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Updated: May 27, 2020 12:45 PM ET | Originally published: March 26, 2020
Money; Getty Images

May 27 update: Borrowers with government-held student loans received good news when the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. Among its stipulations: interest, payments, and collections on these types of loans were automatically suspended from March 13, 2020 through September 30, 2020, providing necessary relief for many during the current COVID-19 pandemic.

It should be noted that the CARES Act does not include language for loan forgiveness; what you owe now you’ll still owe at the end of this period. What it does do is suspend collections on loan payments, as well as eliminate interest accumulation during this time. Further, non-payments for this six(ish)-month period are not reported to credit agencies and will not affect your credit score.

The loans that qualify are federal student loans such as Direct Stafford loans (both subsidized and unsubsidized), Direct Plus loans (for parents and graduate students alike), Direct Consolidation loans, and some Federal Family Education Loans and Perkins loans that are currently held by the federal government.

Most Federal Family Education Loans and Perkins loans are not held by the federal government and, therefore, do not qualify. The same goes for private student loans. In such cases, you should contact your lender directly to figure out the best course of action to take.

However, the CARES Act also includes a tax-break for companies that offer student loan payment benefits to their employees. That is, from now through December 31, 2020, employers can pay up to $5,250 of an employee’s student loan debt and receive tax breaks for it. Of course, not many companies offer this incentive, but those who do can benefit both themselves and the employee.

For many who took out student loans to finance their education, repaying those loans has been a heavy burden. Add in the current economic and many borrowers are finding themselves in a precarious situation.

Student loan debt reached a high of nearly $1.6 trillion in early 2020, with an average debt balance of almost $30,000. For many, not being able to repay these loans can be a source of stress and put a financial strain on their budgets. Refinancing your student loans could be the answer to the problem, as you could lower your interest rate, lower your monthly payments, or both.

The CARES Act and Student Loans in Depth

The CARES Act was implemented as part of the government’s efforts to minimize the impact of COVID-19 on the economy and provides relief for most federal student loan borrowers.

One of the most important benefits of the CARES Act is the suspension of payments until September 30, 2020 for direct student loans and Federal Family Education Loans (FFEL) held by the federal government. If you qualify for this benefit, you don’t have to do anything – the suspension is automatic for payments due after March 13. No interest will accrue over this period of time, and the suspended payments will continue to be accredited towards any Public Service Loan Forgiveness program or income-driven repayment plan you may have.

However, if you made a loan payment after March 13 and are struggling and could use some extra cash you should consider contacting your lender. “If you had a payment that went out March 15 and you need that money back,” says Jessica Thompson, Associate Vice President of The Institute for College Access and Success (TICAS), “you can actually request a reimbursement from your servicer.”

If you made the payment and don’t need a reimbursement, that payment will go toward paying down the loan principal, which is not a bad strategy either and is another benefit of the law. Those who can continue to make payments should do so as any amounts paid will go directly towards reducing your principal, saving on interest over the life of the loan.

Another benefit provided by the CARES Act is that suspended payments will be reported by the Department of Education as on-time payments to all three major credit reporting bureaus, which helps protect your credit score from taking a major hit.

If the September 30 deadline passes and you find you’re struggling to make your payments, consider an income-driven repayment plan. This plan pegs your monthly loan payment to your income – if you lost your job and little or no income is coming in, your payments will likely be $0.

Employers wanting to assist their employees through this tough time can take advantage of the CARES Act as well. Until the end of this year, employers can contribute up to $5,250 towards an employee’s student debt without the contribution being included as wages for income and payroll tax purposes, providing a tax break to both the business and the employee. Prior to the passing of this law, the employer’s contribution was considered taxable “wages” and both the company and employee would have to pay taxes on that amount.

Because of the benefits provided by the CARES Act, you may want to pause any research into refinancing. “If you have federal student loans, you probably want to hold off on refinancing right now,” says Rob Humann, Credible General Manager. “After September 30 you may want to consider refinancing federal student loans that have high interest rates, including PLUS loans.”

