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10 Facts About Student Loans That Will Save You Money

August 23, 2018

Many millennials are first-generation college students, which is awesome! Going to college is a huge achievement, and you should be proud of your hard work. Navigating the financial side of college, however, can be a little tricky. There are definitely some basic facts you should know—all of them will save you money. We’ve compiled 10 facts about student loans that will save you money. Make sure you’re reaching out to your school to see what resources are available to you and read up on how you can make good borrowing choices.

  1. Not all student loan servicers are created equal.
  2. Small differences in interest rates and origination fees can mean BIG dollars down the road.
  3. Keeping an eye on your principal can help you understand the repayment process.
  4. It could behoove you to pay interest while in school
  5. Deferment is a short-term solution that you should avoid if possible.
  6. There are different reasons to consider fixed or variable interest rates.
  7. You pay taxes on forgiven loan amounts.
  8. You might qualify for loan forgiveness.
  9. There are options if you can’t pay. Don’t try to hide.
  10. Some borrowers save tons of money with refinancing.

 

Click Here to See What You Could Be Saving 

 

Not all student loan servicers are created equal

Some people think that getting a student loan from any company or bank is roughly equal. Maybe the interest rate will be a little different, but they all offer mostly the same thing. Sadly, too many millennials have found out the hard way that some student loan companies are not as reputable as others. Whether it’s a lack of payment options, little to no deferment even, or just plain difficult customer service, there are a lot of reasons why shopping around for the best service and best options can save you time and money in the end.

 

Small differences in interest rates and origination fees can mean BIG dollars down the road

The interest rate you pay for borrowing money is a percentage that’s calculated based on the principal or the amount borrowed. Interest rates might be fixed or variable, depending on your loan, and knowing the difference will save you big money. For instance, if you get a loan with a variable rate because it’s low now, you need to know how high the rate could go, which might affect your decision. When comparing loans, check the interest rate, but also look at the life of the loan and other associated fees. For example, some lenders or products charge an origination fee as well. Here’s a scenario to show how some of these variables play out:

  • A student takes out a $20,000 loan with a 7% interest rate & 0% origination fee. This loan accrues interest monthly and when it capitalizes at repayment 48 months from now, this student will have an outstanding balance of $25,600.
  • A student takes out a $20,000 loan with an 8% interest rate & 4% origination fee. This loan accrues interest monthly and when it capitalizes at repayment 48 months from now, this student will have an outstanding balance of $27,456.

It might look like a minor change, but these small differences matter a lot!

 

Keeping an eye on your principal can help you understand repayment progress

Your principal and payoff balance will appear on your loan statements and you should note those amounts each month. Obviously, you want to see them trending down, but sometimes watching your principal balance each month will help you realize how much more impact you could have on your loans if you increased or restructured your payments.

 

It could behoove you to pay interest while in school

There’s one reason why paying even just your interest payments on student loans while in school is a good idea: compound interest. Compound interest is when your interest gets added to the principal. When this happens, your principal is higher, and you end up paying more interest. To combat it, pay interest payments! If you make these small payments while in school, you won’t graduate with even more debt than you actually took out. If you continuously defer your loans, the debt grows and grows until you start paying. This is how some people get into a lot of trouble!

 

Deferment is a short-term solution that you should avoid if possible

Student loan deferral can sound like a great deal if you’re in dire straits, but there are a lot of reasons why you should avoid student loan deferral or forbearance if at all possible. These options increase your debt and add fees to your loan. If you’re in an extreme situation and have to defer payment or two that you can catch up on in a few months, you do what you have to do. But don’t opt to defer just because you want more money for something like a wedding when you could find other ways to save.

 

There are different reasons to consider fixed or variable interest rates

Government loans are always fixed-rate, but private loans can be fixed or variable. Knowing the benefits and possible downside of both options can help save you money when it’s time to decide which loan to get. With a fixed rate, you know what you’re going to pay for the life of the loan. Variable rates are not so certain. You might start with a low rate that goes up over time or vice versa, but they also generally start lower than the fixed rate. Consider how the variable rate is set and whether you’re okay with a variable rate or would prefer the fixed amount.

