolidation loan. You won’t be able to get a lower interest rate either, which is one of the main reasons people refinance.

Now that you know more about student loan refinancing, do you think it’s the right choice for you? Let us know in the comments section below.

Federal Student Loans: What they are, how they work, and how to get one!

Reasons Not to Co-Sign on Your Grandchildren’s Student Loans

Should You Use Student Loans to Pay Off Credit Card Debt?

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Is College Really Necessary?

March 24, 2017 By Jennifer Derrick 19 Comments

It’s no secret that college costs are rising to ridiculous levels. Kids are graduating with huge debt loads. Even if their parents have saved for their schooling since birth, costs are rising so fast they’re still likely to have to take on debt or work during school. In the last twenty years or so we’ve come to believe that college is a non-negotiable necessity. We’ve started thinking that college is the end-all-be-all of education and a guarantee of success. But is it really?

Obviously some fields require college. If you want to be a doctor, lawyer, scientist, engineer, teacher, or architect, for example, college is the only way to go. Other fields value skills that can be taught in college, but not exclusively. Many tech jobs are more about programming skills, for example, that can be mastered in your garage just as well as in a college classroom. The same holds true for many trades, design fields, communication fields, or even sales and marketing. College can teach these things, but they can also be learned in many other ways.

Our world is changing and in a lot of ways it’s going in reverse. In days gone by, it was your skills that mattered. If you could turn out a product, grow a crop, or repair something, you would never have trouble finding work. Then things changed and we began to value the cerebral. When you went job hunting, the hunt was less about concrete skills and more about whether you could be taught and molded to fit what a company needed. The company could teach you the skills; what they wanted to know was could you be taught and could you apply yourself to a goal. Getting a college degree became a barometer of your ability to be educated, rather than a path toward acquiring a specific skill set. The field of your degree didn’t even have to be in the field you were working in. A degree in philosophy could land you a sales job at a tech company. All the company needed to know was: Can we educate this person in our ways?

Now things are changing. Many employers value the skill set more than the demonstrated ability to be taught. They want to know: Can you make this product? Can you create this design? Can you program this application? Can you write this copy? Employers no longer have the time or the money to invest in taking an intelligent kid and teaching them the specific skills they need. Employers want people who can come in, hit the ground running, and start churning out products from the first day on the job. College degrees may carry a certain cachet, but beyond a few specific fields, they don’t teach the concrete skills needed by employers.

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To that end, higher education is changing. No longer is a two year degree considered “settling.” A two year degree in web programming may be more valuable than a four year degree in liberal arts – and cost a lot less. An online degree that results in a useful skill may be more valuable than classroom learning. Higher education may not even be necessary, beyond rounding out some skill sets or just gaining a different perspective on the world. The kid who can create a video game in his garage at sixteen may be more valuable than the kid with a four year degree in “Communication.” There are places in today’s work force for the self taught and highly motivated kids. Some employers are even taking on skilled kids in directly out of high school and putting them into paid positions and giving them a mentor to flesh out the necessary skills.

College will always have a place, but before you plunk down hundreds of thousands of dollars, ask yourself whether it’s really necessary. Maybe your kid already has a marketable skill that he enjoys and is only in need of a two year degree to learn the finer points of that skill. Maybe your kid can develop a business idea into a full fledged venture without college. Maybe your kid can get hired on at a company as a highly paid intern. Maybe a combination of work experience and an online degree will get them further than four years in a classroom. And don’t pop for a private school unless you know the degree will earn more than you will pay. Chances are a private school won’t grant a better skill set than a state university and the state school will cost a lot less.

There are a lot more options today in education than ever before. College is no longer the ultimate prize. The ultimate prize is to develop a skill set that employers drool over and want to have in their organizations. That doesn’t automatically mean a college degree. It may mean a two-year degree, an online degree, practical work experience, self-teaching, or a combination of all of the above. These may end up costing a lot less than college and yet grant a better entrance to the work force. There’s no need to take on crushing debt loads for college if it isn’t necessary for the field you want to work in. Think before assuming that college is necessary.

Photo: The Odyssey Online

Graduating College Without Debt

July 11, 2012 By Jennifer Derrick 3 Comments

My neighbor’s child, Lisa, just graduated from college. She could have gone to some prestigious private schools or out-of-state colleges, but she chose to go to a smaller in-state college to save big bucks on tuition. She also considered a degree program online that are much more affordable and would have given her the ability to be more flexible.

Her graduation was distinctive for two reasons. First, she graduated with honors. Second, she graduated with no debt, yet her parents didn’t pay for school. Her mother brags about both, and rightly so. Lisa recently came by the house while I was visiting with her mother. Always nosy about financial matters, I asked her how she managed to get out of school with no debt when it seems that all I hear in the media is how student debt is skyrocketing.

