private loans to pay off student loans

Last Updated on July 9, 2022 by Paschal Alvina

Student loans can be a blessing and a curse. Many people don’t realize the opportunity that comes with education beyond high school, but is it worth the debt? The government does offer forgiveness on your student loans for those who have made 120 monthly payments after graduation. However, if you take advantage of this, you will most likely face severe penalties when it comes time to file taxes. To learn more about private loans to pay off student loans or student loan refinancing read with us. In this article we will review, private loans to pay off student loans, donors that pay off student loans, can I get a federal student loan to pay off a private student loan, Ways To Pay Off Student Loans Fast and Is it Smart to Use a Personal Loan to Pay Off Student Debt?

6 Ways To Pay Off Student Loans Fast – Forbes Advisor

Private student loans differ from federal loans in several ways. They can’t be consolidated with any federal or private loans through the Federal ONE Loan program, but some states do offer their own consolidation programs. With private student loans, consolidation depends on what state you went to school in and is also subject to state laws and regulations. Private student loans are not eligible for refinancing like federal students loans are. Read on to know more on, private loans to pay off student loans, donors that pay off student loans, can I get a federal student loan to pay off a private student loan, Ways To Pay Off Student Loans Fast and Is it Smart to Use a Personal Loan to Pay Off Student Debt?

private loans to pay off student loans

We begin with private loans to pay off student loans, then, donors that pay off student loans, can i get a federal student loan to pay off a private student loan, Ways To Pay Off Student Loans Fast and Is it Smart to Use a Personal Loan to Pay Off Student Debt?

Many lenders won’t allow you utilize a personal loan to pay off college loans. But even if they did, you likely wouldn’t want to. Personal loans often come with higher interest rates and shorter payback durations than student loans do. If you’re searching for a loan to consolidate or pay off student debt, refinance into another student loan instead.

Can you pay student loans with a personal loan?

When you take out a personal loan, the lender normally transfers the money immediately to you. You may then use that cash to pay for pretty much anything – except for most college fees.

You can utilize a personal loan for living costs while you’re in school, but it’s an expensive alternative. Other educational expenditures, including tuition and fees, normally aren’t eligible for help. Most lenders warn you can’t use their personal loans to pay off current school loans, either.

That’s because lenders must fulfill extra rules to issue “student” loans, including government criteria set in the Higher Education Act. Not all personal loans fit these criteria.

There are exceptions: For example, online lender Upstart claims its personal loans can be used for education-related fees, but not in every state. First Republic Bank provides a personal line of credit, which is a version of a personal loan, that you may use to refinance student debts.

If you’re not sure whether you can utilize a personal loan to pay off student debts, examine the lender’s terms and conditions. Specific student loan refinancing products will be branded as such and transmit their revenues straight to your loan servicer.

Should you utilize a personal loan to pay off school loans?

You can utilize a personal loan to combine debt at a reduced interest rate to save money. But those loans are meant for merging high-interest obligations, like several credit cards.

Debt consolidation loans differ from private student loan consolidations, commonly known as refinancing. Here’s why refinancing is often a better alternative for qualifying borrowers:

Lower interest rates. Rates on personal loans may range from roughly 6% to 36%, while student loan refinancing rates presently lie around 3% to 7%. That implies that if you can qualify for refinancing, you’re likely to obtain a better interest rate — and pay less, as a consequence — than with a personal loan.

Longer payback periods. Most personal loans provide payback durations between two and seven years. For private student loans, a five-year term is frequently the minimum. A shorter term may sound enticing because you’d pay off debts quicker. But you’d face greater monthly costs that would be further inflated by a personal loan’s high interest rate.

Better tax benefits. You can deduct student loan interest, up to $2,500, from your taxable income each year you repay qualified student loans. Interest on personal loans doesn’t qualify for a comparable tax reduction.

Personal loans do have one benefit over student loans: They can be wiped like most other unsecured debt during bankruptcy procedures. While student loans can also be canceled in bankruptcy, doing so takes an extra step that can be complicated and expensive.

Other methods to pay off student debt

You’ll normally need a credit score in at least the upper 600s, regular income and enough cash to pay your monthly costs to refinancing your student loans.

If you can’t qualify for refinancing, a personal loan certainly isn’t the option for paying down student loans.

Personal loans are accessible if you have terrible credit, but bad-credit customers may anticipate rates exceeding 25%. That would make them significantly more expensive than your present student debts.

