Worse yet, inflation shows no signs of slowing, which could mean high-interest rates are here to stay.

There are options for borrowers stuck in this situation, but there isn’t a method that will work 100% of the time for all borrowers.

What causes private student loans to suddenly have high-interest rates?

Lenders love to market variable-rate interest loans.

During times of low interest rates, which happened when many of us were in college, variable-rate loans looked especially tempting.

The problem is that when interest rates go up, the interest rate changes on the loan. Rates may change monthly, quarterly, or yearly. In many cases, lenders don’t give borrowers any notice that their interest rate is increasing.

Over the past year, interest rates have increased dramatically due to inflation. As long as inflation persists, borrowers can expect their variable-rate loans to stay at a high interest rate.

The Big Goal: Debt Elimination

As interest rates go up and monthly payments increase, many borrowers struggle.

These hard times can cause borrowers to get desperate. Many borrowers ask for temporarily reduced payments or a break from payments, such as a forbearance or a deferment.

Sadly, these options often only serve to make things worse. Unless you are dealing with a temporary hardship likely to end soon, a deferment or a forbearance is probably a mistake.

When managing private student loans, the goal should be debt elimination. The debt may unnecessarily linger for years if your only concern is manageable monthly payments.

The Quick Fix: Deal with the Brutal Interest Rates

There is a long list of options for borrowers to get lower interest rates on their student loans.

For borrowers with a steady job and solid credit score, refinancing is usually the quickest way to make interest rates manageable.

Is student loan refinancing dangerous? If you have federal student loans, refinancing with a private lender can be a risky move.

In the case of private loans, there is significantly less risk because the debt is already a private loan. In a private loan refinance, the debt simply moves from one lender to another. Refinancing makes sense if you can get a lower interest rate from a refi lender.

As of November 2024, the following lenders offer the lowest fixed-rate loans on a student loan refinance.

Rank	Lender	Lowest Rate	Sherpa Review
1		3.95%	Earnest Review
2		3.99%*	Splash Financial Review
3		4.88%	ELFI Review

For borrowers looking for lower interest rates at the lowest possible monthly payment, a 20-year loan often makes the most sense.

The following lenders offer the lowest interest rates on 20-year fixed-rate loans:

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

Getting Assitance from the Government

The government offers generous perks for federal borrowers, such as income-driven repayment and student loan forgiveness.

Unfortunately, these borrower protections are not available on private student loans. Additionally, converting private student loans into federal student loans is nearly impossible.

However, because many private student loan borrowers are also federal student loan borrowers, these federal perks can help borrowers attack their private debt.

If you have a high-interest private loan and a low-interest federal loan, attacking the private loan first can result in significant interest savings. For example, if a borrower can switch from the standard repayment plan to an income-driven repayment plan, they could reduce their monthly bill by hundreds of dollars each month. This extra money would allow the borrower to pay extra towards their private loan.

Getting Help from a Cosigner

Generally speaking, cosigning a student loan is an objectively bad idea. The cosigner takes on tremendous risk, and the borrower gets all the benefits.

That said, many parents, relatives, and friends decide to cosign on loans to help loved ones attend college.

If you are struggling to repay your private loan, it is critical that you talk to your cosigner. They may choose to help make payments so that their credit score isn’t negatively affected.

Another option for cosigners would be to cosign on a refinance loan. The cosigner is still attached to the debt, but the borrower gets a lower interest rate and has a better chance of eliminating the loan without forcing the cosigner to make payments.

Preventing Interest Rate Increases

Sadly, borrowers don’t have many options to prevent their lenders from raising interest rates.

If you have a variable-rate loan, there are only two ways to stop the rates from going up:

• Pay off the loan in full.
• Refinance into a fixed-rate loan.

Perhaps worst of all, these limited options mean the borrowers struggling the hardest will also have the most difficult time keeping interest rates manageable.

The post How to Lower Interest Rates on Variable-Rate Private Student Loans appeared first on The Student Loan Sherpa.

With mortgage rates and house prices on the way up, home ownership may seem out of reach. These challenges hit student loan borrowers especially hard.

If there is good news in this situation, it is that not all hope is lost. The borrowers who understand how their student loans impact mortgage applications can tweak their repayment strategy to increase their purchasing power.

Student Loans, Interest Rates, Inflation, and the Most Important Number for Getting a Mortgage

I find that student loan borrowers often overestimate the importance of credit scores for mortgage applications.

While your credit score is an essential element to qualifying for a mortgage, it isn’t the most important one. The most critical number in the mortgage approval process is your Debt-to-Income Ratio or DTI.

