Why is Student Loans Hard to Pay Off for US Students and Does Refinancing Help?

This is the time when you will be receiving acceptance letters from your dream colleges. However, you still need to wait a little longer for the decisions on your financial aid. Usually, the financial aid awards letters arrive in early April.


Making college pay today is getting very difficult today. 70%of American students need student loans to “balance the books.” This makes going to college for these students very risky. As US citizens, you can get federal loans. But, federal student loans are hard to pay off. There’s over 1.4 trillion in student loan debt in the US (as of June 2018). The average debt for a Class of 2017 graduate exceeded $35,000. Moreover, adults aged over 60 owe $67 billion in student loan debt. In this post, we will try to throw some light on why are student loans hard to pay off and if refinancing student loans makes sense.


why is student loans hard to pay off
Source: American Banker


Why is Student Loans Hard to Pay Off and Does Refinancing Help?

Co-authored by Frank Smith



The financial situation is not anymore a roadblock to pursue and finish a college education. Aside from scholarships, federal loans are open for students in order for them to fund their tertiary education. However, if this is the case, it means that most students, who are financially challenged, would graduate with loans recorded in their credit report. These loans will already be listed as one of the important bills to pay. But, what if the graduate failed to find a job immediately, or lose the job if he/she happens to find one? This would only mean one thing, a low credit score for a student loan. Thus, the main question is, why is it hard to pay off a student loan?


Advantages and Disadvantages of Student Loans


As mentioned in the introduction, student loans provide opportunities for students, who have financial difficulties, to fund their college education. Consequently, such an opportunity would enable students to have a professional degree which will boost their employability or capability to open businesses.


Thus, when the student is able to have a source of income, payments for the loan may already be possible. In other words, student loans may be considered as a good loan because it was used to something that would add value later on. Furthermore, if the graduate would be able to complete paying the loan, his or her credit score would increase and that means good financial performance. Hence, that student may be allowed to get bigger loans in the future.


In contrast, the good thing about student loans may also be its negative description. If a graduate missed a payment or would not be able to pay it in the future, this loan may have a detrimental impact on the credit report, particularly the credit rating. This is because even if it is a student loan it is still a loan. Students who have engaged in student loans have, somehow, put their credit rating at risk. Thus, they have to ensure paying their loans in terms. Therefore, it is a must for graduates to find any source of regular income in order to complete the payments of their loan.


Paying Off Student Loans


Since a student loan is still a loan, then the ultimate answer to be freed from this responsibility is to pay-off. Of course, while being a student, it would be difficult because the source of income is not yet available. But, it does not mean there is nothing which can be done to solve it. One option could be payment deferment. This means you could make an agreement to pay the loan at a much later time when you gain the capacity to pay for it.


However, deferment may still have a negative impact, but it is much lighter compared to being delinquent due to late payments. Just make sure to pay by the time you already can. Moreover, deferment may give an opportunity to be a good payor. When the capacity to pay has been obtained after deferment, this may boost one’s credit rating which may imply a good credit performance. Hence, deferment may help in paying off or increasing the principal amount of loans. Thus, this is what makes student loans hard to pay off.




To ease up in paying off loans, the following must be considered. First, always monitor your credit standing for you to plan your loans even if it’s only a student loan. Second, explore how can you maximize your loan and make it more advantageous to you. While you are studying, think of how you can pay it the earliest possible time. Maybe you can sell something or have a sideline job. At least, you developed yourself.


Lastly, if you can’t have sideline jobs or business while being a student, just make sure that when you graduate you don’t waste time dilly dolly. Start setting goals, planning your way up and live life not just for the sake of paying for loans, but to have a meaningful and quality life.


Student Loan Debt Refinancing
Source: AARP




Student loans are good because it is used as an investment that may add value to the person needing it. But it is difficult to pay off. Worse, it may put your credit score at risk. But, despite all this, this can be good for you. Just know how to maximize and this can increase your credit limit.


Bottom line, be financially wise. Refinancing student loan could be a good option and provide some breathing room to you. Keep reading to learn more about student loan refinancing.


Refinancing Student Loans


What is Student Loan Refinancing?


Student loan refinancing is when a lender pays off your student loans, and offers you a new loan, potentially at a lower interest rate.


Refinancing is offered by private lenders, who often choose to offer lower rates to financially responsible (and hence less risky) borrowers, based on the borrower’s income, credit history, and other factors.


