5 Reasons to Refinance Student Loans | ELFI Education Loan Finance

5 Reasons to Refinance Your Student Loans in 2019

August 10, 2016

2019 is proving to be one of the most opportune times to refinance student loans. To explain why, our experts in student loan refinancing and debt consolidation have compiled the top five reasons why borrowers should take advantage of current interest rates and refinance student loans as soon as possible:

Reduced Interest Rates

Current interest rates for student loans may be much lower than when the loan was opened. Therefore, refinancing while rates are low helps ensure that borrowers pay less in interest and over the life of their loan. Borrowers should, therefore, take advantage of lower, more desirable rates while they are offered, as they could change — and rise — at any time.

Lower Monthly Payments

Modifying the repayment term of a student loan by extending the years of repayment may allow borrowers to enjoy lower monthly payments. For instance, if a borrower has already paid five years of a ten-year repayment term, he or she may be able to refinance the outstanding amount to ten or fifteen more years, thereby lowering their monthly payment amount. Borrowers should, however, avoid the temptation to extend the term too much, as longer terms generally increase the overall cost of the loan. Make sure to assess each plan and figure out what makes the best financial sense — right now and in the future.

Benefits Associated with Removing the Co-Signer

Refinancing student loans may allow borrowers to release any co-signers from the loan — an action that can be beneficial to both parties. For co-signers, this releases them from future financial responsibility to that loan, and it may also assist them in improving their own financial profile by reducing the amount of debt in their name. Furthermore, when a co-signer is released from a student loan, primary student loan holders may see an increase in their credit score(s).

Easy-To-Manage Accounts

When student loans are refinanced with refinancing institutions such as Education Loan Finance, the loans are consolidated into one, easy-to-manage loan. This helps borrowers eliminate any confusion related to having multiple balances, due dates, and payment amounts.

Gain a Financial Advocate

Just as in any industry, the level of customer service among banks and lenders varies from one company to another. When considering refinancing with any lending institution, borrowers should research and compare each lending institution’s ability to help customers with any issues regarding their student loan refinancing package. In order to maintain a happy, working relationship, borrowers should talk to the company itself and look for customer reviews that describe the company as one that works for the client, is informative, hard-working, dependable, friendly, and flexible. The personal loan advisors at Education Loan Finance specialize in student loans, and we provide our borrowers with information so they can determine the best solution for their budgets.

Refinance Today

Graduates and professionals alike have always worked hard to obtain their college and professional degrees. That is why Education Loan Finance’s mission includes helping former students better manage and possibly lower the costs associated with their student loans. Saving that money starts today, and the sooner borrowers begin to assess their loans and find a smarter plan, the more money they can save right now — and in the future. Check out Education Loan Finance’s innovative student loan refinancing solutions or apply today.

What is Student Loan Interest?

Student loan interest is essentially the cost you pay for borrowing the money. When you pay interest, you will be paying back the amount of money you borrowed plus the cost to borrow the money (the interest). The higher the interest rate, the more money you will have to pay in addition to the amount you borrowed. The amount you borrow is called the principal and the cost to borrow the money is called the interest. Interest is charged on both federal student loans and private student loans until the loan is paid in full. When you make a payment on a loan the interest is paid first, any amount of the payment over the interest is applied to the principal and lowers the balance of the loan. The types of rates and how interest is calculated are based on the type of student loan.

Federal Student Loans: The Difference Between Subsidized and Unsubsidized

Federal student loans have fixed interest rates that are set by the government. They remain the same throughout the life of the loan. Also, federal student loan interest rates may be lower than auto loans or personal loans. Federal student loans have two different types of interest: subsidized interest and unsubsidized interest. A subsidized interest loan means the government pays the interest on the loan while you are in school or during deferment (a grace period from federal student loan payments granted for certain situations), which means the balance of the loan does not increase. Once you are out of school or the deferment period ends, you will be responsible for paying the interest on the loan. An unsubsidized federal student loan means the interest starts accruing from the day the loan is first disbursed. Although you may not be required to make payments on the loan while you are in school, you will end up with a loan balance higher than you initially borrowed. The interest on a federal student loan is calculated using the simple interest formula. Here is how to calculate the simple interest formula:

The principal (the amount of money you borrowed) X the interest rate = The amount of interest you will pay each year for the loan

Private Student Loans: The 411 on Fixed and Variable Interest Rates

Private student loans can have a variable interest rate or a fixed interest rate. A variable interest rate is based on the current market and economy and can change over the life of the loan. A fixed interest rate remains the same throughout the life of the loan. It’s important to note that rates can vary widely based on the student loan lender, which is why it is so important to do your research and only sign with a reputable company. The interest rate you receive on a private student loan is also based on certain financial factors, including your credit score.

