Unlike federal student loans, private student loans are expensive and work differently from them. Federal student loans are paid down using an income-contingent plan, while private student loans are due to payments as soon as you receive the money.
Federal student loans are undoubtedly more straightforward to manage as you start making payments when you start earning more than the threshold limit. Your payments will automatically be withheld when you make money lower than the threshold pay. Interest rates are affordable and there are provisions about forbearance too.
Federal student loans and private loans can affect your credit rating. Missed payments on federal loans are reported after 90 days and go into default after 270 days. However, your private lenders report late payments within 30 days.
High interest rates can make it harder for you to keep up with your private student loans. You may think of consolidating it to qualify for lower interest rates. You cannot convert your private student loan into federal loans. In default of any better alternative, you can either club your student loan in Ireland with other debts or refinance it from the same or a different lender.
Combining your student loans with other debts
Consolidation is an option when you have other outstanding debts as well. You take out a new loan and use it to settle your existing unpaid accounts. You should have a stellar credit report to be eligible to consolidate all of them.
A few direct lenders may entertain your application despite a poor credit rating, but they will charge very high interest rates. The repayment length can be short, increasing the size of your monthly instalment.
Although there is no risk of losing anything, missed payments and defaults will take a toll on your credit report. Your score will sharply plummet, and then you will find it even harder to qualify for better interest rates.
Refinancing your student loan
Refinancing will help you avail yourself of lower interest rates without digging into your credit score. You can refinance it from the same or another lender. You will have to settle the current account with your new loan. You will be eligible to borrow at lower interest rates only when your credit score is good.
Your lender will see the track record of your previous payments on your student loan. If you have managed to keep up with payments, you are highly likely to refinance your student loan at an affordable interest rate.
Before you get the first offer, you should carefully shop around.
- Interest rates may vary by lender. Comparison-shop to get an attractive deal.
- Do not forget that you will have to pay early repayment charges while closing your existing account. Check carefully whether you are saving money despite early settlement fees.
- Compare loan deals from different lenders within a period of 14 days because all hard inquiries will be considered only one. As a result, your credit score will stay protected.
- You should try to get prequalifying letters from different lenders because lenders run soft credit, and it does not show up on your credit report, so your credit score stays intact.
What if it is difficult for you to pay your student loan?
Although consolidation and refinancing are two alternatives when it is being difficult for you to pay off your education loan from a direct lender, there is no guarantee that you will qualify for them.
The income-driven repayment plan is not an option for private student loans in Ireland. So, what can you do?
Case 1: your payments are too high
You have options to improve your situation, but you should act quickly. Before you fall behind on payments or make a default, you should immediately contact your lender. Inform them of your true financial condition. They will not offer you any relief unless you prove to them that you have got your back against the wall.
Figure out what you can pay down. Create a budget and see what expenses you can whittle down. Gather documents like bank statements and bills, as your lender might refer them to modify payments. Ask if they can extend your repayment plan. It will reduce your monthly instalment, although you will end up paying too much interest in total. You can drop them an email as well to send your request.
Case 2: you are already in default
If your account has already gone into default, there are still options for regaining control over your payments. You can easily get your student loan out of default by finding out your options. You should talk to your lender about what options they can propose to bail you out. They can set up a new repayment plan.
However, it depends on your lender’s policy. You should act quickly to keep your credit score from plummeting. The sooner you act, the sooner you can halt collection fees and other consequences.
A word of caution
- Make sure the agreement is in writing.
- Do not use any other debts like your credit cards or home equity loans to pay off your student loans.
- You should know where to turn to if you need any help.
- Get some help from free credit counselling agencies. You will better understand your options.
To wrap up
Private student loans cannot be consolidated with federal student loans but can be refinanced from a direct lender. If you owe other types of debts, you can combine all of them into an unsecured loan.
Both alternatives are subject to a thorough credit check and your repaying capacity. Chances are you fail to qualify for them. Therefore, talk to your lender to have your payments modified. A revised repayment plan that aligns with your current financial situation might ease off the debt pressure.