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FAFQ: Am I totally screwed with private student loans?

Frequently asked financial questions are questions that I’ve seen pop up over and over again.  I thought I’d take the time to answer them in this Frequently Asked Financial Questions Series. So each post will have a short quick answer to these frequently asked financial questions followed by a longer more detailed answer.

Am I totally screwed with private student loan debt?

Private student loans might not have the flexibility in terms of repayment that federal loans do, however, with federal loans you can’t refinance them without losing that flexibility.

Short Answer:

No, private student loans, unlike federal student loans, can be refinanced without losing flexibility. In fact, depending on who you refinance with, might give you some flexibility. Also, if you’re doing it right you will actually save money since you will be repaying the loan at a lower interest rate.

Most of my loans are federal loans, however, my bar loan was and is a private loan. I refinanced with SoFi, saving me over $1,000 over the life of the loan. While I do recommend SoFi, don’t be afraid to shop around for different rates. If you do decide to go with SoFi, you can earn a $100 welcome bonus by using my link.

Long Answer:

Private student loans don’t typically offer repayment plans based on your income level. However, the ability to refinance private loans should not be overlooked. Those (like me) that have federal loans and are dependent on income-driven repayment plans, can’t afford to refinance our loans and are screwed with our interest rates. Seriously, one of my interest rates is 8.5%.

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While your interest rate is in part due to timing and when you were lucky enough to go to school. So after you finish school and start making a decent income, you can start to shop around for a better loan to replace the loan you took out for school.

Related: How to Find Out How Much You Owe in Student Loans

You can even leverage different loans against each other to ensure you get the best possible loan for your situation. Keeping in mind that the loan with the lowest interest rate may not be the right loan for you.

This could be because the lowest interest rate is actually a variable interest rate that could go up. You may want the security of a fixed interest rate. Though it’s all going to depend on you and your financial situation.

Some advantages to having private student loans

Besides the ability to refinance at what could be a much lower rate, there are a few other advantages of having private loans. Including the fact that with your repayment you will actually pay off your loans. At the end of repayment, you won’t be staring down a gigantic tax bill.

Another advantage of private loans is that to a certain extent, you can choose what financial institution/bank you want to work with when it comes to your loans. While your loan could always be sold off to another bank, you can then just refinance the loan with a different company.

What to do if you’re struggling with your private loans

While you aren’t inherently screwed by private loans, repayment can be hard. Particularly, if you don’t make enough money or you are struggling to keep up with your private loan repayment. However, there is something you can do.

Refinancing isn’t just for getting a lower interest rate. You could also refinance with the goal of a longer repayment term, lowering your monthly payment. Over the life of the loan, you may end up paying more in interest. However, it can be worth it to be able to live more affordably, with a lower monthly payment for your loans.

Wrapping it Up with a Bow on Top

While you aren’t screwed just because you have private student loans, you need to be aware of your loan details and take action. With private loans, you can refinance to either save on interest or extend the loan term to lower your monthly payment or both. You also have the benefit of choosing which financial institution to work with regarding your student loans.

Read more from the Frequently Asked Financial Questions Series?

Money tools & resources i recommend

Chime (for saving) works by starting a spending account (takes 5 minutes) and opting into the automatic savings plan. (Learn more about getting started with Chime).  Every time I use the Chime Debit Card it rounds up my purchase to the nearest dollar and puts in in savings. Right now they also offer a double round-up bonus on those savings. All those withdrawals add up over time. Chime is free to use, with no monthly fees. With Chime, you end up saving money without having to think about it.

Qapital (for building savings & reaching money goals) Qapital can help you reach savings goals. Once you have the Qapital App installed and a bank account (or in my case three) connected you set up a goal or goals.  Then you set savings rules for each of your goals. For example, I have a round up to the nearest $2 rule, a guilty spending rule -when I buy Dominos. Qapital is free to useBonus, when you use my link you'll get $5 after your first savings.

Qoins (for debt repayment) When you sign up for Qoins, you connect your bank account and then spend as you normally would. Qoins will round up your purchases to the nearest dollar and put that change towards an extra debt payment. Learn more on How Qoins Can Help You Pay Off Debt Faster

SoFi (for refinancing) If you have private loans or your debt to income ratio allows, consider refinancing with a company like SoFi. Learn more about what it's like to refinance with Sofi. Refinancing my bar loan with SoFi ended up saving me over $1,000. Use my link to refinance your student loan and you'll get a $100 bonus.

Private student loans can be scary as they typically offer fewer relief options, but there are some great options available for private loan borrowers

Liz

Liz is a blogger helping people with personal finance and working for themselves. She shares her own journey to debt freedom and helps graduates dealing with above average student loan debt on her site, Less Debt More Wine. She currently resides in NC after calling Massachusetts home for nearly a decade.

  • All $55,000 of my student loans are private. I used to kick myself for not knowing the difference between federal and private and going with the easiest option.
    Although I technically CAN refinance my loans, I’m running into another problem – I’ve actually been denied by every company I’ve tried to refinance with (that will give me a lower rate) because my income level isn’t high enough. I couldn’t refinance even if I wanted to, so I guess that benefit is moot for me right now. Maybe when I have enough income to refinance I’ll try again. Of course, I might have my loans paid off by then anyways…

    • Liz says:

      Have you tried refinancing just one of your loans rather than all of them? Not sure if that would make much of a difference but you never know. If you could refinance and target your pay off maybe you could domino them that way. No matter what you’re the notorious D.E.B.T you’re going to get to debt freedom eventually. 😉

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