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young adult doctor with student loans
2020-02-14
A Doctor’s Guide to Student Loan Refinancing

As a doctor, you likely racked up a significant amount of student loan debt to finish your education. According to the American Medical Association, 79% of medical school graduates have $100,000 or more in student loans.

 

Blog 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.

 

However, carrying six figures of education debt isn’t as dire for you as it can be for someone working in another field. As a doctor, you likely have a relatively high salary. In fact, the Bureau of Labor Statistics reported that the average salary for family and general practitioners is $211,780.

 

With your education and income, you’re a prime candidate for student loan refinancing. And, refinancing your debt can help you save money and pay off your loans early.

 

Why you should refinance student loans after medical school

When you have such a large amount of student loan debt, interest charges can have a significant impact on your balances. Over time, interest charges can add thousands to your loan cost.

 

Unfortunately, the interest rates on medical school loans can be quite high. Even if you qualified for federal Grad PLUS Loans, you can face steep rates. As of 2020, the interest rate on Direct PLUS Loans is a whopping 7.08%.

 

To put that rate in perspective, let’s say you had $100,000 in student loan debt at 7.08% interest and a 10-year repayment term. Your monthly payment would be $1,165 per month, and by the end of your loan term, you will repay a total of $139,825. Interest charges would cost you over $39,000. Pretty scary, right?

 

When you refinance medical school loans, you may qualify for a loan with a lower interest rate. Or, you can extend your repayment term if you want a more affordable monthly payment. Depending on what option you choose, the savings can be significant.

 

If you refinanced your loans and qualified for a 10-year loan at 4.5% interest, your monthly payment would drop to $1,036 per month. However, you’d pay just $124,366 over the length of your loan. By refinancing your debt, you’d save over $15,000.

 

How to refinance medical school loans

You can refinance your medical school loans in four simple steps:

 

1. Find out if you meet the eligibility requirements

First, make sure you meet the eligibility requirements to refinance student loans. As a baseline, you must:

  • Have earned a bachelor’s degree or higher from an approved college or university
  • Be a U.S. citizen or permanent resident
  • Be at the age of majority — 18 years old, in most states — or older
  • Have a good credit history
  • Have a minimum credit score in the upper 600s
 

2. Consider asking a cosigner for help

If you’ve just started practicing, you may not have established your credit history yet, or you may not be making much money. If that’s the case, consider asking a cosigner for help. A cosigner is a friend or relative with good credit and income who agrees to sign the loan application with you. If you don’t make the minimum payments on time, the lender will go to the cosigner for them, instead.

 

While a cosigner isn’t required, adding one to your application can improve your chances of qualifying for a loan and getting a low interest rate.

 

3. Get a rate quote

Next, get a rate quote to see what kind of terms you can qualify for. With ELFI’s Find My Rate tool, you can get an estimated rate in just a few minutes without any impact to your credit score.*

 

4. Submit your loan application

Once you find a loan that works for you and your budget, you can move forward with the application.

 

You’ll need to provide your personal information, as well as information about your loans and employer. You’ll need to have your recent pay stubs or W-2 forms on-hand, and you’ll have to submit a copy of your government-issued identification, such as a driver’s license.

 

Once you complete the application, ELFI will review your information and will contact you with a decision. Until you find out you’re approved and the loan is disbursed, keep making the payments on your existing debt to avoid late payment fees and penalties.

 

5 other options for managing your loans

Refinancing student loan debt can be a great way to improve your finances, but it’s not for everyone. If you decide that student loan refinancing isn’t a good fit for you, there are a few other options for managing your debt:

 

1. Federal income-driven repayment plans

If you have federal student loans — such as Grad PLUS Loans or Direct Unsubsidized Loans — you may be eligible for an income-driven repayment (IDR) plan. With IDR plans, your loan servicer will extend your repayment term and reduce your monthly payment. Your new payment is dependent on your loan balance, income, and family size. Depending on your situation, you can significantly lower your payment amount.

 

You can apply for an IDR plan online.

