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Are Refinanced Student Loans Dischargeable?

May 29, 2020

If you have refinanced your student loans in the past, you may be wondering whether your refinanced loans can be discharged. The short answer is yes, but only under specific circumstances of which most individuals do not meet the criteria, and if you do meet the criteria, it can still be a very difficult process. Read on to see what circumstances allow for refinanced student loans to be discharged, and what you can do to ease the burden of private student loan debt if you don’t meet the criteria for discharge.

 

What is Student Loan Discharge?

To begin, it’s important to understand what the term “discharge” means in regard to student loans. Often used interchangeably with student loan forgiveness, these terms actually apply to different situations:

  • Student loan forgiveness is usually based on the borrower working in a particular occupation for a period of time, such as within the Public Service Loan Forgiveness (PSLF) Program. For private student loans, loan forgiveness is essentially non-existent.
  • Student loan discharge is usually based on the borrower’s inability to repay the debt or the borrower not being responsible for the debt because of fraud.

 

Discharging Refinanced Student Loans

Refinanced student loans are essentially new loans taken out with a private lender – so when talking about whether refinanced student loans are dischargeable, you should look at them like private student loans. Here are some situations in which private student loans may be dischargeable. Keep in mind that private student loans are very rarely discharged and that this shouldn’t be considered a realistic option.

 

Disability

While federal student loans are dischargeable for individuals who are “totally and permanently” disabled, private student loans aren’t necessarily subject to this rule. However, some private lenders do offer loan discharge in situations of disability. If this applies to you, contact your lender for more information – many lenders review requests for financial assistance on a case-by-case basis and will show compassion toward the situation.

 

Bankruptcy

If you’re seeking to have your refinanced student loans discharged, filing for bankruptcy could possibly be a last-resort option – however, it is very difficult and unlikely to happen because student loans aren’t categorized as dischargeable debt. According to the U.S. Bankruptcy Code, in order to have your federal or private student loans discharged through bankruptcy, you must prove undue financial hardship on yourself and your dependents, which is a difficult and expensive process that will most likely require a separate lawsuit and an attorney. This process is so difficult that most people who file for bankruptcy do not attempt to include their student loans. If you are unable to prove undue hardship, you will be obligated to continue repaying your student loans, and if you’re currently having your wages garnished due to default, they will continue to be garnished.

 

There are also some pretty substantial drawbacks to filing bankruptcy that could have a lasting impact on your life.

 

Drawbacks of Filing for Bankruptcy

It Could Hurt Your Credit Score

If you currently have a good credit score (700 or higher), filing for bankruptcy is likely to bring it down substantially, making it more difficult to obtain financing for a mortgage, car loan, or personal loan.

 

It Will Show on Your Credit Report for up to 10 Years

As if a ding to your credit score isn’t bad enough, filing for bankruptcy will show on your credit report for up to 10 years, which can not only affect your ability to obtain financing, but also could be seen by potential employers and affect your hireability or be seen by landlords and affect your ability to find rental housing.

 

Your Cosigners will be Liable for your Debts

If you have any cosigners on your loans, they will become responsible for your debts that you no longer owe.

 

Loss of Property and Real Estate

Occasionally, not all personal property and real estate will fall under exemption when bankruptcy is filed. This means that the bankruptcy court may seize your property and sell it for the purpose of paying your debts to creditors.

 

Denial of Tax Refunds

As a result of filing bankruptcy, you may be denied federal, state or local tax refunds.

 

Ways to Ease Private Student Loan Debt

If the burden of your refinanced student loans appear to be too much for you to handle, there are several actions you can take to help ease the pressure.

 

Take Stock of Your Finances

While this may go unsaid, making changes to your financial habits and budget may help you set aside the money to afford your monthly payments. Take stock of your income, savings and how you are currently spending your money. Perhaps you also have federal student loans that you could consolidate or refinance as well, or maybe you have a few subscriptions that you don’t need and can cancel. Making small changes to your financial habits can make a big impact.

 

Contact Your Lender

While you may not qualify to have your refinanced student loans discharged, you may find it useful to contact your lender to learn about the options available to you. Many lenders will offer a temporary deferment or forbearance in times of economic or financial hardship. Being transparent with your servicer may allow you to avoid missed payments, which can have pretty significant impacts on your credit score.