Keep in mind, however, that federal loans that are held by private lenders, such as Perkins loans and some FFEL loans, are excluded from the benefits mentioned above. You should contact your loan servicer for options if you are struggling with paying these loans.

Help For Privately Held Student Loans

Unfortunately, for borrowers struggling with paying private student loans, there’s not a lot of concerted government help out there. “What’s happening right now is we’re getting a patchwork of policy negotiations between governors and private lenders for borrowers that are in their states,” said Thompson. She goes on to indicate that some states, such as New York, California, Illinois and New Jersey have already announced deals with the majority of private lenders to grant 90 days forbearance on student loans.

Keep in mind however, that unlike federal loans, interest will continue to accrue, which will increase your loan balance in the long run. For those who have been furloughed or lost their jobs, there is some relief available. Regardless of state government intervention, many private lenders are willing to work with individual borrowers on a case by case basis to either grant forbearance, reduced payments, or other types of relief. “Your best bet is to talk to the servicer of your existing loans about how you can best manage your payments while you’re out of work to protect your credit,” says Humann. “Then you’ll be in a better position to refinance when you do get back to work.”

Just know that any relief granted is not going to be as generous or as comprehensive as the benefits provided by federal loans. “This is a big issue that underscores more than usual how risky these private loans are over federal loans for financing your education,” according to Thompson.

If you are still employed or have a verifiable source of income, this could be the right time to take advantage of low interest rates and refinance your private loans. As Humann points out, interest rates are at all time lows and you could benefit from making lower monthly payments and save on interest. Before refinancing, learn your options and assess the costs. If you decide to proceed, choose the best student loan refinance lender for your specific needs.

The Best Student Loan Refinance Companies of 2020

Every lender has its own underwriting guidelines which means you could get better terms when you shop around. You should take time to compare several lenders and what they offer.

Dozens of private lenders offer student loan refinancing. To help get you started we highlight some of the most popular lenders below. You’ll still need to do the math to find the best lender for your specific needs. Here are the top 4 lenders for student loan refinancing.:

  1. Credible
  2. Earnest
  3. Splash Financial
  4. CommonBond

Every lender has its own underwriting guidelines which means you could get better terms when you shop around. You should take time to compare several lenders and what they offer.

Dozens of private lenders offer student loan refinancing. To help get you started we highlight some of the most popular lenders below. You’ll still need to do the math to find the best lender for your specific needs.

Credible

Credible doesn’t issue loans directly; it’s a private loan marketplace designed to put you in contact with lenders. So why involve a third party? Because Credible lets you compare offers from at least 10 lenders by submitting one single application. Most borrowers can complete the application within two minutes.

Unlike some marketplaces, Credible provides personalized rate quotes as opposed to estimates, and you don’t have to leave Credible’s site to view your rates.

Interest rates and loan terms vary depending on which one of Credible’s lenders you choose, but none of Credible’s lending partners charge prepayment penalties or origination, application, or hidden fees.

And Credible doesn’t charge you directly for using its matching services. Instead, partner lenders on the platform pay Credible a commission for signing you up.

You could get a fixed or variable rate loan from one of Credible’s lending partners. Variable rates will fluctuate with the broader lending markets.

Minimum credit score requirements will also vary depending on the lender you choose.

Pros:

  • Compare offers from 10+ lenders in one place.
  • Fixed and variable rate options.
  • No origination, application, or hidden fees.

Cons:

  • Doesn’t represent all lenders; you could still find a better rate elsewhere.

Earnest

Earnest offers loans with terms based on the monthly payment you can afford. If you can spare $1,000 a month, Earnest will tailor your loan accordingly, even if it creates an irregular term, like 10.5 years. In fact, Earnest offers 1- to 3-month intervals between 5 to and 20 years — up to 180 different term length options.

Other perks with Earnest include:

  • adjusting your payment date each month (pushing it back by up to seven days).
  • scheduling weekly payments to save on interest
  • skipping one payment every year up to 12 times over the life of the loan.