 

You pay taxes on forgiven loan amounts

Student loan forgiveness can be a great thing since your remaining balance after 10, 20, or maybe 25 years is forgiven. Many people don’t know, however, that current IRS rules require the forgiven loan amounts to be treated as taxable income. That means you could be on the hook for a hefty tax bill when you least expect it. Knowing this information could change the way you pay your loans, or at least prepare you for what’s at the end of the rainbow.

 

You might qualify for loan forgiveness

Speaking of loan forgiveness! Only you can figure out if you qualify, grasshopper. The government doesn’t keep track of this, and the rules for qualification are rigid. Be sure that you know your qualification status before you start planning your “student loan forgiveness day” party. Check out our blog on student loan forgiveness.

 

There are options if you can’t pay. Don’t try to hide (other word choices for ‘hide’ – run, ignore it, lie, pretend it’s not there).

The worst thing you can do is ignore student loan payments. Student loan companies have ways of getting money from you even if you’re hiding under a blanket in mom and dad’s basement. If you ever can’t pay your student loans, call them immediately and talk about options. You might be able to set up a new payment option or refinance to save some cash and keep making payments.

 

Some borrowers save tons of money with refinancing

There are many ways to save money with refinancing. For instance, if you consolidate private and federal student loans into one monthly payment, you might be able to score a lower payment. If you have several loans with high-interest rates or if rates have gone down since you borrowed, refinancing your student loans can save you bundles.

 

Common Misconceptions About Student Loan Forgiveness 

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2020-02-21
This Week in Student Loans: February 21

Please note: Education Loan Finance does not endorse or take positions on any political matters that are mentioned. Our weekly summary is for informational purposes only and is solely intended to bring relevant news to our readers.

  This week in student loans:

30,000 borrowers are being charged for student loans that were already discharged

30,000 borrowers of student loans from a private lender thought their loans would be discharged when they declared bankruptcy years ago – however the lender disagreed, and they are continuing to be charged. The borrowers are now suing the U.S. Bankruptcy court for the Eastern District of New York.  

Source: Yahoo Finance

 

USC announces new tuition-free plan

The University of Southern California (USC) recently announced two major changes to its financial aid plan, one of which makes attendance tuition-free for applicants whose family's household income falls at or below $80,000. Owning a home will also not be counted in the calculation to determine a student's financial need.  

Source: Forbes

 

Younger employees want help paying down student debt

A recent report from consumer research firm Hearts and Wallets revealed that younger workers would rather have employers assist them with repaying student loans than help them save for retirement. Two-thirds of workers of ages 21 to 27 said companies should help them pay down student debt, while just 27% said companies should help them save for retirement.  

Source: Investment News

 

49% of Americans expect to live paycheck to paycheck this year

A new survey revealed that a whopping 49% of Americans expect to live paycheck to paycheck through each month of this year. It also revealed that 53% don't have an emergency fund that covers at least three months of expenses. Despite the negative sentiment, 91% did say they wanted to develop better money habits in 2020.  

Source: Forbes

    That wraps things up for this week! Follow us on FacebookInstagramTwitter, or LinkedIn for more news about student loans, refinancing, and achieving financial freedom.  
 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

2020-02-19
High Income, High Debt: How to Stop the Spiral

By Caroline Farhat  

A lot of people think if you are earning a high income you must have lots of wealth and no debt. However, that is not always reality. In fact, for some people, earning a high income can mean higher amounts of debt. If you are in these circumstances, read on to find out how to stop the spiral.

 

High Income, High Debt

There are many reasons that higher-income households can have higher debt. One reason is higher earners like doctors and lawyers may have higher debt due to the amount of student loans needed to obtain their education.

 

But the big problem lies with the high earners who have high levels of debt and no assets to show for their income. A 2015 Nielsen study found 25% of American households earning $150,000 or more were living paycheck to paycheck. These are the earners who may be going down a spiral. There are reasons for this spiral that can be addressed to stop it. Some reasons include:

  • Desire to spend - A person earning a high income feels like they have a lot of money they can spend and deserve to spend. However, this can cause some to spend up to the total amount they bring home or worse exceed the amount, causing credit card debt or the need for personal loans.
  • Keeping up with the Joneses - Always trying to keep up with your group and show “wealth” you may not really have. This can be seen in the form of always buying the latest gadget, flashiest car or taking a trip to the latest popular destination. Even if you can afford some of these items now, feeling the need to keep up can be dangerous because you never know when a time may come that you may not be able to afford your lifestyle due to sudden job loss or a change in financial circumstances. 
  • Lifestyle creep - Increasing your expenses when your income increases because of your wants or perceived new needs. For example, the thought that now you need a more expensive and larger house because you can afford it with your higher income.
 