 

Consider Refinancing Student Loans Again

Did you know there’s no limit to how many times you can refinance your loans? While you may have already refinanced your student loans once, refinancing them again may be an option to consider, depending on whether your financial situation has changed or if interest rates have dropped. If your credit score improves or you get a raise at work, you may be able to qualify for a lower interest rate. Even if you haven’t seen a big change in your financial status, you may be able to extend your loan term and lower your monthly payments. Check out our Student Loan Refinancing Calculator to examine how changing the length of your loan term may help you save on monthly payments.*

 

Ask for Employer Assistance in Student Loan Repayment

In an effort to be competitive in recruiting and provide relief to employees, many employers are offering (or considering) student loan repayment assistance as an added benefit to employees. If your employer isn’t currently offering this benefit, consider asking if there’s potential for it to be added. Now is actually a great time to make this proposal, as a recent provision within the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows employers to contribute up to $5,250 tax-free annually to their employees’ student loans until December 31, 2020. Send your HR department a well-written letter or have a formal meeting to discuss this opportunity.

 

Conclusion

You may find that getting your refinanced student loans or private student loans discharged isn’t any easy process. However, there are actions you can take to ease the financial burden that your student loans are causing. Visit the ELFI blog for more helpful tips and resources for paying off your student loan debt.

 


 

*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.

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Happy couple admiring their home
2020-10-22
Should I Build Home Equity or Pay Down Student Loans?

Owning a home is a goal for many people. In fact, 40% of young millennials are saving to buy a home. If you already own a home, congratulations on achieving your goal! If you are now faced with a mortgage and student loans, you may wonder which debt you should prioritize. Should you build home equity or pay down your student loans?    Here we will explain what home equity is, how to build it and when it’s better to focus on home equity or paying down student loans.   

What is Home Equity?

When you pay on a mortgage, even if you haven’t yet paid it off completely, you’re building equity in your home. Home equity is the difference between the market value of the house and what you owe. Here’s an example of how to calculate it:  

How to Calculate Home Equity

  You can calculate your home equity by subtracting the balance of your mortgage from the current value of your home. The value of your home is determined by the fair market value of your house or the appraised value. This number is the true value of your asset (your house) since it takes into account the amount you owe on the loan.    Your home equity is calculated in your net worth. You may have heard that home equity can be “tapped into.” This means you can borrow against the equity of your home and use the money in a variety of ways. A home equity loan can cover home renovations or pay off higher-interest debt.    Your home is valued at $375,000 and your mortgage balance is $275,000. You determine the equity by taking the value of $375,000 and subtracting the mortgage balance of $275,000. The equity in your home is $100,000.   

Home Equity and the Housing Market

  Your home’s equity often increases when you make mortgage payments, especially when paying down the principal on your loan. Your home’s equity can also increase when its value rises. Although the value is determined primarily by the housing market, you can raise the value through home improvements.   Just as the value of your home can increase based on the market, however, it can also decrease based on the market. The only sure way to increase your home equity is by paying down your mortgage loan. The more of the loan you pay off, the more your equity increases.  

Building Home Equity vs. Paying Down Student Loans

  If you follow the normal payment schedule, you’ll increase your home equity slowly. If you make extra payments towards your mortgage, you can build equity faster. However, if you also have student loans, should you build home equity or pay down your student loans instead? Let’s take a look at some factors that can help determine the best course of action:   

Interest Rates

If either your mortgage or any student loan has a variable interest rate, you may want to focus on that loan first, because you are at risk that the rate can rise and leave you with a higher payment to make. In addition, if one of your loans has a much higher interest rate than the other, you may choose to focus on it first.  

Security

With student loans, in certain instances, if you are facing financial hardships you can temporarily suspend payments. Mortgages offer less flexibility with payments, therefore missing payments can result in foreclosure and losing your home.  

Loan Balances

If you have student loans with lower balances than your mortgage, you may be able to pay them off more quickly. Then, you can continue to build equity after paying down your student loan debt.   

Tax Implications

You may get a bigger tax break by building equity versus paying off student loans. However, this doesn’t apply to everyone. Interest paid on student loans is deductible, however, there is a cap on how much. As of 2020 the cap is $2,500. Your income must meet the requirements to be able to deduct this amount.    Interest paid on mortgages is also deductible, but only if you itemize your deductions. The mortgage interest deduction can be much higher than $2,500. To learn more about either of these options, consult with your tax advisor.  