Earnest requires a credit score of 650 or higher, but the lender considers other data besides credit history to set interest rates. Earnest will analyze your savings patterns, employment history, career trajectory, and 401(k) investments. Applicants who pose less risk get lower rates.

To be eligible borrowers must be refinancing loans used for completed or soon-to-be-completed degrees and have a minimum balance of $5,000 ($10,000 for California residents).

Applicants must also have at least six months of on-time payments with their current lenders to qualify for a refi with Earnest. They should also have no history of bankruptcy or foreclosure and enough money in savings to cover at least two months of living expenses and loan payments.

Pros:

  • Customize your loan term by what you can pay
  • Minimum credit score of 650
  • Skip one payment per year (up to 12 times)

Cons:

  • Minimum loan balance required to refinance.
  • More intense vetting process to set interest rates.

Splash Financial

Like Credible, Splash Financial connects borrowers with lenders offering student loan refinance loans. The company’s website doesn’t list its lending partners so we called Splash to ask. The rep said Splash’s partners include Laurel Road, PenFed, and U-Fi.

Because some of Splash’s underwriting partners are credit unions, applicants could be required to join a credit union to get the best loan. This may not be ideal for some borrowers, but there are benefits to doing business with a credit union,. We encourage you to read about the lender you’re matched with before submitting your application.

Splash’s lenders offer fixed and variable rate loans, and credit eligibility varies from lender to lender though 700 is an across-the-board minimum. (With a qualified cosigner you could refinance with a 660.) Splash’s partner lenders don’t charge origination, application, or early repayment fees.

As an added perk, Splash Financial gives borrowers a $250 cash bonus each time they refer a friend who successfully refinances through the marketplace.

Pros:

  • No origination, application, or hidden fees.
  • Fixed or variable rate loans available.
  • Cosigner release possible after 12 months.
  • Get a $250 cash bonus for referring a friend who refinances.

Cons:

  • Some lenders are credit unions requiring membership.
  • College graduation is a requirement.

CommonBond

CommonBond offers more borrower protections than similar private lenders. For example, CommonBond extends forbearance due to economic hardship, allowing borrowers to pause payments for three months at a time (up to 24 months over the life of the loan).

CommonBond offers loan terms of 5, 7, 10, 15, and 20 years with fixed and variable rate options available. Like other lenders, CommonBond considers your education, credit, and income to determine eligibility and loan rates.

Loan rates will also depend on your loan type and term length. To get a better idea how this works, check out this table with the average APR ranges, monthly payment amounts, and total interest for each loan type and term based on a $10,000 loan.

CommonBond also offers academic deferments up to 32 months in case you go back to school. You could also get a 6-month grace period with no payments after graduating. And, if the borrower dies or becomes disabled, CommonBond will discharge the loan even if there is a cosigner.

Pros:

  • No origination, application, or hidden fees.
  • Up to 24 months of forbearance during financial hardship.
  • Cosigner release available after 2 years.

Cons:

  • Cosigners are often required to qualify.

Student Loan Consolidation vs. Refinance

While refinancing is a great option for certain loans, it may not always be the best way to save money. Some borrowers who have multiple federal student loans and want to simplify payments can save more by consolidating their loans instead.

Make sure you understand the difference between refinancing and consolidating, and the advantages each can provide.

Consolidation

Consolidating means you combine your loans together as one loan with a single interest rate and one monthly payment, and are primarily offered for federal loans. You’ll get a fixed interest rate based on the average rate of your existing loans, rounded up to the nearest ⅛%.

Consolidation can preserve your access to flexible repayment plans, such as income-based repayment, which are built into federal student loans but not into most private student loans. You could consolidate through studentloan.gov or your federal loan servicer. If you have private student loans, some companies do offer consolidation loans. However, unless your credit score has improved significantly since you first took out your loans and you now qualify for a much lower interest rate, the only advantage gained by consolidating private loans is having to make one payment instead of several.

Refinancing

Refinancing pays off your current federal and private loans and replaces them with a new loan with a new rate. Only private lenders offer this option which means your federal loans would become private loans.