Instead, you might attempt refinancing with a co-signer or wait until you’re in a greater financial situation. While you do that, additional tactics can chip away at your debt, such making biweekly payments and minimizing your interest rate by enrolling in automated payments.

donors that pay off student loans

Next we review donors that pay off student loans, can i get a federal student loan to pay off a private student loan, Ways To Pay Off Student Loans Fast and Is it Smart to Use a Personal Loan to Pay Off Student Debt?

Are there really helpful donors that pay off student loans?

Yes, there are. And we’re going to tell you about the best ones.

Rolling Jubilee is a nonprofit that has been crowdfunding to buy student debt from lenders at a discount and then abolish it. They’ve abolished more than $100 million in student debt so far, but they still have a long way to go—they’ve only managed to buy about $4 million worth of debt so far.

How to Pay Off Student Loans Fast: 9 Hacks | BestColleges

The Shared Harvest Fund is also working on buying and forgiving student loan debt, but they don’t crowdfund their efforts; instead, they rely on generous donors who want to help with this cause.

Crowdfunding websites like GoFundMe can be used to raise money for specific causes like paying off student loans or providing scholarships for students who need help getting through college. If you don’t have the money yourself but know someone who does and would be willing to donate it, this could be an option for you!

AmeriCorps offers full-time positions with three months of training followed by a year of service in exchange for an education award that covers tuition costs at any school of your choice as well as living expenses

can i get a federal student loan to pay off a private student loan

Now we find out, can I get a federal student loan to pay off a private student loan, Ways To Pay Off Student Loans Fast and Is it Smart to Use a Personal Loan to Pay Off Student Debt?

One of the biggest misunderstandings when it comes to student loans is whether you can consolidate your Federal and private student loans.

Think about it: you recently graduated from college with around five separate student loans. Three of them are Federal student loans and two of them are private. What do you do? Should you mix them? Should you leave things alone?

Well, since 2014, you may actually refinance and combine both your Federal and private student loans into a single loan with numerous private lenders. However, there are situations when consolidating all of your loans (both Federal and private) makes sense, and there are others when it may not.

Here is what you need to know about merging and refinancing your Federal and private student debts together.

Why Consolidate Your Federal and Private Student Loans?

Student debt consolidation can truly aid borrowers who would like a single payment for their loans. With many loans, it can be tricky to maintain different amounts owing, different payment due dates, and many more statements to keep track of.

By merging your private student loans and federal student loans, you can have a single bill each month, with the possibility for cheaper payments.

Federal Student Loan Consolidation

According to StudentAid.gov, the following types of student loans are eligible for consolidation: • Direct Subsidized Loans • Direct Unsubsidized Loans • Subsidized Federal Stafford Loans • Unsubsidized Federal Stafford Loans • Direct PLUS Loans • PLUS Loans from the FFEL Program • Supplemental Loans for Students (SLS) • Federal Perkins Loans • Federal Nursing Loans • Health Education Assistance Loans • Some previous consolidation loans

When you The interest rate will also be set at the current Federal Direct loan rate.

You are eligible for any “Direct” repayment plan – and you may design a schedule from 10 to 30 years to pay back the loan.

This is one of the finest strategies to minimize your current payment on your Federal student loans.

Private Student Loan Consolidation

If you wish to merge your private student loans together into one payment, you have to refinance your student loans. The process is fairly similar to Federal loan consolidation, however it is done via a bank rather than the Department of Education.

The benefits of refinancing your private student loans are often two-fold. First, you get a single monthly payment for all of your past private student loans. This makes repayment alternatives and financial management easy.

Second, you may be able to secure a cheaper interest rate, which will save you money over the life of the loan. Many borrowers don’t have fantastic credit when they start college, simply because they haven’t built it up yet. However, students tend to have substantially better credit records following graduation. This might help qualify you for a cheaper interest rate on your loan.

How to Consolidate Your Private and Federal Student Loans Together

If you wish to consolidate your Federal and private student loans, you have to do it via a private lender. The Federal Direct Consolidation Loan program does not merge private loans into Federal loans. However, numerous banks and businesses do allow you to combine your Federal and private loans into one payment.

When It Makes Sense to Consolidate Student Loans

Depending on your post-graduation experience, it may make a lot more sense to consolidate your loans. A frequent case is a graduate who has Federal student loans but is only on the usual repayment schedule. If your Federal loans are at 6.8 percent , and you aren’t taking advantage of any of the special repayment options, you may profit by consolidating to a private student loan with a reduced interest rate.