“It wasn’t easy,” she said, “but I knew I didn’t want to get out of school and owe thousands of dollars. I’m not going to make that much at [her new job], so I need my money so I can eat and pay rent. Let me tell you, though, it was a full time job to get out with no debt.”

She shared her strategies with me and she’s right. It was a lot of work. But I imagine it was worth it for the peace of mind she now has knowing that her pitiful starting salary isn’t eaten up by debt payments. Here’s how she was able to reduce college costs in a way that she graduated debt free.

Choice of School

Graduating with no debt started before she even entered college. This young woman is smart and gifted. She graduated second in her high school class. She could have gone to some prestigious private schools or out-of-state colleges, but she chose to go to a smaller in-state college to save big bucks on tuition. As she said, “I knew that in my field the degree was the important thing, not where it came from,” so she chose an affordable school.

Scholarships

She was able to put together a lot of scholarships. She applied for everything for which she might qualify, even if it was just a small amount. “I had some scholarships that were literally for just a hundred dollars, but it was money that wouldn’t have to be paid back so I was happy to get it,” she said. There are many scholarships out there, but some people refuse to apply for the small ones. The small ones can add up, though, and they often have less competition. You don’t even have to be gifted or super-smart to get one. It may be as simple as connecting with a local business, or writing a winning essay. Any aid you don’t have to pay back, no matter how small, is welcome. And don’t stop applying once you’ve started school. There are many scholarships that are only for juniors or seniors, so always be on the lookout for aid.

Cut Corners Where Possible

“My roommates made fun of me because I cut coupons. They called me an old lady,” she says. “But I needed to save every penny.” There are plenty of ways to cut corners as a college student. Textbooks can be rented or bought used. Campus cafeteria food, while not great, is often less costly than grocery store food. If you have an apartment with a full kitchen, cooking inexpensive meals at home costs less than eating out. Colleges have a huge variety of free entertainment, so take advantage of it rather than going to first-run movies. Many of the frugal tips that we give adults apply to college kids, as well.

Take Longer to Graduate

Lisa graduated in five years. Taking that extra year gave her a chance to earn enough money to keep from taking loans. By not overloading herself on courses she was able to work longer hours and earn more money. Lisa admits that it wasn’t ideal, especially as she watched her friends graduate in four years, but it was the only way to graduate without debt.

Work

Lisa worked a couple of different part-time jobs throughout college. In her senior year, she was chosen for a work-study program sponsored by one of her professors. During the summers, she worked full-time for a family friend who runs a business in her chosen field. If you want to graduate without debt, work is a necessity. The plus side is that you’ll have some experience to put on your resume. Many schools offer “co-op” programs where you work in your chosen field one semester and go to classes the next. Along with the money, you gain experience and find out if you really enjoy the work.

Live on Campus

In her junior year, all of Lisa’s friends moved into apartments off campus. Lisa chose to stay in the dorms because it was cheaper. “I would have liked an apartment, but I didn’t like the rent payment,” she says.

Pick and Stick with a Major

Lisa did a lot of research before entering college and she knew exactly what she wanted to major in when she got there. Changing majors often not only delays graduation, it is expensive as you end up wasting money on courses that end up having no use toward your degree. Know yourself and know what you want. “If you have to take a year off after high school to figure that out, it’s not the end of the world,” Lisa says.

Consider Alternatives

Lisa knew several people who began their college careers at the local community college. “It’s much cheaper and you can work through your required courses there and then transfer them to the university where you’ll finish your degree.” Just make sure that whatever you take will transfer to the university of your choice. You don’t want to waste the time and money on courses that won’t transfer.

Live at Home

Or live at someone else’s home. One of Lisa’s friends lived at home for all four years of college. She saved a lot of money this way. Another friend became a live-in house sitter for an elderly woman. The woman gave her free room and board in exchange for help around the house, help with errands, and for taking her to appointments. If your parents are willing to let you stay or if you can find a house sitting arrangement, you can pocket the cost of room and board.

Graduating with no debt isn’t easy. It requires commitment and focus. You have to say, “No,” to some fun things that your friends are doing. You have to be willing to be, “The old lady who clips coupons on Saturday night.” And you have to work your butt off. But that’s not so different from what will be required of you once you graduate, really. It’s not easy, but it’s worth it. Lisa already sees how she is ahead of her friends who graduated with a lot of debt. “I don’t worry about making my rent, or charge my utilities to credit cards. I don’t have much, but it’s mine.”

(Photo courtesy of j.o.h.n. walker)

Don’t Let Your College Student Graduate with Debt

September 9, 2011 By Guest Writer 1 Comment

Financial responsibility is a crucial part of the college experience for those attending both university online and on campus, yet some personal finance skills remain foreign to students as they prepare for college. Parents have the task of preparing their children for a new financial world and they can do that by discussing the pitfalls that come with being on their own.