You would lose access to your federal benefits including student loan forgiveness, deferment, and forbearance. If you’re sure you won’t need these benefits in the future, refinancing a federal loan could be for you. Otherwise, wait until the suspended payment period ends on September 30 before making a decision.

Important Things to Know About Student Loan Refinancing

  • As we said above, don’t refinance with a private loan if you need federal protections such as income-driven repayment plans as well as extended periods of deferment and forbearance. A few private lenders do offer unemployment protection or financial hardship deferment.
  • Most lenders require very good to excellent credit to qualify for their lowest refinance rates. This typically means a FICO score of 740 or above. You could qualify with a lower credit score, but you’d likely pay a higher interest rate.
  • As you shop, compare interest rates across multiple lenders. Be sure to compare lender fees as well. Ask specific questions about hidden fees.
  • See if you can get pre-qualified online without a hard credit check. Many lenders offer this option, and it can be helpful to know the rate you might pay if you refinanced.

How We Found the Best Student Loan Refinance Companies

When looking for the best student loan refinance companies we looked for lenders that offered these four features:

No Hidden Fees

You’re probably refinancing to save money so make sure you’re not paying unnecessary fees. We considered only lenders that don’t charge origination, application, or hidden fees for our list.

Competitive Interest Rates

We looked for lenders offering the best interest rates to consumers with good credit. If your credit score is below 650, you might want to consider improving your score before you apply to refinance your loans. Most lenders offer the best rates and terms to borrowers with good to excellent credit.

Flexible Repayment Terms

We also looked for lenders with flexible repayment terms. Having some flexibility is crucial for borrowers with a specific goal such as lowering monthly payments or paying off loans within a set time frame.

Forbearance

We also considered lenders who let borrowers pause their payments, skip a payment, or apply for temporary forbearance. You may never need these benefits, but they’re nice to have in case you lose your job or face unexpected expenses.

Find the Best Student Loan Refinance Lenders

As with any loan, it’s important that you get quotes from different lenders before choosing one. The following steps can help you get the best new loan for your specific needs. Before you apply for refinancing make sure you:

Check Your Credit Score

Your credit score is going to play an important part in determining what the interest rate and loan term you qualify for. The better your score, the lower interest you’ll be charged, the shorter the term of the loan, the faster you can pay it down. If your score hasn’t improved or doesn’t qualify you for a lower rate than what you’re currently paying, check to see if there are ways to improve it. You can request a free copy of your credit report from any one of the three major credit reporting bureaus – Experian, Transunion, and Equifax – from annualcreditreport.com. In fact, in response to the effects of COVID-19, the three credit bureaus recently announced that you can request a free weekly online credit report without impacting your credit score.

Prepare Your Documentation

In order to apply for a refinance, you’re going to have to provide not only your personal information but also information about your current loan (interest rate, term, how much is still due, etc.) as well as proof of income (this could be pay stubs, bank statements, or W-2’s). Check with the lenders you’re considering to see what information they require and have it at hand when you go to apply.

Compare Multiple Lenders

Shopping around to compare loans and interest rates from multiple lenders will be key to your success. You can check refinance rates on each lender’s website or use a marketplace that shows multiple quotes at once. Make sure you understand the terms of service, and find out how much of your information will be shared with third parties.

Even a small interest rate reduction can save thousands of dollars in interest payments. While all the lenders on our list offer competitive rates, one might extend a lower rate based on your income, credit score, and other factors such as your education or employment history.

Check for Hidden Fees

Hidden fees could eat away at the savings your refinance generates. You should avoid lenders that charge origination or application fees, or charge prepayment penalties. You should also check if there are late payment fees that can push your monthly payments up and how many days after the due date these fees kick in.

Choose a New Loan that Aligns with Your Goals

Once you’ve compared interest rates, fees, and features, you should compare loan terms and monthly payment amounts. Some lenders let you build your loan around the monthly payment you want to make; others offer repayment terms of only 5, 10, or 20 years. Whichever lender you choose, make sure you’re comfortable with the payment amounts and the terms of the loan.

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