When lenders look at your DTI, they look at home much you have to spend each month on your existing debts and your potential house payment. Then, they compare it to how much you earn each month. If the lender decides your salary isn’t sufficient to handle your current bills and the mortgage you want, you won’t be approved for the loan.

The changing economic climate hurts all mortgage applications. Higher interest rates and higher home prices mean larger mortgage payments for all homes.

Things hit student loan borrowers especially hard because these same factors cause havoc on their student debt in several different ways.

Sherpa Tip: One way to combat the tough economic climate is to make sure you prepare your student debt before applying for a mortgage. The best repayment plan for getting a home loan is usually the SAVE plan, but it will depend on the borrower’s income and loan balance.

Monthly Student Loan Payment Changes

Borrowers with variable-rate student loans are hit hardest by the connection between inflation, rising interest rates, and student loans.

As interest rates increase to combat inflation, variable-rate student loan interest rates also increase. Higher interest rates mean higher monthly student loan bills. Student loan lenders report the higher monthly bills to the credit agencies.

When a mortgage lender looks at your monthly debts for DTI calculation, this higher monthly bill reduces your chances for approval and the size of the mortgage you can get approved.

Sherpa Tip: Many borrowers can lock in a fixed-rate loan to prevent variable-rate student loan increases. The options vary based on your loan type, and don’t work for everyone. However, many borrowers can lock in a fixed-rate loan to prevent increasing interest rates from hurting their approval chances.

Federal Payment Formulas are Slow to Respond to Inflation

Each month the cost of gas, groceries, and rent increases. Inflation hurts because your paycheck doesn’t go as far as it once did.

In theory, federal student loan payments are designed to stay affordable for borrowers. If you enroll in an IDR plan, your monthly payment is calculated based on your discretionary income.

Sadly, one of the problems with IDR calculations is that they respond slowly to inflation. The IDR formula for discretionary income is updated once a year. During times of heavy inflation, things can change quickly in six months.

For borrowers, this dynamic means that as their budget tightens, the IDR payment consumes a larger portion of their actual discretionary income. This makes it harder to save for a down payment and to eliminate other debts.

Making Sure Student Loans Don’t Wreck Mortgage Applications

The economic climate makes it harder to buy a house and makes student loans even more devastating.

Fortunately, the tactics to clean up student loans for mortgage applications work in any environment.

Things have undoubtedly gotten harder, but that doesn’t mean student loan borrowers can’t become homeowners.

The post How Inflation, Rising Interest Rates Make it Harder for Student Loan Borrowers to Buy a House appeared first on The Student Loan Sherpa.

Sadly, inflation often means higher interest rates for student loan borrowers.

The good news is that borrowers can prevent inflation from impacting their student loan bills. The strategy will depend upon what type of student loans you have.

How Inflation Impacts Student Loans

During times of inflation, the prices of goods and services increase. One way the government can fight inflation is for the Federal Reserve to raise interest rates.

When the Fed raises interest rates, it impacts interest rates across the economy. This means higher interest rates on mortgages, car loans, and student loans.

Fortunately, these changes only impact some student loan borrowers. If you have a fixed-rate loan, your interest rate does not move. If you have a variable-rate loan, your interest rate will almost certainly increase.

Digging Deeper: Inflation can be helpful for some borrowers and harm others. Learn how changing economic conditions impact student loan borrowers.

Inflation for Federal Borrowers

Dating back to the fall of 2006, all federal student loans issued come with fixed rates. If you have a fixed-rate federal loan, it means inflation will not impact your monthly student loan payments.

However, if you have a federal student loan from the Spring of 2006 or earlier, your loan has a variable interest rate.

Preventing interest rate increases from inflation is relatively easy. Federal direct consolidation eliminates variable-rate loans and replaces the debt with a new fixed-rate loan. This means borrowers can lock in their current low interest rates permanently.

However, it is worth noting that consolidation impacts more than just your interest rate. Consolidation can help or hurt program eligibility, including student loan forgiveness. Be sure you understand the consequences of consolidation before starting the process.

Private Student Loans, Inflation, and Rising Interest Rates

Like with federal loans, if you have a fixed-rate loan, you are in the clear.

Unfortunately, variable-rate loans are far more common with private lenders. Worse yet, preventing interest rate increases due to inflation is more difficult.

Borrowers have two main options to prevent interest rate increases on their private loans:

• Option 1: Pay off the loan balance in full. Writing the big check isn’t an option for most borrowers. However, if you have been delaying paying off your loans to pursue other financial goals, now might be the time to knock out your variable-rate loans.
• Option 2: Refinance with a fixed-rate loan. When you refinance, you find a new lender who issues a fixed-rate loan. That fixed-rate loan is used to elimiante your variable-rate loans. It is a great way to prevent interest rate increases, but borrowers will need a good credit score and income to qualify.