Refinancing Your Student Loans With ELFI

If you don’t want to choose between building equity or paying off your student loans, then consider refinancing your student loans with ELFI. Use our student loan refinance calculator* to see how much you may be able to save.   

The Bottom Line 

Each person’s financial goals and situation are unique, so you have to make the best decision for you. Hopefully, however, knowing more about both options and which is better in certain circumstances will help you make an informed decision.  
  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.   *Subject to credit approval. Terms and conditions apply.
2020-10-20
Engineering School Student Loan Refinancing

Student loan refinancing is a fantastic option in many high-earning professions, and engineering is no exception. Most engineering students pursue bachelor’s degrees, and the average engineer’s student debt falls roughly in line with the national average of $35,173.    While engineers work hard to earn their degrees, the payoff is oh, so worthwhile. The average entry-level salary for engineers is $57,506, and the average salary across all experience levels is $79,000. This varies by the type of engineering you choose, as well. Big data engineers are among the highest-paid in 2020, with a median salary of $155,000.   Engineering students are often top candidates for student loan refinancing because of their low debt-to-income ratios. Here are a few more things you should consider refinancing your engineering student loans:  

Benefits of Student Loan Refinancing for Engineers

Student loan refinancing is a strategy that can help engineers better manage and pay off debt. When you refinance your engineering student loans, a private lender will “purchase” your debt from your original lenders. You can request rate quotes from several different lenders, then refinance with the one that offers you the most competitive rate. Decreasing your interest rate means you’ll pay less over the life of the loan.   Here are just a few of the benefits of student loan refinancing for engineers:
  • Ability to consolidate student loans into one monthly payment
  • Option to choose between fixed and variable student loan refinancing interest rates 
  • Chance to earn a lower interest rate, potentially lower than federal student loans 
  • Opportunity to change your student loan repayment term
  To see how much you could save by refinancing your engineering student loans with Education Loan Finance, try our Student Loan Refinance Calculator.*  

How to Refinance Engineering Student Loans

Refinancing your student loans is normally a quick and simple process, and you can apply in minutes at home. If you’re curious about the process of refinancing, take a look at our student loan refinancing guide.   Researching lenders has very few downsides. Most lenders prequalify applicants using a soft credit check, which won’t hurt your credit score. Just know that before you can officially refinance your loans, your lender will likely need to do a hard credit check.   Here are the next steps to take if you’re thinking about refinancing your engineering student loans:
  • Figure out which how much or which loans you’d like to refinance. 
  • Make sure you meet student loan refinancing eligibility requirements.
  • Shop around and compare pre-qualified rates from multiple lenders. 
  • Submit an application to refinance your student loans 
  • Finalize the loan application by reviewing the loan terms & signing the documents provided by the lender. 
 

Alternatives to Pay Off Engineering Student Loans

If student loan refinancing doesn’t seem like the right fit, you have plenty of alternatives to explore. From student loan assistance to student loan forgiveness, engineers may qualify for a variety of repayment options.  

Student Loan Forgiveness for Engineers

  Select engineers may qualify for Public Service Loan Forgiveness (PSLF). If you do qualify, you’ll make payments for a specified amount of time, normally 10 years, then the remaining balance will be forgiven. You will, however, still have to pay taxes on the forgiven amount.   Here are a few ways in which engineers may qualify for Public Service Loan Forgiveness:
  • Working in areas of national need could provide up to $10,000 in loan forgiveness over five years of service
  • Working for a non-profit, government agency, or other eligible employers could provide loan forgiveness after 120 payments (10 years)
  • Working as a teacher could provide up to $17,500 in loan forgiveness if working at a low-income school or other eligible agencies
  If you aren’t sure which is right for you, research student loan refinancing vs. PSLF. While both may help decrease your debt, it’s important to know how they compare before taking the next steps.  

Income-Based Repayment Plans

If you don’t qualify for Public Service Loan Forgiveness, you may also choose to pursue an income-based repayment plan. These types of plans set a monthly payment as a percentage of your income. Income-based repayment may be a good fit for entry-level engineers who are still working toward higher salaries.   Here are a few types of income-based repayment plans available to engineers:
  • Pay-as-You-Earn (PAYE): PAYE plans are based on a percentage of your adjusted gross income and family size. They are available to individuals who borrowed after 10/1/2007, or those who received eligible Direct Loan disbursements after 10/1/2011.
  • Revised Pay-As-You-Earn (REPAYE): REPAYE plans are similar to PAYE plans, but do not have date restrictions on the loans. They do take your state of residence into consideration, however.
  • Income-Based Repayment (IBR): IBR plans require you to be experiencing financial hardship. If you qualify, they are based on a percentage of your adjusted gross income and family size.
  • Income-Contingent Repayment (ICR): Many individuals who can’t qualify for PAYE or IBR plans apply for ICR. These start as a percentage of your adjusted gross income, then grow as your income grows.
 