For example, ELFI customers who refinanced student loans report saving an average of $309 every month¹. If you currently have private student loans, you can check out our student loan refinance calculator to get an estimated rate and monthly payment for both fixed and variable options.² Whether you’ve taken out federal student loans or private student loans throughout your college journey, consolidating and refinancing could score you some significant savings.

Interest On Other Common Loans

If you’re in full adulting mode, odds are you have or are considering getting an auto loan or mortgage. Just like your student loans, these financial products come with interest as well.

Interest rates on car loans can be variable or fixed rates and the rate you receive is based on factors such as your credit score and financial health. There are two ways interest is calculated on car loans: simple or precomputed. For simple interest, the interest is calculated based on the balance of the loan. If you pay extra on your car loan, the principal will be reduced and in the long run, you will be saving money in interest (woohoo). If you have a precomputed interest loan on a car, it will be calculated on the total amount of the loan in advance. This means that even if you make extra payments, you will not save any money on the interest over time. One big difference to note between student loan interest and auto loan interest is how it can affect your taxes. With student loans, the interest you pay may be a tax deduction you can take depending on your income and the amount of interest you have paid. With an auto loan, there is no such benefit.

Interest on a house loan, otherwise known as a mortgage, is calculated similar to a simple interest car loan. An interest rate on a mortgage may be variable or fixed depending on which type of loan you choose. There are two major types of mortgage loans:

Principal and interest loans - You pay back the interest and the principal (the amount of money you borrowed) at the same time. This is the most common type of mortgage.
Interest-only loans - This is when, for a certain period of time, payments towards the loan only go towards paying off the interest on the loan.

Mortgage loans are amortized, like some student loans, which means your payment goes towards more interest upfront. Then as the balance decreases, you pay less interest and the payment goes towards paying down the principal. Also, just as with some student loans, some of the interest you pay on your mortgage may be tax-deductible.

Understanding Interest Can Pay Off

It’s important to understand the different types of interests and loans when determining which debt to focus on paying off first. Being strategic about how and when you pay off your debt can save you hundreds and even thousands of dollars. A good rule of thumb is to pay off the debt with the highest interest rate and then focus on your interest rate debt. Of course, if you have the option to refinance, explore that first and then develop your debt reduction plan.

¹Average savings calculations are based on information provided by SouthEast Bank/ Education Loan Finance customers who refinanced their student loans between 8/16/2016 and 10/25/2018. While these amounts represent reported average amounts saved, actual amounts saved will vary depending upon a number of factors.

²Subject to credit approval. Terms and conditions apply. Variable rates may increase after closing.

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2019-12-04

Tips for Starting Your Student Loan Repayment Journey

Once you graduate from college, leave college, or drop below half-time enrollment, it’s time to start thinking about when your student loan repayment period kicks in. Understanding the repayment process for your student loans is very important for a number of reasons – for one, if you don’t pay, your interest will accrue. Second, if you don’t pay, it will affect your credit score, which can hinder your ability to buy a home, buy a car, qualify for credit cards, take out a personal loan, or refinance your student loans. If you graduated this past spring, your student loan repayment period will likely start around this time of year (if they haven’t kicked in already). Follow these tips to master student loan repayment and get yourself to a strong financial start after college.

Know How to Access Your Loan Information

A good first step is to acquire your loan information. This can typically be accessed via an online login. Monitoring your loan information will be essential during the course of repayment. If you took out Federal Student Loans, you can likely access your info at https://myfedloan.org/. If you took out private student loans, check with your lender for how to access your information. Tracking your loans will give you a gage on the status of each loan, the balance you owe, as well as interest rates for each loan. By understanding the status of your loans, you can make more informed decisions about how you want to prioritize repayment, what type of repayment plan you want to choose, or even whether you want to consolidate or refinance your student loans.

Know When Your Payments Start

Immediately following graduation, you’ll likely have a grace period, or a period of time before your first payment is due. This can vary depending on the type of loan you have, and they can be different for each loan. Subsidized and Unsubsidized Federal loans have a six-month grace period. Perkins loans have a nine-month grace period. There is no grace period for PLUS loans; however, if you are a graduate or professional student PLUS borrower, you do not have to make any payments while you are enrolled at least half time and (for Direct PLUS loans first disbursed on or after July 1, 2008) for an additional 6 months after you graduate or drop below half-time enrollment. Private student loans will have differing grace periods so contact your loan servicer for more details. Knowing when your loan will be due is imperative to starting off on the right foot when it comes to your student loans.

