Student loan repayment can seem like an impossible task, especially when you're dealing with high interest rates or poor credit. However, refinancing can be a good solution to reduce your monthly payments and improve your overall financial health.
Below, we address some frequently asked questions about student loan refinancing, including what happens if you stop paying your loans, the possibility of pausing payments, and the process of refinancing. We'll also touch on how to handle private student loans for bad credit and provide insights into private student loan relief.
When you stop paying your student loans, several negative consequences can occur. Initially, you will incur late fees and penalties that increase the amount you owe over time but that isn’t the worst part of the equation. Student loan delinquency is reported to credit bureaus, significantly damaging your credit score and affecting your ability to secure future loans like mortgages and car loans. If non-payment continues, your account may even be sent to collections further increasing the negative consequences.
Federal loans and private loans are treated a little differently when it comes to nonpayment. For federal loans, the government may garnish your wages or withhold tax refunds, while private lenders may sue to recover the debt. Defaulting on federal student loans can also disqualify you from deferment, forbearance, and other relief options.
If you're struggling with payments or think you may fall behind soon it’s important to contact your loan servicer as soon as possible to explore alternatives before falling behind.
There are two main ways to temporarily pause your student loan payments: deferment and forbearance. Deferment, often available for federal student loans, allows you to temporarily stop making payments. During deferment, interest may not accrue on some loans.
Common reasons for deferment may include returning to school, unemployment, or economic hardship, but it’s important to note that deferment is not forever and your loan payments are waiting on the other side. If you think repayment at the current rate will be a hardship for the foreseeable future you may want to explore refinancing instead.
The trusted advisors at Alt Lending can help talk you through the details by email or by phone at (844) 258-5363.
Another option for delaying student loan payments is forbearance. This is available for both federal and private student loans and lets you pause or reduce your payments for a limited time, usually up to 12 months. Unlike deferment, interest accrues on all types of loans during forbearance.
Refinancing involves taking out a new loan to pay off your existing student loans, ideally at a lower interest rate. To refinance, you should start by checking your credit report and credit score, as it will significantly impact the interest rate and terms of your new loan. A higher credit score can help you secure better rates.
Research lenders that offer student loan refinancing and compare their rates, terms, and eligibility criteria. If your credit score is less than stellar, pay special attention to those offering refinancing for private student loans for bad credit, such as Alt Lending.
Many lenders allow you to prequalify without affecting your credit score so that you can get an idea of what you might qualify for before committing to altering your repayment plan. Once you have chosen a lender, you’ll prepare the necessary documents, such as proof of income, loan statements, and identification, and submit your application. If approved, the new lender will pay off your existing loans, and you’ll begin making payments to them under the new terms.
Refinancing can streamline your payments and potentially lower your interest rate, but it’s essential to understand the terms and any associated fees.
Federal student loans can be consolidated through the federal government’s Direct Consolidation Loan program. This relief program allows borrowers to combine one or more federal education loans into a new loan to lower monthly payments or gain access to federal forgiveness programs.
You can also consolidate private student loans through refinancing. Unlike federal loan consolidation, which combines multiple federal loans into one, private loan consolidation involves taking out a new private loan to pay off other private loans. This can simplify your payments and potentially reduce your interest rate.
Consolidating private student loans offers several benefits, such as combining multiple loans into one, simplifying your repayment process, and potentially securing a lower interest rate, which can save you money over the life of the loan. Refinancing can also offer better repayment terms, such as a fixed interest rate or a shorter loan term.
However, a higher credit score can help you secure better rates. If you have bad credit, look for lenders that specialize in private student loans for bad credit. Be aware of any origination fees or prepayment penalties associated with the new loan.
At Alt Lending, we understand the challenges of managing student loan debt. That's why we're committed to being your advocate, offering personalized solutions that prioritize your long-term financial well-being. Our experts are ready to provide customized advice and support so that we can craft a personalized repayment plan that fits seamlessly into your monthly budget, helping you stay on track and addressing any concerns that arise along the way.
Are you ready to take control of your student loan debt and work towards a brighter financial future? Let us help you choose the path that aligns with your long-term financial goals. Connect with one of our trusted partners at Alt Lending today to get started.