State Student Loan Assistance Programs

Engineers are highly valued in the professional world. Some states and private organizations have created student loan repayment assistance programs for STEM professionals, with the goal of encouraging students to pursue these careers.   If you’re an engineer looking for student loan assistance, here are a few examples of state-driven programs you may be eligible for:
  • Harold Arnold Foundation
  • Wavemaker Fellowship
  • North Dakota DEAL Loans
 

Employer Student Loan Repayment Assistance Programs

Some employers provide student loan repayment assistance as a job benefit, which operates similarly to a 401(k). You designate a certain dollar amount to your student loan payments each month, and your employer matches your contribution up to a cap amount. These types of benefits can help improve employee retention rates while supplying necessary financial aid.  

Refinance Your Engineering Student Loans with ELFI

If you’re ready to refinance your engineering student loans, ELFI can help. By refinancing your engineering student loans with ELFI, you’ll enjoy benefits including:
  • No application fees 
  • No origination fees
  • No penalty for paying loans off early
  • If approved for refinancing, ELFI has a referral bonus program
  Ready to get started? Learn more about student loan refinancing with ELFI and apply today: https://www.elfi.com/student-loan-refinancing/.*  
  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.   *Subject to credit approval. Terms and conditions apply.
Current LIBOR Rate
2020-10-19
Current LIBOR Rate Update: October 2020

This blog provides the most current LIBOR rate data as of October 19, 2020, along with a brief overview of the meaning of LIBOR and how it applies to variable-rate student loans. For more information on how LIBOR affects variable rate loans, read our blog, LIBOR: What It Means for Student Loans.

 

What is LIBOR?

The London Interbank Offered Rate (LIBOR) is a money market interest rate that is considered to be the standard in the interbank Eurodollar market. In short, it is the rate at which international banks are willing to offer Eurodollar deposits to one another. Many variable 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 Variable Rate Student Loans

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 refinanced student 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. By adding the LIBOR rate to the margin along with any other fees or charges that may be included, you can determine your annual percentage rate (APR), which is the full cost a lender charges you per year for funds expressed as a percentage. Your APR is the actual amount you pay.

 

LIBOR Maturities

There are seven different maturities for LIBOR, including overnight, one week, one month, two months, three months, six months, and twelve months. The most commonly quoted rate is the three-month U.S. dollar rate. Some student loan companies, including ELFI, adjust their interest rates every quarter based on the three-month LIBOR rate.

 

Current 1 Month LIBOR Rate – October 2020

As of October 19, 2020, the 1 month LIBOR rate is 0.15%. If the lender sets their margin at 3%, your new rate would be 3.15% (0.15% + 3.00%=3.15%). 

 

Current 3 Month LIBOR Rate – October 2020

As of October 19, 2020, the 3 month LIBOR rate is 0.24%. If the lender sets their margin at 3%, your new rate would be 3.24% (0.24% + 3.00%=3.24%). 

 

Current 6 Month LIBOR Rate – October 2020

As of October 19, 2020, the 6 month LIBOR rate is 0.25%. If the lender sets their margin at 3%, your new rate would be 3.25% (0.25% + 3.00%=3.25%). 

 

Current 1 Year LIBOR Rate – October 2020

As of October 19, 2020, 2020, the 1 year LIBOR rate is 0.35%. If the lender sets their margin at 3%, your new rate would be 3.35% (0.35% + 3.00%=3.35%). 

 

Understanding LIBOR

If you are planning to refinance your student loans or take out a personal loan or line of credit, understanding how the LIBOR rate works can help you choose between a fixed or variable-rate loan. Keep in mind that ELFI has some of the lowest student loan refinancing rates available, and you can prequalify in minutes without affecting your credit score.* Keep up with the ELFI blog for monthly updates on the current 1 month, 3 month, 6 month, and 1 year LIBOR rate data.

 
 

*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.