Students and first-time borrowers can get an immediate windfall when Trump student loan rates and refinancing options open on September 3.
With student loan refinancing rates nearing record highs, lenders are increasingly looking for borrowers to take advantage.
With interest rates on student loans climbing at a fast clip, students have begun making loan repayments on the fly.
For those who want to maximize their loan repayment, there are many options available to borrowers.
Here’s what you need to know about refinancing student loans and other loan forgiveness options:Student loans are considered a “guaranteed loan” by the federal government.
This means the government pays interest on the principal plus interest and fees on the remaining principal balance, plus any accrued interest.
The interest is based on the average interest rate of the five-year Treasury Bond market and the Federal Reserve’s 3.5 percent inflation rate.
If the interest rate on a student loan is below 3.0 percent, borrowers pay the difference.
The federal government covers interest payments.
If a student loans interest rate is higher than 3.75 percent, the federal student loan forgiveness program will pay up to 25 percent of principal.
If the rate is 3.85 percent or higher, the forgiven portion will be deducted from the principal balance.
Lenders are looking to reduce the amount of interest they pay on student loan balances.
The Federal Reserve and Congress have passed a number of bills that make it easier for borrowers and lenders to refinance their student loans.
In 2015, Congress passed the Federal Family Education Loan Program Act, which requires that students who have outstanding student loan debt have the option to refinancing their loans in three to five years.
This is known as the three-year grace period.
If borrowers are in good standing, they may receive a 30-day grace period to refocus on their studies.
If they are not in good working standing, borrowers must pay off the balance of their loan before they can refinance.
Lending institutions that participate in the federal loan forgiveness programs have different repayment terms.
For instance, an institution that does not participate in refinancing programs will typically require borrowers to pay their principal in full and then reduce the principal to the lowest amount possible, but may also require borrowers with outstanding loans to pay interest over time.
The three- to five-years grace period will likely result in a smaller balance for borrowers with debt at the time of refinance and will increase the amount that borrowers are charged.
For more information on refinancing federal student loans, visit the Federal Student Loan Consolidation website.