If you are struggling to make regular and on-time student loan payments, you are not alone. Graduates in the U.S. collectively hold $1.6 trillion in student loan debt, and the changing economy has made the burden of student debt increasingly difficult to manage. As a result, many graduates are looking for ways to refinance their debt. If you are exploring your options for loan repayment, you may consider applying for a personal loan. However, before choosing to use a personal loan to pay down your student loans, you should consider all of your options so you can make the best decision for your situation.
If you have accumulated a lot of student loan debt, you should consider working with a skilled student debt relief lawyer. Here are some important things to consider about using personal loans to pay down your student loans.
What Are the Options for Paying Back My Student Loans?
Paying back student loans is a significant and long-term undertaking, which is why it’s important to ensure you’re entering into the best payment plan for your situation. Some of the options you may have for paying back your student loans include:
- Deferment enables you to temporarily stop making payments on your loan without accruing interest.
- Forbearance, similar to deferment, allows you to temporarily stop making payments on your loan. However, in this situation, interest does accrue on your balance.
- Income-driven repayment plans are offered by the Department of Education and set your monthly payment in accordance with your income to ensure an affordable rate. There are four different kinds of income-driven repayment plans offered by the Department of Education.
- Consolidation plans let you combine multiple loans into one to make the monthly payments more manageable. Usually, these plans allow you to extend the term of your loan and reduce the overall monthly payment.
- Refinancing allows you to replace your student loan with one from a private lender. Usually, refinancing your student loan allows you to secure a lower interest rate. However, it does eliminate any protections that were embedded into the original loan.
- Applying for personal loans to pay off your student loans means you’ll essentially swap one kind of debt for another. Securing a personal loan may result in a different interest rate and loan term than your original agreement.
Of all of these options, a personal loan is the least favorable. If you are really in a bind, you should consider refinancing your loan before giving the personal loan route a go. Refinancing and applying for a personal loan are similar, but refinancing has a couple of key advantages.
What Is the Difference Between Personal Loans and Refinancing Student Loans?
Of these two options, refinancing is the favorable route. When you refinance your student loans, you will likely be able to secure a lower interest rate than your original agreement. Additionally, refinancing is a more straightforward process, as the lender in this arrangement will immediately pay off your original loan. Conversely, with a personal loan, the lender will provide you with the lump sum of money you need to pay off your balance, but you will have to take care of it on your own.
A Closer Look at the Pros and Cons of Using a Personal Loan to Pay off Student Loans
In order to fully determine whether a personal loan might be a viable option for you, it’s a good idea to take a closer look at the pros and cons. Some of the pros of personal loans include:
- You may be able to enter into a new loan term, which could mean a lower interest rate.
- You may be able to consolidate your federal and private loans into one loan, which could make it easier to manage your debt.
- They may offer more flexibility than your original loan.
Some of the drawbacks of personal loans include:
- You will lose any of the protections in your original loan agreement, including student loan forgiveness.
- If your credit score is in the low 600s, it may be hard to secure a lower interest rate than your original agreement.
- Personal loans usually have fees and penalties. Most personal loans will have an origination fee, which is normally between 1–6 percent of the borrowed amount. Additionally, there can be expensive penalties for failure to uphold any of the loan agreements.
- Getting a personal loan means you will no longer be able to claim your student loan interest as a tax deduction.
If you are able to secure a significantly lower interest than your original loan, a personal loan may be a viable option. However, the reality is that in the majority of cases, personal loans come with more drawbacks than benefits. Specifically, if you have federal student loans, it’s almost always a bad idea to take out a personal loan. If you are in over your head with student loan debt, the best way to gain a clear perspective on the ideal repayment plan for your situation is to contact a skilled debt settlement lawyer.
Contact a Skilled Arizona Student Loan Lawyer
At McCarthy Law, our attorneys are dedicated to helping students pay off their student loans. Under our student loan debt settlement program, our licensed attorneys negotiate with lenders to ensure our clients pay only a fraction of their original loan balance. To schedule a consultation with one of our skilled student loan settlement attorneys, call our office at (855) 976-5777 or fill out our online contact form.