Do you want your son or daughter to graduate with tens of thousands of dollars in student debt especially given the scarcity of jobs all over the world? You are their first line of defense. Don’t forget to talk to your child about the key points we lay out below before sending them off to college and even more important, remind them of these key points while they’re away. You’re never too late to teach them how to manage their money.

Don’t Rack up Debt

Instead of using a credit card to pay for a late-night pizza or a cute pair of shoes, your new college student would fare much better by saving their card for more serious, long-term expenses such as a laptop computer or textbooks. According to USA Today, studies have found that there is a better chance that they will pay the bill in full if there are fewer, more expensive items listed instead of hundreds of smaller purchases.

Credit card companies offer rewards or cash back programs to their customers but students should be aware that these cards often come with an increased interest rate or an annual fee. Locked in to this rate, students often find themselves only paying off the interest and seeing the same bill every month for years after the purchase. This negates the benefit of the reward.

Don’t Destroy your Credit Score

One simple mistake in college could affect your child’s credit score many years later. For instance, if a college student has limited funds one month and decides to impulsively purchase an expensive, exotic pet tarantula instead of paying off the credit card bill, chances are the bill will snowball and accumulate interest rapidly. Missing one payment will remain on a credit score for seven years so tell your child to be careful and tread lightly, especially if they hope to purchase a home or finance a car in the months after graduation.

Everyone makes mistakes. In fact, college is the prime time for goofing up and learning from errors. Encourage your child to reflect and ask what they could have done better that day or in that situation. Drive home the point that successful people are constantly reflecting and evaluating.

Say No Thanks to the University Credit Card

Just because the card has the university logo on it doesn’t mean that it’s good for your child. Some of these cards have high interest rates, customer unfriendly fees and little to no customer service. Your child’s college or university is putting their logo on a card that causes your child to go deeper in to debt. Cast aside the idea that you are benefiting the school by allowing your child to get one of these cards.

Know the Terms

It is increasingly important that you and your child are fully aware of the penalties and fees they may incur by not adhering to the company’s rules. On the other hand, as long as smart personal finance skills are exercised, they will build up their financial literacy and learn some valuable lessons in the process.

Why Parents Shouldn’t Pay Entirely For College

April 29, 2009 By David G. Mitchell 21 Comments

One of the most enduring images that I recall from college was a video clip of an obviously drunk student at a football game and holding up a sign which read, “I don’t care. Daddy’s paying.” At the time, although my parents had paid for my tuition, I was working about 20 hours per work to cover my costs of school attendance – roughly $15,000 per year, as compared to the approximately $8,000 per year that my parents paid for my tuition.

I worked hard to pay for my car (a used car), car insurance, gasoline, food, clothing, books, entertainment – everything that I wanted or needed that was not included in the price of tuition. I also worked hard to do well in school. For four years, it was a lot of work, but I never once felt that my parents should be paying more. Indeed, I always regretted that I could not pay my own way to college, and found it much more satisfying when I did pay all of my costs in graduate school – including rent and the $15,000 per year in tuition.

But back to the “Daddy’s paying” sign. Did the parents of the young woman who held up that sign really do her any favors by paying for her four year’s of binge drinking? I think not. So many people I have known have failed to invest sufficient effort in their college educations because they have not had a stake in it. You probably also know people who have felt that they could have achieved so much more in life if they had just tried harder in college – partied less, and studied more.

At some point, parents need to force their kids to stand on their own two feet. Of course, the process needs to happen gradually. I have known young adults who have been required to cover all of their costs through college, others who have covered some costs, and still others who have received a free ride courtesy of the their parents. In just about every case, the people who have had a personal financial stake in their college educations have also performed far more effectively in the class room and have enjoyed much greater success upon graduating from college.

I have also known parents who do not want to see their children saddled with tremendous debt upon graduating from college, so they have over-contributed to their kids college costs, without even realizing that the money intended for food and books has been spent on beer and concert tickets. The parents’ objectives were well-intended, but they failed to prepare the child-beneficiaries to face life in which we all have to work hard to pay bills – not just to play.

Whether they are attending Averett University or a junior college, I do not believe that kids should feel entitled to the college education that they want. Rather, parents should make sure that a child who works hard through high school will have the opportunity to attend a good college. My wife and I prepaid the tuition in the Florida public university system 9 years ago (for a total cost of about $13,000). Our kids can attend any Florida school that they want, as long as they are accepted, and their tuition will be covered. They will have to pay all of their other costs, and they have known that for a long time. One has been saving for the past five years. The other has nothing put away (despite my urging) and may have to work for a year before he goes off to college. That is his choice.

Parents can also help their kids look for scholarships and other sources of “free money” – a process that should begin when a child is a freshman in high school. In addition, parents should start their kids in an attainable savings program so that kids learn to put money away for when it is needed.