 

2. Public Service Loan Forgiveness

If you work for a non-profit hospital, organization, or government agency, you may qualify for Public Service Loan Forgiveness (PSLF). With PSLF, the government will forgive your remaining loan balance after making 10 years’ worth of qualifying payments while working for an eligible employer.

 

However, not many people will meet the PSLF criteria. In fact, 99% of PSLF applicants were rejected last year.

 

To prevent any issues, use the PSLF Help Tool to find out if you meet all of the qualifications for loan forgiveness.

 

3. State student loan repayment assistance programs

Depending on where you live, you may be able to get some help with your debt through state student loan repayment assistance programs. Some states offer healthcare professionals money to repay their loans in exchange for a service commitment to work in a high-need area.

 

For example, doctors who live and work in Kansas can receive up to $95,000 to repay their student loans. In return, you must agree to work in an approved facility in a health professional shortage area.

 

To find out if your state operates a student loan repayment assistance program, visit the Association of American Medical Colleges’ website.

 

4. Locum tenens work

Another option is to take on locum tenens work. With this approach, you fill in for another physician on a temporary basis. Some terms can be for just a few days, while others can last for months.

 

Why is this a good idea? It can be lucrative. Qualified professionals can earn large bonuses, which you can use to make lump sum payments on your debt.

 

You can find locum tenens work — and sign-on bonuses — on the American Academy of Family Physicians’ website.

 

5. Live like you’re still in your residency

Now that you’re no longer in residency, it may be tempting to spend some of your new income on a larger apartment or a better car. However, it’s a good idea to continue living like you’re still in residency to limit your expenses. By keeping your living costs low, you can free up more money for debt repayment.

 

Managing your student loans

As a healthcare provider, you likely have a substantial amount of debt. If your student loans are causing you stress, student loan refinancing can be a smart way to manage your debt. Use the student loan refinance calculator to find out how much you can save by refinancing 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.

2020-02-12
What the New FICO Score Changes Mean For You

Are you apartment hunting, trying to refinance your student loans or thinking of applying for a new credit card? If you ever needed the motivation to care about your credit score, this is it. Your FICO score is going to be an important factor when trying to do any of those things. Recently, Fair, Isaac, and Company, the company behind FICO, announced that changes will be made to how the score is calculated. Keep reading to find out about the changes and what they could mean for your FICO score. 

 

What is a FICO score?

The FICO score is a scale used to determine a person’s creditworthiness or risk. The score is used by potential lenders, such as banks and credit card companies. A FICO score ranges from 300 to 850, with a score of 700 or higher being considered good. A score of 800 or higher is considered exceptional. The average FICO score in 2019 was 703. 

 

A person with a higher score is regarded as being less risky to lend to than a person with a lower score. Your FICO score can determine whether lenders will lend to you, as well as the terms of the loan, such as your interest rate. The interest rate on credit cards, student loans, car loans, and mortgages are all affected by your credit score. A higher interest rate can sometimes cost you thousands of dollars more over the life of a loan. A FICO score may also be considered when applying to rent an apartment – for example, a low score may require you to pay a higher deposit.  

 

A FICO score is determined by assessing the following, among other factors:

  • A person’s payment history
  • How much debt a person has compared to how much available credit they have
  • The total amount of debt a person has or their debt-to-income ratio
  • The length of credit history

Typically, if you maintain a debt-to-income ratio of 30% or less and make on-time payments to your credit cards and loans, you can work towards a high score. If you’re ready to start improving your credit score now, check out our good credit-building guide.

 

New FICO Score Changes

The new changes coming to FICO are known as FICO 10 and are set to go into effect in the summer of 2020. They include:  

  1. Lenders will be able to look at payment history two years back as well as account balances. This will demonstrate to lenders whether you are an occasional credit user or someone who consistently maxes out credit and hardly makes payments back.  
  2. It will be noted if a person is taking out personal loans, and this could potentially negatively impact a person’s credit score. Personal loans may be considered riskier since they are unsecured loans, unlike mortgages and auto loans where your asset is the collateral for the loan.  
  3. Late payments and high credit card debt compared to a person’s overall credit will also more negatively affect a person’s score. 