How to Stop the Spiral

Did any of this resonate with you? If so, don’t panic. You can always stop the spiral of high income and high debt. Below are some actionable steps you can start today.

 

1. Determine your fixed expenses

Fixed expenses are the expenses that are mostly out of your control and remain constant every month. They include your rent or mortgage, car insurance, internet bill, cell phone bill, utility expenses (although these may not be the same each month you can figure out the average), and loan payments. Knowing these expenses will help you complete the next step.  

2. Create a budget

You knew this was coming! Now that you know your fixed expenses you can create a budget. There are different methods you can use to create a budget. One budget that many people find easy to follow is the
50/20/30 rule. The basic principle is subtract your fixed expenses from your take-home pay. Then put money in savings for your emergency fund, retirement, or whatever you determine is most important to you. The rest of your income is used to pay your variable expenses. These are the expenses you have the most control over, like your food budget, restaurants, and clothing shopping.   

3. Try to reduce your expenses.

The easiest expenses to try to reduce will be the ones completely in your control, like eating out less. But there are some ways to reduce your fixed expenses.  

Refinance student loans - Have a high monthly payment? Refinancing may be a good option. Refinancing student loans can reduce your monthly payment and save you in interest costs over the life of your loan(s). You can refinance private student loans and federal student loans. Check out our student loan refinance calculator to determine what your potential savings could be.*

 

Negotiate your bills - Have a high internet bill? Or maybe you are still paying for cable. Check for any deals with your provider and compare with competitors. Better yet, think about whether you really need the service. If you are a die-hard Netflix fan, it may be time to cut the cable cord.

 

4. Pick a method to attack your debt.

There are two methods financial experts recommend to pay off debt: the snowball method and the avalanche method.  

Snowball method - Use any extra money to pay off your lowest loan first. Once the lowest loan is paid off you take the payment you were making to that loan and apply it to the second-lowest loan. Here is an example of how it works:

  • If you have a student loan of $25,000 with a payment of $290 and an auto loan of $15,000 with a payment of $275 you would focus on paying the auto loan off first. You would make both minimum payments but if you have an extra $25 per month to apply to a loan you would apply it to the auto loan. Once the auto loan is paid off you would apply the payments of $275 and $25 to your regular minimum student loan payment of $290 and now be paying $590 per month to your student loan ($275+25+290 = $590). You would continue this until all debts are paid off.
 

Avalanche method - List your debts in order of interest rates and start paying off the debt with the highest interest rate first. Add any additional payments to the loan with the highest interest rate. Continue paying the minimum on all other loans. Once the highest interest rate loan is paid off you apply that minimum payment to the next highest interest rate loan. 

 

5. Put salary increases into savings

Don’t give into the lifestyle creep. If you were able to pay all your expenses before your salary increase, you can continue to live off your old income amount and save the increased amount. The difference can be put into a retirement account or savings account, thereby increasing your wealth. The best way to do this is to set up an automatic transfer so that the extra money never hits your bank account. If you can’t see it, you can’t spend it!  

Bottom Line

If you have realized you are in a high income, high debt spiral, there is hope of stopping it. With some work, you can get your finances in order and begin to see your savings grow.

 
 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.

2020-02-18
Why Experiences are the New Measure of Wealth

By Caroline Farhat  

For the past half-century of American history, material objects have been a primary source of value to the working class of Americans. Following World War II, many Americans dreamt of owning a suburban home, driving a car, and joining in on the baby boom. The U.S. saw significant expansion through the 40s and 50s, gross national product rose dramatically, as did personal expenditures on things. By the end of the 50s, the majority of families owned a television, a car, and a home. By 1960, blue-collar workers became avid buyers, enjoying more disposable income through the 1970s.

 

Today is a different story. A study found 74% of Americans value experiences over things. The reason for this shift in ideology can be tied to a number of things, such as younger adults having watched the effects of the 2008 recession and, as a result, feel less of a need to be tied to material objects. This is leading to many millennials skipping the mall to attend music festivals, skipping homeownership to live in the city, and putting off having children for added freedom. Rather than defining wealth by what they have, many young adults are measuring wealth by what they can experience.

