Welcome to “Ask Brianna,” a Q&A column that helps 20-somethings prepare for the job search, handle money and manage student loans. Every other week, a new “Ask Brianna” will address these topics with tips I’ve picked up while writing about this stuff.
Have a question? Send it to [email protected]dwallet.com, and I’ll send back my best answer. Your question may appear in a future column.
Federal student loans are a safer bet than private loans. Just ask bioethicist Samual Garner, who wrote in Slate how he managed to borrow $100,000 in private student loans without even realizing it.
Federal loans have benefits that private loans don’t if repayment becomes difficult later on, like monthly payments based on your income or forgiveness if you work in public service. But maybe you didn’t know that when you were figuring out how to pay for college. Maybe you needed private loans to afford your dream school. Maybe now you’re stuck with bills you can’t manage.
I’m paying so much in private student loans that I can’t do other things I want to do, like buy a house or go to grad school. How can I get them under control?
It feels terrible to have debt hanging over you, and big private student loans can be particularly scary. But you have options that could lower your interest rate and help you get rid of your private loans faster. It’s up to you to explore them. Make a list of your loan balances, interest rates and lenders; grab a glass of wine; and start researching.
First: Try student loan refinancing
You probably have better financial habits now than you did when you first started college. That’s the basis of student loan refinancing: Lenders reward you for having good credit by offering you a new private student loan at a lower interest rate than you could have qualified for years ago.
How it works
More than a dozen banks and startups now refinance student loans. Lenders look at your credit score, income, education and other factors; decide whether they can trust you to pay them back; and issue you a new private loan that combines your previous balances, with a new interest rate.
If you apply on your own, you’ll need good or excellent credit and steady income relative to your debt. You can use a co-signer — like a trustworthy parent, friend or sibling — if you don’t meet the requirements. An interest rate that’s a few percentage points lower than your current rate could mean thousands of dollars in savings over time and a break on your monthly payments.
Where to start
NerdWallet partners with Credible, a student loan refinancing marketplace that lets you compare refinancing offers from several lenders at once. That’s easier than applying with each company individually.
There are lenders outside the marketplace you might want to check out, too, like SoFi, Earnest and Darien Rowayton Bank. Be sure to apply to multiple lenders within a 30-day period so your credit isn’t negatively affected.
If that doesn’t work: Negotiate with your lender
Refinancing won’t be an option for some borrowers, and others might find the interest rates they’re offered aren’t much lower than what they currently pay. That means it’s time to explore what your current lender can do for you.
How it works
Many private lenders offer forbearance for three to six months, which means you don’t have to make payments. It’s helpful if you’re unemployed or need a short break from your bill. But interest accrues and increases your balance at the end of the forbearance period.
The pressure is on private lenders to offer struggling borrowers more permanent relief. Wells Fargo and Discover, for instance, recently started providing reduced interest rates or lower monthly payments to borrowers with a financial hardship or “excessive student loan burden.”
Private lenders aren’t required to provide that type of support, and some of them don’t publicize the help they offer to borrowers who ask for it. The best way to find out whether your lender can make your loans easier to manage is to negotiate.
Where to start
Call your lender and let them know you’re having trouble making payments. Explain how difficult it is to afford necessary expenses along with your student loan bills, but that you’re committed to staying current on your payments. Ask if they can lower your interest rate or otherwise relieve some of your burden on a long-term basis, in a way that won’t eventually add to your balance or increase your payments later on.
There are other ways to attack your student loans. You could focus on earning more income and apply that extra money toward your smallest or highest-interest loans until they’re gone.
But when I talk to borrowers paying down student loans, they all tell me the same thing: Deciding to tackle your loans is just the first step. Once you start, the motivation to get it done follows.