Parents should not, however, feel that it is their responsibility to cover every cost that a child faces in college. Parents need to make sure that their kids have some “skin in the game” or they will run the risk of seeing their children holding up “Daddy’s paying” signs at a football game, too!

What do you think? Are parents obligated to pay for their kids’ college educations? Should college students be required to pay some of their own costs? Does a parental “free ride” give students an advantage or a disadvantage?

Why Are Student Loans Acceptable?

June 17, 2008 By Cortni Marrazzo 23 Comments

I’m sure you have heard that there is a difference between “good debt” and “bad debt.” Bad debt is usually associated with credit cards, car loans, and other debts that aren’t secured by something that is growing in value. However, the term “good debt” is often given to such debt as mortgages and student loan debt. I can understand how a mortgage could be considered a less-risky type of debt in the fact that your house will (hopefully) rise in value while you are paying it off. Also, you can’t buy a percentage of a house at a time and pay as you go — you either pay cash or get a mortgage for a portion of it. I am continually perplexed however, that student loans are considered “good debt.”

There are many reasons people give for student loan debt being acceptable, however I personally think it is “bad debt.” I would consider any debt in which the payments are taking over your budget and keeping you in bondage, to be “bad debt.” Even if you have a mortgage, but the payments are higher than you can afford and are straining your budget, I would consider that “bad debt.” That thought aside, there are a few reasons why I would challenge the societal norm that says that student loans are a part of life and are an acceptable type of debt for most people to carry.

Student loans are not inevitable

I know that college prices are rising and that school is expensive — there is no denying that. Many people assume that students should attend college right out of high school and should take out student loans to do so if they can not afford it. This, however, is not the only option.

When purchasing any larger item, people always have a choice to go into debt for it, or wait and save up for the purchase. Education is no different. But the beauty of education is that you can go at your own pace. You don’t have to save up a large chunk of money to pay for 4 years of school at once. Students can work through college and pay for their schooling as they go in order to avoid student loan debt. It may take an extra year or two, but a few extra years aren’t going to hurt that much. Graduating two years later without any student loans will put you a lot further ahead than graduating with 10 years worth of student loans.

Our society doesn’t like to delay gratification and thus the student loans pile up in our nation. It seems that today’s mantra is “get an education” which equates to “get into debt” — a horrible message to send the youth of our nation into the world with. Student loan debt isn’t inevitable — there are ways to get aid and pay for schooling as you go through it. Unfortunately many students aren’t willing to do what it takes to pay for college as they go, or they simply don’t realize the huge financial benefit of doing so.

Student loan debt may not pay for itself

The premise behind borrowing so much money for your education is that you will end up with a job that pays more (and sooner) than if you don’t get a degree or wait a bit longer to get your degree. Unfortunately, this isn’t always the case. Many students decide on their major when they are 18 or 19 years old, when they really don’t know what they want to do with their lives. 4 years later many students have a degree in something they are no longer interested in and are stuck working in that field because they have to pay back their student loans. If many students were to wait to go to college until they knew for sure what they wanted to do in their career, their education money would go a lot further and they would be a lot happier.

Even if a student knows exactly what they want to major in, there is no guarantee that they will get a high paying job right out of college. If their desired career even happens to promise a high salary, students still have to work their way up in their career to begin making a decent amount of money. This often leaves educated students with degrees stuck making average salaries, but having to pay extremely large student loan payments in the early years of their financial lives. These students lose the power of compounding interest in their retirement accounts because their loan payments often make it impossible to even contribute to a retirement plan.

Student loan debt is simply that: debt

Even though student loans are used to pay for education, they are still debt. The bottom line is that it is still money borrowed to purchase something that you can’t afford at that moment. Whether or not it is an investment, if you have to take out a loan, it’s beyond what you can afford. Add to that the fact that many young people who take out student loans aren’t financially aware at that age and they don’t understand the repercussions of such a high amount of debt. This is why students will often take out more student loan debt to pay for lodging, food, books, and anything else they can get their student loans to pay for. This is also the reason why many loan/debt websites, such as loans-advisor.com, put strong emphasis in teaching students how to plan their repayment for the loans. When you are 19 and in college, the last thing on your mind is the fact that you actually have to pay these loans back. I honestly wish that more students understood the full reality of this truth.

It seems that today everyone is in such a hurry to get things done and over with, and this is especially the case with school. Who says that you have to complete a bachelor’s degree in 4 years? Why can’t it be 6? And why are so many students encouraged to have the “college experience?” I can guarantee that the fun of living on a college campus and finishing in only 4 years will not make up for a tremendous amount of debt in your adult life. I just wish I could see more people actually fund their own college tuition and not go into debt over it. I also wish that student loan debt wasn’t so “acceptable” and honestly that it wasn’t so easy to get. Whatever happened to go old fashioned “pay as you can afford it?”

(Image courtesy of a.mina)