Weigh Repayment Options

When you take out federal student loans and your grace period is complete, you will automatically enter the Standard Repayment Plan. This plan allows you to pay off your debt within 10 years, with the monthly payment remaining the same over the life of the loan. If standard repayment doesn’t work for your budget, you may want to consider some other options, or perhaps even refinance your student loans. The federal student loan program offers the following Income-Based Repayment plans:

Graduated Repayment Plan – Gives you a smaller payment amount in the beginning and gradually increases the payment amount every two years.
Extended Repayment Plan – Allows you to pay the least possible amount per month for 10 to 25 years.
Revised Pay As You Earn Repayment Plan or REPAYE Plan – Bases the monthly payment on you (and spouse’s) adjusted gross income, family size, and state of residence.
Pay As You Earn or PAYE – Monthly payments are based on your adjusted gross income and family size. You must be experiencing a financial hardship to qualify. You must also be considered a “new borrower” as of 10/1/2007 or after, or be someone who received an eligible Direct Loan disbursement on 10/1/2011 or after.
Income-Based Repayment or IBR – Monthly payments based on your adjusted gross income and family size. Must be experiencing a financial hardship to qualify.
Income-Contingent Repayment or ICR – Based on your monthly adjusted gross income and family size. Typically chosen if an individual can’t qualify for the Pay As You Earn Plan or Income-Based Repayment.Any changes to your income or your spouse’s income will affect your student loan payment. For example, if your salary increases, your student loan payment will as well. If you are married, both your income and your partner’s income are combined. Two combined incomes will increase your total income, likely increasing your monthly payment.

Keep in mind that each repayment option will have positives, negatives, as well as eligibility requirements. Research each option before making a decision, and consider contacting your loan servicer if you have questions or need more information.

Automate Your Payments (If you can)

Setting up automatic payments will make student loan repayment less of a hassle, will avoid late payments, and may even score you an interest rate reduction. Just be sure you have enough money in your account month-to-month to endure the payments without overdrawing.

Make Extra Payments

When you make your monthly payment, it will first apply to any late fees you have, then it will apply to interest. After these items are covered, the remaining payment will go toward your principal loan balance (the amount you actually borrowed). By paying down the principal, you reduce the amount of interest that you pay over the life of the loan. Applying extra income by making larger payments or double payments will reduce the total amount you’ll end up paying.

Reach Out for Help if Necessary

If you’re having trouble making your monthly payments, particularly on your federal student loans, contact your loan servicer. They will work with you to find a repayment plan you can manage or help determine your eligibility for deferment or forbearance. If you stop making payments without getting a deferment or forbearance, you risk your loan going into default, which can have serious consequences to your credit.

Weigh Refinancing & Consolidation Options

If you have multiple student loans that are all accruing interest at different rates, you may want to consider student loan refinancing or consolidation to make repayment more manageable. The federal student loan program offers student loan consolidation, in which they combine your loans into one loan with a weighted average interest rate, rounded up to the nearest 1/8th percent. You can also consolidate your federal and/or private student loan with a private lender through the process of refinancing. Refinancing your student loans is much like consolidation, however it offers the opportunity to start new repayment terms and possibly lower your interest rate. Keep in mind that refinancing with a private lender may cause you to lose access to certain federal student loan repayment options that are listed above.

Look Into Loan Forgiveness

If you work in a public service position or for a non-profit, you may want to consider the Public Service Loan Forgiveness program or another loan forgiveness program offered by the federal government. Other options exist for volunteers, military recruits, medical personnel, etc. Some state, school, and private programs also offer loan forgiveness. Check with your school or loan servicer to see if you may qualify for student loan forgiveness.

Earn Your Tax Benefits

If you are paying your student loans, you may be able to deduct the interest you pay on your student loans when filing your taxes. Deductions reduce your tax liability, saving you money and serving as a nice tradeoff for having to pay interest on your student loans. Repayment of student loans can be a long, difficult journey – but by taking advantage of your resources and staying determined to pay off your debt, it is manageable. If you need more information on paying back your student loans or the options that are available to you, contact your loan servicer.

2019-12-03

LIBOR: What It Means for Student Loans

By Kat Tretina

Kat Tretina is a freelance writer based in Orlando, Florida. Her work has been featured in publications like The Huffington Post, Entrepreneur, and more. She is focused on helping people pay down their debt and boost their income.

If you decide to refinance your student loans, you’re likely looking for the lowest interest rate possible. If you want to pay off your debt aggressively, you may get a lower rate by opting for a variable rate loan rather than a fixed-rate loan.

