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Education Debt Refinance Programs Offer Choice to Borrowers

According to a study by the Association of American Medical Colleges, the average medical student in 2014 graduated with $176,000 of debt from medical school alone. However, when you tack on the average undergraduate loan amounts, estimated by the Project on Student Debt, the total loan averages soar to over $200,000.

Until recently, college graduates interested in consolidating student loan debt had limited options beyond bundling multiple federal loans into one single payment. However, a new trend, driven largely in part by private lenders, extends borrower benefits beyond consolidation to offer more choices that fit the borrower’s needs, especially when compared to the traditional, “one size fits all” approach associated with federal programs. For instance, if we assume that federal PLUS loan interest rates for graduate and professional students have remained above 7% for the majority of time since 2006, some private lenders are able to offer competitive rates and repayment options that could help graduates save money and possibly get out of debt faster.

For borrowers simply in need of a lower monthly payment, refinancing could extend the repayment period as long as 20 years, which may reduce the monthly payment amount significantly. While a longer repayment term may mean that more interest accrues over the life of the loan, borrowers can make additional payments whenever possible, with no prepayment penalties, to chip away at the principal balance more quickly.

Alternatively, borrowers who are comfortable with their current payment amount — or could afford to contribute a little more each month — may want to consider shortening their loan term, as shorter loan terms may generate lower interest rates, thereby resulting in greater interest savings over the life of the loan. Some borrowers could achieve the best of both worlds: simultaneously lowering their monthly payments with a longer term, while still enjoying a lower total loan cost due to a decrease in interest rates. Furthermore, unlike federal programs, many private student loan consolidation programs allow borrowers to combine both federal and private education debt, extending any potential benefits to their entire student loan profile.

With Education Loan Finance, ideal candidates for student loan refinancing include individuals with steady income proportionate to their debt balance and at least $15,000 in student loan debt. However, we understand that private refinancing of student loan debt is not for everyone or every student loan situation. Special attention should be given to federal student loans, as some protections offered under the federal student loan program may be forfeited through private refinancing. Borrowers should also consider whether they may need hardship exceptions, such as deferments or forbearances, before applying; however, many of the private lending options also offer many of the deferment options offered under the federal program. Additionally, depending on factors such as creditworthiness and interest rates on current loans, the new loan may have a higher monthly payment or interest rate. Given these possible scenarios, some people may still find the convenience of having one loan payment is worth the process. The good news is that if a borrower decides that refinancing all of his or her student loans is not ideal, he or she may also choose to refinance only the loans for which interest rates would decrease — a benefit that is possible due to the fact that student loan interest rates vary depending on the type of loan and when it was originated.

Graduates now, more than ever, have greater flexibility to find a student loan repayment plan that best fits their individual needs. To determine what your payments could be when you refinance with Education Loan Finance, check out our payment calculator or contact one of our education loan specialists. In any case, students and graduates should explore the many options that may help them better utilize their hard-earned money, as well as reduce debt faster.


10 Facts About Student Loans That Will Save You Money

The Basics of Credit Cards and Credit Card Debt

Updated December 4, 2019

Credit cards are an important component of building a strong credit history. Having a strong credit history will enable you to get future loans, such as a home mortgage and can lead to improved rates. Your credit history is also essential for other things, like getting an apartment or opening a cell phone plan. Credit cards — if used properly — can be effective in helping you to create a credit history in order to reach your financial goals, including becoming a homeowner.


According to Magnify Money, Americans paid banks $113 billion in credit card interest in 2018, up 12% from the $101 billion in interest paid in 2017. Because of this rising category of debt, it is important that you understand the basics of credit cards, how they are meant to be used, and a few tips on how you can get the most out of having them – without falling into debt.


What is a Credit Card?

A credit card looks just like a debit card, but instead of taking money out of your account when you make a purchase, it borrows money from your bank. Most credit institutions will give users a twenty-five to thirty day grace period with which to pay back the money they borrowed. If you do not pay the amount back within the allotted time, the bank will add interest to the remaining balance. The amount of interest added will be determined by your credit card’s interest rate and the amount of money that you owe for the remainder of the grace period.


Have a Repayment Plan

Users must be careful when making purchases with a credit card. It can be tempting to make a large purchase with a credit card and push the payment off until later. Forbes magazine says, “Credit cards are like DVRs for money,” because like a DVR, a credit card allows you pay now, and then pay it back later. This philosophy is what can lead to bad spending habits. So make sure that you have a plan before you make a purchase on your credit card. Look at your budget, and make sure that you allocate money for the use of paying off your credit card. Credit cards should be used as an extension of your financial accounts, NOT as a supplementary form of income. Making sure that you don’t spend more on your credit cards than you can pay back will ensure that you won’t find yourself in financial trouble.


Recommended Usage

Having a credit card is a great way to boost your credit and establish a good credit history. However, if misused, it can have a negative impact on your credit score. According to a recent survey from NerdWallet, most credit card users are unaware of the effects that many common actions have on their credit scores. In the financial industry, there are various opinions about how to best use a credit card. What experts can agree on, however, is that there are several important things you can do to ensure that you stay in good standing with your credit provider.

  1. The first things are to make sure that you never miss a payment. Whether you are paying a large lump sum or making a minimum payment — the minimum you can pay to stay in good standing — you must make sure to always pay on time. A missed payment could result in a reduced credit score.
  2. Another great practice is to keep your balance at or below 35 percent of your credit limit. This is the optimal amount for a healthy credit score, says Lucy Duni of Truecredit.com.

Owning and using a credit card does not have to be a bad thing, and it certainly does not mean that you are going to develop bad spending habits. If you follow these suggestions and make wise purchases, your credit history will be strong, and you will reap the rewards of being in good financial standing.


Check Out These Credit Card Myths


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