For example, a $20,000 Federal student loan at 6.8 percent will cost a borrower $27,619 to repay – $7,619 in interest. By contrast, if that student refinanced into a private student loan, they could significantly lower their interest rate and monthly payments. That would also reduce the total repayment over the lifetime of the loan – saving the borrower thousands in interest over the same 10 years.

The key here is to look at your own repayment terms and see if a lower interest rate is worthwhile.

When It Makes Sense to Keep Your Student Loans Separate

On the other hand, if you are taking advantage of benefits of your Federal student loan, such as income-based repayment plans or forgiveness plans, you should not consolidate your Federal student loans into your private student loans. Your Federal benefits will disappear if you do this, and you’ll end up owing the full balance of your loan over time.

Going back to our original situation, you could still refinance your private student loans and consolidate your Federal student loans through the Direct Consolidation program. That way, you might take advantage of the reduced rates potentially offered by a private student loan refinance, while still preserving your advantages on your Federal student loans.

Ways To Pay Off Student Loans Fast

The easiest strategy to pay off student loans is to pay more than the minimum each month. The more you pay toward your debts, the less interest you’ll owe – and the sooner the sum will disappear.

Use a student debt payback calculator to discover how soon you could get rid of your loans and how much money in interest you’d save.

Here are seven ideas to help you pay your student debt even quicker.

  1. Make additional payments the appropriate way

There’s never any penalty for paying off student loans early or paying more than the minimum.

But there is a catch with prepayment: Student loan servicers, which collect your payments, may apply the excess amount to the next month’s payment.

That pushes your due date, but it won’t help you pay off student loans faster. Instead, ask your servicer – either online, by phone or by letter — to apply overpayments to your current amount, and to maintain next month’s due date as scheduled.

You can make an additional payment at any point in the month, or you can make a lump-sum student loan payment on the due date. Either can save you a lot of money.

For example, let’s assume you owe $10,000 with a 4.5 percent interest rate. By paying an extra $100 per month, you’d be debt-free more than five years ahead of schedule, provided you were on a 10-year repayment plan.

  1. Refinance if you have strong credit and a stable job

Refinancing substitutes several student loans with a single private loan, hopefully at a cheaper interest rate. To speed up payments, pick a new loan term that’s smaller than what’s left on your present debts.

Opting for a shorter period may raise your monthly cost. But it will help you pay the loan faster and save money on interest.

For example, refinancing $50,000 from 8.5 percent APR to 4.5 percent might allow you pay off your student loan debt nearly two years faster. It would also save you nearly $13,000 in interest, even with payments that keep roughly the same.

You’re a strong candidate for refinancing if you have a credit score in at least the upper 600s, a steady income and a debt-to-income ratio below 50 percent . You shouldn’t refinance federal student loans if you want or need programs like income-driven repayment and Public Service Loan Forgiveness.

Would refinancing save you money?

  1. Enroll in autopay

If you don’t want to refinance your loans, signing up for autopay is another potential strategy to cut your student loan’s interest rate.

Federal student loan servicers offer a quarter-point interest rate savings if you let them automatically collect payments from your bank account. Many private lenders provide an auto-pay deduction as well.

The savings from this discount would likely be minimal — reducing a $10,000 loan’s interest rate from 4.5 percent to 4.25 percent would save you around $144 altogether, depending on a 10-year payback schedule. But that’s still more money to help pay off student loans swiftly.

Contact your servicer to enroll or find out if an autopay discount is available.

  1. Make biweekly payments

This easy approach is a way to deceive oneself into paying extra on debt: Pay half of your payment every two weeks instead than making one full payment monthly.

You’ll wind up paying an additional payment each year, saving time off your payback plan and bucks off your interest charges. Use a biweekly student loan payment calculator to discover how much time and money you may save.

The easiest strategy to pay off student loans includes paying interest while in school, using autopay and making payments monthly. Make additional payments to principal when you can. Consider refinancing. If not, adhere to the usual repayment plan rather than income-driven programs or using forbearance.

Yes, there are loans you can utilize to pay down your student loans. The procedure is known as student loan refinancing; you may pay off one or more of your loans through a private lender, sometimes at a cheaper interest rate.

Federal and private student loan payments normally begins six months after you graduate or leave school. You don’t have to wait to begin payments, though.

The easiest strategy to pay off student loans includes paying interest while in school, using autopay and making payments monthly. Make additional payments to principal when you can. Consider refinancing. If not, adhere to the usual repayment plan rather than income-driven programs or using forbearance.