Refinancing is a good option, but only in a few specific cases. A refinance occurs when a business or person revises the interest rate, payment schedule, and terms of a previous credit agreement. A refinance involves the reevaluation of an entities credit terms and credit status. Debtors will often choose to refinance a loan agreement when the rate environment has substantially changed causing potential savings on debt payments from a new agreement.


Why Refinance?


The current rate environment is typically a key catalyst for loan refinancings however an improved credit profile or a change in long-term financial plans can also lead borrowers to seek new credit terms. A common goal is to pay less interest over the life of the loan.


With student loan pay off getting steeper day by day, you may want to consider refinancing the student loan, depending on the type of student loan you have and your ability to meet your monthly payments.

Refinancing Student Loan Debt
Source: CNBC


With a student loan refinance, you take out a new loan to pay off the old one and then benefit from new interest rates or terms.


For example, you might be able to qualify for a lower interest rate if your credit score has improved or rates have gone done since your loan was originated.


Alternatively, you could extend the repayment term of your student loan to help lower your monthly payments. You’ll pay more interest over time, but it can help prevent you from defaulting if your budget is tight.


Student Loan Debt Refinance
More People Over 60 Are Struggling To Pay Off Student Loans (Source: NPR)


Factors to Consider Before Refinancing Student Loan


Does refinancing student loan make sense? 


Refinancing student loans can bring down the interest rates and reduce what you pay over the life of your loans.


But, be careful. Moving to a private lender also means sacrificing some of the perks of federal loans, including income-based repayment and forbearance. Before making such a move, be sure to assess your personal financial risks and complete a thorough background check on every lender you consider.


Student Loan Refinancing
Source: Student Loan Hero


You need to ask these 10 questions before you take the decision of refinancing your student debt.


  1. What is my main goal for refinancing student loans?

  2. What interest rates can I get?

  3. What are my student loan payoff amounts?

  4. How much can I afford to pay each month?

  5. Will I need federal student loan repayment options in the future?

  6. Do I have good enough credit to refinance my student loans?

  7. Do I meet lenders’ income requirements?

  8. Do I need a cosigner? Is cosigner release an option?

  9. Does the refinance lender offer flexible repayment options?

  10. What type of support and customer service does the lender provide?


When to Refinance the Student Loan?


Refinance as soon as you have good credit and a stable income. That will get you a rate that’s low enough to make it worthwhile.


When you refinance, a lender pays off your existing loans with a new one at a lower interest rate. That will save you money in the long run — and from the very first payment. When to refinance student loans depends on whether you’ll find a rate that makes a difference in your life.


For example, a $30,000 private student loan with an 8% interest rate, will give you a $364 monthly payment over 10 years. Refinancing to a 10-year loan term at 5% interest will save you $5,494 in total and $46 per month — enough to make a dent in an electricity, cable or phone bill.


Here are 4 circumstances that you need to consider.


  1. You have student loans with highly variable rates.

  2. You have private student loans.

  3. Your credit has improved.

  4. The savings will make a difference.


When You Shouldn’t Refinance Student Loan?


Refinancing student debt won’t be a good idea under the following circumstances.


  1. You have federal loans and could see a drop in income.

  2. You’re pursuing student loan forgiveness.

  3. You recently declared bankruptcy.

  4. You’ve recently defaulted on student debt.

  5. You’ll take much longer to pay off loans.


Read more on when refinancing student loans is a bad idea and risks involved in student loan refinancing.


Top Lenders for Student Loan Refinancing


  • Earnest

    Top Lenders for Refinancing Student Loan Debt
    Sources: Student Loan Hero
  • LendKey
  • Citizens Bank
  • Credible
  • SoFi
  • Laurel Road
  • Common Band
  • Purefy
  • College Ave
  • iHelp
  • Education Loan Finance (ELFi)
  • MEFA


Education Loan and Financing Tips for the International Students


If you are an Indian or international student, read education loan and financing tips while studying abroad. If you are looking at to study Bachelors in the US, here is the list of 85 best colleges in the US that offer maximum financial aid to the international students.



Online MBA

About Frank: 

My name is Frank Smith (MBA), an advocate of educating people in any way possible. At present, I am focusing on online MBA, since I know the need for busy people and working professionals to get ahead in the business world. 



Featured Image Source: http://www.crediful.com

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