 

Typical Measure of Wealth

Wealth is typically measured by calculating a person’s net worth. This is calculated as assets - liabilities = net worth. Assets can include homes, cash, retirement accounts, and stocks. Liabilities can include all debts such as student loans, auto loans, and mortgages. Take a look at this example to calculate net worth: 

  • If a person owns a home valued at $500,000, a car valued at $22,000, they have $15,000 saved in a bank account and $33,000 saved in a retirement account, they would have a total of $570,000 in assets.
  • If there is a mortgage on the home for $200,000 and a car loan for $5,000 and student loan debt of $30,000, this person would have liabilities totaling $235,000.
  • This person’s net worth would be $570,000 - $235,000 = $335,000.

The net worth that is considered “wealthy” is subjective, however, a survey conducted by the Federal Reserve in 2017 found that the median net worth of families was just $97,300. Calculating net worth allows a person to see numerically how much wealth they have, but it is not the only way people define wealth. 

 

Why Millennials Value Experiences

Calculating net worth may be considered an old measure of wealth by millennials (people born between 1981 and 1996), but why?

 

To begin with, millennials value relationships with others more than material objects. The benefit of being able to experience things with their friends and significant others seems to outweigh the benefit of accumulating wealth.

 

While millennials do seem to understand the value of saving money, they also understand the need for work-life balance. A study conducted by Deloitte found 57% of millennials say traveling is their top aspiration. This supports the notion that being able to enjoy life and experiences is a measure of wealth to millennials. This supports the notion that being able to enjoy life and experiences is a measure of wealth to millennials.

 

Another reason for the shift in measuring wealth is millennials are facing financial struggles that previous generations did not experience. According to a study by the Pew Research Center, more millennials have student loan debt compared to previous generations, and the amount of student loan debt they have is also greater. If you are dealing with student loan debt and high monthly payments, you may feel you are not able to purchase a home, start a family, or build the traditional standard of wealth. But even with a low net worth, millennials can partake in great experiences that add value to their life and make them feel wealthy. 

 

Options to Build Your Wealth

If you have student loan debt, whether federal or private student loans, you may be feeling you will never be able to grow your net worth or have the life experiences you want – but that is not the reality. Student loans do not have to hinder you from growing your wealth. Check out these options to build your wealth:

  • Start a side hustle. Earning extra money outside of your day job allows you the freedom to use the money how you want. It doesn’t have to pay the bills, it’s extra money that you can use to travel or put away for retirement. Plus your side hustle may lead you to passions and causes that are important to you which only further enhances your life!
  • Refinance your student loans. When you refinance your student loan you may be able to lower your monthly payment and save interest over the life of the loan. The extra money you have monthly could go towards experiences to enrich your life and extra savings in the bank for emergencies. How much savings can you expect a month? Check out our student loan refinance calculator on our site to get an estimate of your savings.* Student loan refinancing is easy with the right lender. With ELFI you never pay an application fee or origination fee. You also receive a personal loan advisor who guides you through the process of refinancing.
  • Create a zero-based budget. What if you were told to “spend” all of your income each month?  This might sound crazy at first, but many financial experts regard this method as the most effective one out there. The concept of zero-based budgeting is that your monthly income minus your expenses should equal zero. The idea is that each dime you make should have a “job” and fall into a certain category in your budget. For example, if your take-home pay is $5,000, you have exactly $5,000 to spend, save, or invest. This can help you take control of your finances and ensure every dollar is put to good use.
  • Use an effective debt-payoff strategy. Using the debt snowball or debt avalanche method of paying off debt can make payoff simpler and more effective. The debt snowball involves paying off debts with the lowest balances first, then moving onto the next smallest balance. The debt avalanche method involves paying off the largest debt first, then moving on to the next largest balance. Both strategies have their pros and cons, but both will also lead to a debt-free life.
 

Bottom Line

Wealth is more than just the possessions you own or the car you drive. Experiencing a full life with great relationships and experiences can lead to happiness overall. By getting a handle on your student loans not only will your typical financial wealth increase, but so can your experiences in life. No matter how you measure wealth, you can achieve it while paying your student loans!

 
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.