The easiest strategy to pay off student loans includes paying interest while in school, using autopay and making payments monthly. Make additional payments to principal when you can. Consider refinancing. If not, adhere to the usual repayment plan rather than income-driven programs or using forbearance.

Yes, there are loans you can utilize to pay down your student loans. The procedure is known as student loan refinancing; you may pay off one or more of your loans through a private lender, sometimes at a cheaper interest rate.

Yes, there are loans you can utilize to pay down your student loans. The procedure is known as student loan refinancing; you may pay off one or more of your loans through a private lender, sometimes at a cheaper interest rate.

Federal and private student loan payments normally begins six months after you graduate or leave school. You don’t have to wait to begin payments, though.

Federal and private student loan payments normally begins six months after you graduate or leave school. You don’t have to wait to begin payments, though.

  1. Pay off capitalized interest

Unless your loans are supported by the federal government, interest will accrue while you’re in school, your grace period and times of deferral and forbearance. That interest capitalizes when repayment begins, which means your balance rises, and you’ll pay interest on a higher amount.

Consider making monthly interest payments while it’s accruing to prevent capitalization. Or make a lump-sum interest payment before your grace period or postponement ends. That won’t immediately speed up the payment process, but it will imply a lower balance to get rid of.

  1. Stick to the normal repayment plan

The government automatically places federal student loans on a 10-year payback timetable, unless you opt differently. If you can’t make substantial extra payments, the easiest method to pay off federal loans is to continue on that basic repayment plan.

Federal loans provide income-driven repayment programs, which can prolong the payments timetable to 20 or 25 years. You can also combine student loans, which stretches repayment to a maximum of 30 years, depending on your debt.

If you don’t actually need these alternatives and can afford to continue with the regular plan, it will mean a speedier route to becoming debt-free.

  1. Use ‘found’ money

If you earn a raise, a student loan refinancing bonus or another financial windfall, apply at least a portion of it to your loans. Consider using this breakdown: 50 percent of the excess income can go toward debt, 30 percent to savings and 20 percent to enjoyable, discretionary expenditure.

Some employers pay off student loans as an employee benefit. Find out whether your workplace provides an employer student debt payback program, and be sure to participate.

You might also establish a side hustle to pay off college loans rapidly. Sell goods like clothing, unused gift cards or photographs; rent out your spare room, parking place or car; or utilize your skills to freelance or consult on the side. v

Consider setting up restrictions for yourself, like putting any $5 or $10 dollars you get toward your loans. Some money-saving applications, like Digit and Qapital, will help you create savings goals and guidelines as well.

Is it Smart to Use a Personal Loan to Pay Off Student Debt?

The quick answer is: It depends. Here’s what you should consider before using this method.

Sometimes, it’s easy to feel like you’ll never pay off your full student loan debt sum. In fact, respondents to a One Wisconsin Institute poll stated on average, it took them 21 years to pay off their student loan debt. So it might be fairly tempting to seek for inventive methods to pay down your debt a bit quicker.

Personal loans may typically be used on any significant cost (such a wedding, a home repair or an emergency expense), but for many individuals, they are a vital way to consolidate debt or pay down high-interest debt a little faster.

On average, personal loans have a lower interest rate compared to credit cards — according to the Federal Reserve, the current average APR for a two-year personal loan is 9.58 percent while the average APR for a credit card is 16.30 percent .

Of course, the interest rate on a personal loan will depend on your credit score. And, usually, the higher your credit score, the more likely you are to acquire a reduced interest rate among other more favorable terms for a personal loan. Some lenders, like LightStream, really offer borrowing rates as low as 3.49 percent . And peer-to-peer lenders like LendingClub can also provide lower-than-average interest rates (LendingClub’s rates start around 7.04 percent ).

Annual Percentage Rate (APR) (APR)

3.49 percent to 19.99 percent * when you sign up for autopay

Loan purpose

Debt consolidation, home improvement, vehicle finance, medical costs, wedding and others

By comparison, interest rates for federal student loans will vary on the kind of loan (undergraduate, graduate or parent PLUS loan), but the average rate across the board is 5.8 percent . And when it comes to private student loans, average interest rates can vary from 6 percent to 7 percent but can be as high as 12.99 percent among big private lenders. So the concept of taking a lower-interest personal loan to pay off a student debt might appear like an opportunity to save on interest.

So can you utilize a personal loan to pay off student loan debt? It depends. Here’s what you should consider before using this method.

