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What’s best for your student loan during COVID?

What do we know?

Federal student loans are in forbearance until December 31 2020 — so you’re looking at 0% interest, and your payments are on hold.  

On the other hand, thanks to COVID, private lenders are offering super low interest rates. 

So, do you sit tight or refinance?

Let’s face it, it’s a quality problem. You’ve got two solid options, each with their own pros and cons — which we’ve taken the liberty of breaking down. 

Firstly, we need to establish if you’ve currently got a federal student loan, or a private loan. Any refinanced loans will be through a private lender. So if you’ve already made the jump to a private lender, chances are, you’ve already weighed up the pros and cons of refinancing your student loan. Go you! 

But for those of you currently with a federal student loan watching interest rates plummet, let’s chat... 

What happens if you stay with your federal student loan?

As we mentioned earlier, if you’ve got a federal student loan, your interest is not accruing and your payments are on hold until December 31.  

Now, if you’re still working, that temporary financial relief presents a number of opportunities. You could — 

* Continue paying down the principal on your student loan and pay that sucker off sooner.  

*  Start a cash reserve for emergencies. Maybe that sounds boring to you — but you know what’s more boring? Having to watch Wheel of Fortune from your Grammy’s couch because your air-con blew in the middle of summer and you didn’t have the money to fix it. And her air-conditioned lounge room is the only place you can get some sweet relief. We’ll take a ‘t’ for ‘thank god for cash reserves’ thanks Vanna. 

* Already got an emergency cash reserve? Then maybe start putting aside the cash for a down payment. If you start now, based on the average student loan payment of $393 a month, you’ll around $1000 to put towards your down payment — all without breaking a sweat. Not actually sure how much down payment you’ll need? Recently we went deep on down payments and how much you actually need to put down, have a read here — you might be surprised how far $1000 will take you. 

* Already got an emergency cash reserve AND a home loan deposit? Congratulations — you are officially winning at life. And also? You should most definitely check out how easy, and dare we say it, fun it is to get a home loan with us — you’ll have your borrowing amount, rate and payment in a couple of minutes. 

Also you get to keep enjoying all the benefits of a federal student loan like — 

* Loan forgiveness 

* Loan assistance (eg. income driven repayments) 

* Subsidized loans 

What happens if you refinance?

As we mentioned earlier, refinancing your student loan means going with a private lender. Thanks to COVID, interest rates are super low and appealing so you’ll have an opportunity to lock in a really low rate. 

Something to consider is, moving to a private lender means you’ll be saying goodbye to the federal student loan benefits we talked about above. 

Also, depending on your employment situation, you’ll have to start making payments immediately, so you’ll miss out on the payment holiday you’re currently getting with your federal student loan. 

But let’s assume you’re sweet for cash reserves and you’d rather pay off your student loan before saving for a place. Or hey, maybe you’ve already got your down payment and you want to keep paying off your student loan. 

Let’s go harder on your refi options. 

A massive part of the final decision comes down to total amount payable right? Interest rates are one thing, but to get the true cost, you need to take it a step further and work out that final payable amount. Compare apples with apples and all that... 

Current loan vs. new loan: the loan calculator showdown. 

The simplest way to find out which loan is the best value? A loan calculator. Credible has an excellent student loan calculator right here. 

Throw your current loan details in there and then the new loan details and BAM! you’ve got an undeniable answer to which loan is going to cost you less in the long run. It’s compelling stuff. Nerdy, but compelling. 

But obviously before you start putting anything into the loan calculator, you’ll need loan options from some private lenders. Here are some that we found and seem to be pretty compelling — check them out, or any other lender you’re interested in... 

The Balance, an independent money site recently did a deep dive into the top private student lenders based on interest rates, deferment options, variety of terms, autopay discounts and more.  

These guys are worth a mention — 

Ascent Student Loans were rated the best overall lender based on their low interest rates, graduated repayment options and their non-co-signed loan offering. 

Commonbond were crowned the best lender for refinancing (Hello! That’s you!) based on their super competitive interest rates, flexible loan options and high refinance amount — you can refinance up to 500k with them. 

And College Ave were best for flexible repayment options — you can choose from 5, 8, 10 or 15-year terms and also while you’re in school, you can choose how you want to make your payments — defer, interest only or principal and interest. Tasty options, especially if you’re a student existing solely on bread and coffee. 

Oh, and...

when you’re comparing rates, make sure you’re not looking at ballparks, take the time to get a verified rate so you actually know what you’re dealing with and your math will stack up. 

Captain Obvious here — now you just need to compare your totals from your current federal loan with the private lender’s total and the lowest reigns supreme! 

The wrap-up.

Sticking with your federal student loan means your interest and payments are on hold until December 31st so you can chillax for a while or put the payment to good use. You’ll also enjoy the protections and benefits that come with a federal student loan. 

Refinancing to a private lender right now means you can take advantage of unprecedented low rates and lock it in for the life of your loan. But you may have to start repaying immediately and you’ll be letting go of the perks of federal student loans (loan forgiveness, loan assistance and subsidized loans). 

Whatever you’re thinking, just remember — it’s a good place to be. So, take your time and get that air-con unit serviced just in case. 

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