Refinance Strategy

If you are refinancing to prevent inflation from impacting your interest rates, two strategies are used.

Some borrowers want the lowest fixed rate possible. This usually means a 5-year fixed-rate loan. The downside to this strategy is that higher monthly payments are required to pay off the loan in just five years.

As of November 2024, the following lenders advertise the lowest rates on 5-year fixed-rate loans:

Rank	Lender	Lowest Rate	Sherpa Review
1		3.95%	Earnest Review
2		3.99%*	Splash Financial Review
3		4.88%	ELFI Review

If you want to lock in a fixed rate and keep monthly payments manageable, a 20-year fixed-rate loan is often the best choice. The starting interest rates are usually slightly higher, but the monthly bill is much lower due to the extended repayment length.

As of November 2024, the following lenders advertise the lowest rates on 20-year fixed-rate loans:

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

Finally, it is essential to note that the lenders advertising the lowest interest rates may not actually offer the lowest interest rate. Each lender uses a different formula for deciding the rates borrowers receive. One lender may consider you a risky bet and offer a high rate while another loves your credit profile and offers a lower rate. Shopping around for the best rate is essential.

What if interest rates drop in the future? Don’t worry about waiting until the rates are at the lowest possible. Unlike a mortgage, where refinancing can cost thousands of dollars, the only cost to refinancing student loans is your time.

You can refinance now, and if rates drop in a few months, refinance again. There really isn’t a harm to refinancing your student loans multiple times.

Minimizing the Damage of Inflation to your Student Loans

Some borrowers don’t have the option of refinancing to prevent interest rate increases.

If you fall into this category, it is still possible to take steps to minimize the damage caused by inflation. For most borrowers, this means focusing your efforts on eliminating your variable-rate student loans first.

For example, many borrowers choose to pay down a loan with a 5% fixed interest rate before attacking a loan with a 4% variable interest rate. However, if you fear inflation will cause the variable-rate loan to jump dramatically, you should focus on eliminating the variable-rate loan first.

Additionally, there is a long list of strategies that borrowers can use to lower interest rates.

The post Fighting Inflation: How to Stop Student Loan Interest Rate Increases appeared first on The Student Loan Sherpa.

We don’t know how long inflation will be an issue or how long high interest rates will last across the economy.

However, what we do know for sure is that inflation impacts student loan borrowers.

What is inflation?

Inflation is a general rise in price levels in an economy over a period of time.

In most cases, small steady inflation is normal. Most experts say that some inflation is a good thing and a sign of a growing economy.

As consumers, we see the prices of goods and services increase. However, historically, inflation also meant increases in wages.

If there is inflation, it means that a dollar today buys more than a dollar will in the future.

So what does this have to do with student loans?

Inflation is Good for Many Borrowers

Suppose you are repaying your federal loans on the 10-year repayment plan. Each month you pay $324 towards your debt.

If there is steady inflation, those $324 payments will seem more affordable with each passing year. As noted earlier, inflation typically means salary increases, so that same $324 payment will be a smaller portion of your salary.

The borrowers hurt by inflation are the ones with variable interest rates.

The Student Loan Borrowers Hurt by Inflation

Variable-rate loans have interest rates that can go up or down.

During times of higher inflation, borrowers should expect variable-rate loan interest rates to increase.

When borrowers see a larger than expected monthly bill, the culprit is often a variable-rate student loan with a recent rate adjustment.

The borrowers hit hardest will be the ones who do not experience wage growth during inflation, but they do see increased monthly payments.

How do I know if my loan is a fixed or variable rate? Federal student loans are fixed-rate loans. Congress adjusts the interest rates on new loans each year, but once the borrower receives the loan, the rate does not change.

Private student loans should indicate if the interest rate is fixed or variable on the monthly statements. If the answer isn’t obvious from your statement, a quick call to your lender should remove any doubt.

Preventing Inflation Issues

The borrowers most vulnerable to inflation are the ones with variable-rate private student loans.

While some of these loans have interest rate caps, the maximum possible interest rate is often in the 9-10% range.

If you have a variable-rate loan and are concerned about inflation, the best way to address this issue is to refinance with a fixed-rate loan.

One area where inflation hasn’t moved things too much is on longer loans. Borrowers can still get low interest rates on a 20-year fixed-rate loan.

Rank	Lender	Lowest Rate	Sherpa Review
1		6.08%*	Splash Financial Review
2		6.53%	ELFI Review
3		6.55%	Laurel Road Review

The post What Does Inflation Mean for Student Loans? appeared first on The Student Loan Sherpa.