Every lender has its own set of rules when it comes to how the cash from a personal loan can be utilized. For example, although some lenders will allow you to utilize a personal loan toward small company expenditures, others will not, and you’ll have to apply for a small business loan instead.

Many lenders actually have restrictions that ban the use of a personal loan for paying off student loan debt. If you aren’t sure if a specific lender will allow you to use the cash for this reason, you should be up front about your plans to avoid infringing the lender’s conditions of use. If you use the money for a forbidden purpose, you might be held accountable for paying back the whole amount immediately.

Interest rates on personal loans can sometimes be cheaper than interest rates on private student loans (depending on the lender and your credit score, of course), but not always. The only time you’ll genuinely save money by taking a personal loan to pay off your student loans is if you’re absolutely obtaining a cheaper interest rate on the loan.

Some lenders include tools you may use to determine what loans you qualify for and what your interest rate is likely to be. Prosper Personal Loan, for example, features a rate calculator that can show you how much you’ll qualify for, what your monthly payments will look like and how much you’ll spend in interest, all without affecting your credit score. This might give you receive a glimpse of what’s to come if you do decide to submit an application.

Annual Percentage Rate (APR) (APR)

Loan purpose

Debt consolidation/refinancing, home remodeling, auto/motor, medical or dental, large buy and more

2.41 percent  to 5 percent , withheld from loan proceeds

Early payoff penalty

Late charge

5 percent of monthly payment amount or $15, whichever is larger (with 15-day grace period) (with 15-day grace period)

In 2020, all federal student loan payments fell into a deferment period as a result of the Covid-19 epidemic. This forbearance period was recently extended to Jan. 31, 2022. This implies that federal student loan borrowers are not obligated to make student loan payments at this time, and their balances will not accumulate interest until after the pause expires next year. If you have private student loans, or you refinanced your federal student loans, however, you don’t qualify for this security.

If you take out a personal loan with the goal of utilizing the money to pay down your federal student loan burden, you will forfeit all the safeguards that come with federal loans. That means you won’t be able to apply for any federal debt repayment programs, such an income-driven repayment plan, grace periods for payments and public service loan forgiveness (PSLF), and you’ll lose access to the current forbearance term as well.

These efforts are meant to make it easier to repay your debt as a federal student loan borrower, but they’ll no longer be accessible to you after you take on a private personal loan to pay off the balance. This might provide a fiscally tough circumstance if you truly wind up requiring some economic reprieve from paying payments.

Bankruptcy is a procedure where a person can seek relief from part or all of their debts if they are unable to repay them. Chapter 7 bankruptcy can totally remove any debts you have. And while it can damage your credit score, filing for bankruptcy provides something of a financial reset — by improving your financial habits, you can work to rebuild your credit score over time.

But most student loans aren’t discharged when you file for bankruptcy. According to the American Bar Association, both private and federal student loans are unable to be discharged in bankruptcy unless a borrower can prove that the loan payment is a “undue hardship.” However, it is notoriously difficult to prove the standards for undue hardship (here’s more on what you need to know about filing bankruptcy on student loans).

Personal loans, though, can be discharged in bankruptcy. This is arguably one of the few advantages to paying off a student loan using a personal loan.

Refinancing is a popular option for student loan borrowers because they can usually land a lower interest rate and might even end up with lower monthly payments, too. The terms around refinancing a student loan also aren’t as restricting as they are when it comes to using a personal loan to pay off student loan debt. Just keep in mind that when refinancing, you’ll typically lose federal protections on your student loans. But it can be a smart move for anyone with private student loans.

There are also many options available when it comes to finding a lender that will refinance your student loans. Interest rates for refinancing a loan at SoFi start at 2.74 percent if you make your monthly payments using autopay. And SoFi is currently offering student loan refinance terms similar to the terms of the federal forbearance period — it’s allowing borrowers to lock in a lower interest rate with 0 percent interest until Dec. 20, 2021 and make no payments on their balance until Feb. 2022.

Cost

No origination costs to refinance

The only time you’ll save money is if you’re absolutely obtaining a cheaper interest rate on the loan. If you take out a personal loan to pay off your student loans, you lose access to federal protections. You won’t be able to apply for income-driven repayment plans or grace periods for payments. Most student loans aren’t discharged when you file for bankruptcy. Refinancing is a popular option for student loan borrowers. Just keep in mind that when refinancing, you’ll typically lose federal protections. SoFi is currently offering student loan refinance terms similar to the terms of the federal forbearance period. The terms aren’t as restricting as they are when it comes to using a personal loan.