Student Loan Plan: Lousy Consolidation Options

Michael Lux Blog, Consolidation, Student Loan Plan, Student Loans 0 Comments

In this edition of the student loan plan, we take a look at Andrew’s student loan consolidation issues.  His private loans currently have high interest rates, but the consolidation companies are only offering a slight improvement on interest rates.  If you want tips for dealing with your student loans, contact us.

Andrew writes:

Hi Sherpa, 

I am looking to consolidate 2 private loans totally about 56k. I have federal loans (13k set to be paid off in 2021) but will leave those be. The 2 private loans are at NJClass (an NJ State lender) – currently about 24k at 8.67% variable and Navient/Sallie Mae  – currently 32k at approx 9% variable. These loans are criminal. My minimum monthly payments are $540 a month on these, Sallie Mae is set to increase soon too. 

My credit is good – credit karma has me at 760, but with my loan apps I had my credit placed at 744 and 723. My credit score will probably hover at this for the next year. I had about 6 months of missed payments on these loans 4 years that have been haunting me since. I make 60k a year. Single and Rent. 

All apps were for a 15 year fixed loan. 

Wells Fargo offered my 9% – I’m embarrassed I even tried with them. 

Sofi offered me 7.30% with a $530 a month payment

Citizens Bank offered 7.17% (but have a .25 rate  reduction for AutoPay) so 6.92% at $513 a month. (Note* I sent them the documents and everything, this is fully approved I would just need to sign).

Additionally, I have no one to co-sign, this is the first year any bank offered me anything without a cosigner. 

Am I crazy to think I could get a better fixed 15 year rate? If my minimum payment goes up I cannot afford it. 

Is it possible to take the Citizens and refinance in a few years when my salary and credit is better (although I think 740 is pretty good)? Do you know if Citizens throws fees at you often (the app said no origination fee, no early repayment fee but the had a “optional service fee. Lender may charge you for such services” line on the form)? 

Thanks so much. 


The Plan

Andrew seems to be doing the right things.  Getting a lower interest rate without a cosigner is almost always a good option with private student loans.

However, my first suggestion would be to expand the search a little bit further.  Companies like LendKey or CommonBond may offer rates better than your current option from Citizens.  When you are right on the cusp like Andrew is, the options can vary greatly from one lender to the next.  Some lenders may outright reject you, but others could offer a much better interest rate.

The key is to see what rate you qualify for with a number of lenders.  For credit score purposes, as long as you do your credit inquiries within a short period of time, the credit agencies treat it as “shopping around” and it is treated as one credit pull instead of many.

To aid your efforts looking around, we have put together a table of lenders and interest rate options.  This tool should help you find the best fit for your situation.

Making Your Choice

The question about going with Citizens now and going through the process again in the future is a great idea.  Unlike mortgages where there are closing costs associated with each transaction, refinancing your student loans is a free process.  If interest rates drop or your credit situation improves, looking back into refinancing options is a very good idea.

One thing to consider is that passage of time may not be the most important detail when trying to decide whether or not you should test the market again.  If you just got a big raise at work, now might be a great time to give it a try.  This also applies to your creditworthiness.  If you just paid off a car loan, or recently had some negative reporting fall of your credit report, it could mean you get a better rate.

Ultimately, there are really only two costs to starting the application process again.  The first is the slight drop in credit score from further credit inquiries.  The second, and more noteworthy cost, is your time.  The process of completing applications and submitting documents can be time consuming if you are doing it right.  The more time you spend on it, the more likely you are to get the results you want.

Bottom Line

Andrew is off to a great start in his efforts to lower his student loan interest rates, but there is still some work to be done.

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