If you’re problem-solving your engineering student loan debt, there’s a key variable you must not overlook.
Whether you’re a veteran engineer or just starting out, your income makes you a great candidate for student loan refinancing.
Through refinancing, you could save money by lowering your interest rate, or maybe reduce your monthly payment to make it more manageable.
Here’s what to know about the advantages of refinancing — plus three possible alternatives if you decide refinancing isn’t for you.
Access to student loan refinancing for engineers
Class of 2018 engineering graduates were expected to command an average starting salary of $66,521, a high among all majors, according to the National Association of Colleges and Employers.
Plus, the median salary for engineers of all experience levels last checked in at $91,010, according to the Bureau of Labor Statistics.
That kind of salary could help you qualify for student loan refinancing. Some lenders require you to earn a minimum income or sport a minimum credit score — LendKey, for example, mandates that you reel in at least $24,000 per year and have a credit score of no less than 680.
And to unlock the lowest rates advertised by refinancing lenders, you’ll need to have even stronger financials or to apply with a cosigner who does.
Lenders also look for refinancing applicants with a steady job and strong career prospects. Reputable lender Earnest, for example, considers career trajectory when quoting interest rates. Here, too, your profession makes you much more likely to get approved.
But even if can qualify to refinance your student loans, should you?
How engineers could benefit from student loan refinancing
Among its chief benefits, refinancing allows you to consolidate your existing federal and private student loans and (unlike a federal direct consolidation loans) can get you a lower interest rate.
Say you have $40,000 worth of loans on a 10-year repayment plan tagged with an average rate of 7.00%. If you refinanced the lot into one new loan with a 5.00% rate, you could save nearly $5,000 in interest over the next decade, according to our student loan refinancing calculator.
Perhaps you’re considering refinancing to slow down your repayment rather than quicken it. Through refinancing, you could lower your monthly dues if you’re willing to stretch your repayment term at the cost of additional interest.
Refinancing that $40,000 in loans from a 10-year term to a 20-year span, for example, would shrink your monthly payment from $464 to $264. In exchange for that $200 of monthly savings, you’d shell out an extra $7,624 of interest by the time your debt is dead. That could be an acceptable trade-off if you’re desperate for breathing room in your short-term budget.
Aside from the dollars and cents of refinancing, there are other upsides, including:
- Making one payment to one lender, simplifying your repayment
- Choosing a lender that offers perks, such as interest rate discounts
- Gaining access to variable rates, a wider variety of loan terms and other forms of flexibility
Alternatives to student loan refinancing for engineers
A higher salary might make you a viable candidate for student loan refinancing, but that doesn’t mean refinancing is always wise for your situation.
By refinancing with a private lender, for instance, you would irreversibly yield protections that are exclusive to federal loans, such as the ability to alter your repayment plan.
If you’re unsure about refinancing your loans, consider these three alternatives as well:
1. Income-driven repayment
If you have federal student loans, then they’re probably eligible for income-driven repayment (IDR) plans. IDR allows you to tie your monthly payment to a percentage of your income. It could be an attractive option if you’re a young engineer who’s not yet earning a seasoned engineer salary.
The federal government offers four types of IDR plans. For example, there’s the income-based repayment (IBR) plan, under which your monthly payments would halt at 10% of your discretionary income. Note, however, that your payment amount might vary as your financial circumstances change, and to maintain eligibility for any IDR plan, you’re required to update your salary and other information each year.
2. Student loan forgiveness for engineers
One benefit of switching to an IDR plan is that you could receive forgiveness of your remaining federal student loan debt after 20 to 25 years of payments.
If you have federal student loans, here are three popular paths to debt forgiveness for engineers:
- Loan Forgiveness for Service in Areas of National Need: Working engineers could receive up to $10,000 in loan forgiveness over five years of service, thanks to the Higher Education Opportunity Act of 2008.
- Public Service Loan Forgiveness: Working for a nonprofit, government agency or other eligible employer could zero your debt after 10 years of payments.
- Teacher Loan Forgiveness: Making the switch to the front of the classroom could net up to $17,500 in loan forgiveness, but only after serving five consecutive years in a low-income school or other eligible agency.
If you’re interested, check out our guide to student loan forgiveness. Remember, though, these options are just for federal debt — private student loans won’t qualify.
3. Student loan repayment assistance for engineers
The next best thing after loan forgiveness is loan repayment assistance. Although it won’t completely wipe out your debt, it could help you reach the finish line faster.
Look high and low for student loan repayment assistance programs, as they don’t all come from the same source. Here are five places to find a program near you:
- Employer: Many companies are offering 401(k)-style contributions to employees’ student loan payments.
- Armed services: Many military branches offer assistance in exchange for service.
- State: Programs for state residents are widespread and varied. For example, the North Dakota Science Technology Engineering and Mathematics (STEM) Occupations Student Loan Program offers up to $6,000 in aid.
- Private: You also have a lot of possibilities here. The Rhode Island Commerce Corporation’s Wavemaker Fellowship and Maine’s Harold Alfond Foundation are among assistance options for in-state engineers.
Keep in mind that refinancing and receiving loan repayment assistance aren’t always mutually exclusive. You could refinance and still receive matching payments from your employer or a gift from a private foundation.
A final word on student loan refinancing for engineers
Earning a good-to-great income could help you qualify for student loan refinancing and achieve your goal, whether that’s to lower your rate or your monthly payments. But before choosing this route, ensure it’s right for you as a borrower, not just as an engineer.
Refinancing with a private lender can save you a bundle if your current interest is above what’s available on the market. On the other hand, you’ll forfeit many alternatives, from being able to switch your repayment plan or seeking forgiveness or assistance that’s specific to federal loans.
Refinancing is a great option, but it’s also a permanent one, so ask yourself some hard questions before signing on the dotted line
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