By Joseph Reinke, CFA
We have received over 200 emails and questions in 3 days about Coronavirus and student loans. Obviously, the Coronavirus is not a good thing. However, it is having a very positive effect for student loan borrowers. We discuss two groups of people with student loans who are benefiting from coronavrius below as well as those that aren’t affected.
Coronavirus Helping Those Paying Off Their Student Loans
For those of you trying to pay off your loans as fast as possible, Coronavirus is giving you an opportunity to save a lot of money. Interest rates in the financial markets have fallen off a cliff. This is bad for those trying to earn interest but great for those that have loans.
The result of rates plummeting is that student loan refinance rates have hit all-time lows. WE ARE SEEING PEOPLE WHO REFINANCED AS RECENTLY AS A MONTH AGO APPLY TO REFINANCE AGAIN AND GET RATES THAT ARE .25% – 50% LOWER THAN THEY GOT JUST A MONTH AGO.
Current interest rates that we are seeing are in the range of 2.75% – 5.04% (5 year loans – 20 year loans) with the bulk of borrowers getting rates in the low 4% range on a 10 or 15 year loan.
The 3 best student loan refinance companies we’ve seen this past week are listed below:
Note: Earnest can complete a loan in 1 – 2 days. Commonbond typically takes 3 – 5 days. Splash typically takes 2 – 4 weeks right now… Also, we partner with 9 student loan refinance lenders (yes, they pay us). We do not know what rates look like from companies that we do not partner with.
Coronavirus Helping Those Currently In-School
The good news for those that are in-school and who will be borrowing more money after May 2020 is that interest rates are going to be lower.
This will happen because student loan interest rates are now tied to United States Treasury rates. The 10 year treasury rate just dropped down to 0.5% due to coronavirus.
Translation…we should see student loan interest rates drop by 1.5% if not more (as of now… things can change over the next two months). If rates stay the same then next year try to borrow as much as you can. Use any extra money you receive and DON’T NEED to pay off the loans from this year that are at a much higher interest rate.
If you have questions about this and want to make sure you do the right thing then let us know. We’d be more than happy to walk you through this.
Who Doesn’t Benefit From Coronavirus
Those that are repaying their loans but don’t want to refinance. Your loans are fixed rates so they won’t drop at all. The only exception to this are those of you that already refinanced and used variable rate loans. If you are in a variable rate loan, right now may be a good time to refinance into a low fixed rate loan.
Another group of borrowers who don’t benefit from coronavirus are those that are pursuing student loan forgiveness via an income-driven repayment plan (REPAYE, IBR, PAYE, PSLF). The reason is that you are pursuing loan forgiveness and your payment is not based on your interest rate. You also don’t want to refinance your loans because then you don’t qualify for forgiveness.
If you have any questions, feel free to reach out to one of our expert student loan planners. We’d be more than happy to answer your questions.