While a variable rate loan may be a smart choice, it’s important to understand how lenders determine your interest rate and what factors may influence it, such as the LIBOR rate.

Continue reading to learn more about the LIBOR rate and how it affects your student loan repayment.

What is LIBOR?

To understand LIBOR, you must first understand Eurodollars. Eurodollars are bank deposit liabilities — written as U.S. dollars — that don’t fall under U.S. banking regulations. Banks that offer Eurodollars are usually located outside of the United States, and play a big role in the financial industry.

The London Interbank Offered Rate (LIBOR) is a money market interest rate that is considered to be the standard in the interbank Eurodollar market. It’s a market for banks and financial institutions, rather than individuals. The LIBOR rate is the rate at which international banks are willing to offer Eurodollar deposits to one another.

That all may sound very complex and confusing, and you may be wondering why it matters to you. But the LIBOR rate can affect you directly. Many adjustable-rate loans and lines of credit, such as mortgages, credit cards, and student loans, base their interest rates on the LIBOR rate

How LIBOR affects your variable rate loans

When you apply for a loan, you can often choose between a fixed-rate loan and a variable rate loan. A fixed-rate loan has the same interest rate for the length of your repayment. It never changes, no matter what the market does. By contrast, variable rate loans usually have lower rates than fixed-rate loans for the same term at first. However, they can fluctuate over time to coincide with market changes.

If you have variable rate student loans, changes to the LIBOR impact the interest rate you’ll pay on the loan throughout your repayment.

Private student loans, including refinancing loans, have interest rates that are tied to an index, such as LIBOR. But that’s not the rate you’ll pay. The lender also adds a margin that is based on your credit; the better your credit, the lower the margin.

Your annual percentage rate, or APR, is a way of measuring the full cost a lender charges you per year for funds, and is expressed as a percentage. Your APR can be determined by adding the LIBOR rate to the margin, and including the cost of other fees and charges (if any exist) averaged over the term of the loan. If the LIBOR rate increases, the interest rate on your student loan will increase as well.

LIBOR Rate + Margin = Your Interest Rate

There are different maturities for LIBOR, including overnight, one week, one month, two months, three months, six months, and twelve months. Some student loan companies, including ELFI, adjust their interest rates every quarter based on the three-month LIBOR rate, while others adjust rates monthly as their loans are tied to the one-month LIBOR.

The LIBOR rate can fluctuate a great deal. However, most private student loan companies have caps on the interest rate, meaning your interest rate will never exceed that amount, no matter how high the LIBOR rate becomes.

Current LIBOR rates

As of Friday, November 22, 2019 — the last available data — the LIBOR rate is 1.917%. If the lender sets their margin at 3%, your new rate would be 4.917% (1.917% + 3.00%=4.917%).

The current LIBOR rate is significantly lower than it was at the beginning of 2019. On January 2, 2019, the LIBOR rate was 2.79%.

LIBOR rate trends

The LIBOR rate rises and falls along with market changes. Over the past 10 years, the three-month LIBOR rate has generally increased.

On December 2, 2009, the LIBOR rate was just 0.255%. As of November 22, 2019, the rate was 1.917%. If you had a variable rate loan during that time, that change means your rate would have risen by 1.662%.

[caption id="attachment_22536" align="alignnone" width="935"]

The chart above displays fluctuations to the 3-month LIBOR based on the U.S. dollar from 2010-2019.[/caption]

Future of LIBOR

LIBOR has been the gold standard that lenders have used for years to determine their rates. However, LIBOR is slowly being phased out and will be replaced with a new index.

LIBOR is based on transactions that aren’t as common as they used to be, so the index is considered to be less reliable than it once was. LIBOR is expected to be discontinued sometime after 2021.

How will that affect interest rates? The Federal Reserve has convened a committee to facilitate the transition and has recommended a new index to replace LIBOR. Lenders will likely replace LIBOR with the recommended index, or with the U.S. Prime Rate. Be sure to check your student loan documents (typically your Application & Credit Agreement) to better understand the terms of replacing the LIBOR index with a replacement index if you have a variable rate loan.

Managing your debt

If you’re planning on refinancing your student loans and are trying to decide between a fixed-rate loan and a variable rate loan, learning about the LIBOR rate can help you make an informed choice. If you want to see how much money you can save with refinancing and what interest rate you can qualify for, use ELFI’s Find My Rate tool to get a quote.*

*Subject to credit approval. Terms and conditions apply. Variable rates may increase after closing.