Based on the new FICO 10 model, it is estimated that 110 million consumers will not see a significant change to their score, if at all. It is also estimated that 40 million people may see an improvement to their score by more than 20 points, and 40 million others may see their score reduced by more than 20 points. 

 

What it Means for You

It is unclear when this latest FICO 10 model will be utilized because it is up to the individual lenders to determine what model they use. Some lenders are still utilizing FICO 8, which was released in 2009. Therefore, these FICO changes may not mean much for you now but could be significant in the future.  

 

These new FICO changes could help your credit score if you have a credit card balance that is occasionally high but you pay off the full balance monthly. However, if you are one of the 40 million people whose credit score is negatively impacted by this change, this may cause you to receive higher interest rates when applying for loans. If this is the case there are options:

  • Try finding a creditworthy cosigner for your loan.  
  • Try strategies to improve your score and apply after you have raised your score. 
  • Refinance if you already have a loan, but now have a higher score.

If you have student loans and the new FICO model increased your credit score, you may be eligible for a lower interest rate on your student loans through student loan refinancing, thereby potentially saving you thousands of dollars. Do your research to find the best student loan refinance companies with low-interest rates, flexible terms, no application fees, and great customer service. Also, be sure to compare the student loan refinance rates from different lenders to find the lowest student loan refinancing rates available. Student loan refinancing can be an easy process and can potentially replace your high-interest loan(s) with a lower interest rate. 

 

Want to find out if student loan refinancing is financially right for you? Check out our student loan refinance calculator to see your potential savings. At ELFI, we have no application fees, no origination fees, and no prepayment penalty. When you apply for student loan refinancing, you receive a personal loan advisor to help answer any questions and guide you through the process of refinancing.*  

 

If you have student loans and your FICO score dropped, continue to make on-time payments and try to not take on any more debt. Refinancing may still be an option since different lenders require different minimum scores. However, if you are unable to refinance now, refinancing may be a good option in the future once you have demonstrated consistent on-time payments.

 

Bottom Line 

FICO models may change, but the basic principle is the same: try to reduce any debt you have and make on-time payments. 

 

Need additional help with raising your credit score? Check out these 5 habits for good credit score hygiene.

 
 

*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.

2020-02-11
10 Cities With Best Job Markets

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.

 

Once you graduate and start looking for a job, you may realize that your hometown isn’t the best place for your career. You may think about relocating to a new state to get the right job, but it’s a huge decision.

 

Where you live can have a big impact on your income and quality of life. Depending on your field, some cities can be better for your career than others.

 

To help you narrow down your search, we looked at Indeed’s Best Cities survey to identify the top 10 cities for job seekers.

 

10 Cities with Booming Job Markets

In its survey, Indeed looked for cities with low rates of unemployment, a prevalence of highly-rated companies, high average salaries, and low competition for jobs. With that research in mind, these are the 10 cities it identified with the best job markets:

   

10. Salt Lake City, UT

Utah’s economy is one of the fastest-growing in the country, and that’s largely due to Salt Lake City’s rapid development. While the U.S. economy grew as a whole by about 3%, Utah’s economy grew by over 4%.

 

Salt Lake City has become a hub of technology, with many tech and bioengineering companies relocating their operations to the area. Compared to other areas like San Francisco, Salt Lake City’s real estate market is relatively inexpensive, making it attractive to both companies and workers.

 

The unemployment rate is 3.1%. On average, workers in Salt Lake City earn $66,000 per year, which is significantly higher than the national mean wage for all occupations.

  Related >> Best Cities for Young Professionals  

9. Washington, D.C.

Known for its politicians and lawmakers, the Washington D.C. area is also the strongest economy in the entire United States. It’s home to over 400 international associations and 1,000 international companies, including 15 Fortune 500 companies, making it a prime spot for job seekers.

 

Total non-farm employment for the area grew by 52,300 jobs — or 1.6% — over the course of a year. That number outpaces the national employment growth rate.

 

The average salary in Washington D.C. is $75,000 per year — $24,000 more than the national mean wage.

   

8. Oklahoma City, OK

The economy in Oklahoma City is rapidly changing. In the past, industries like mining and manufacturing were the leading employers in the area. Now, transportation, construction, and leisure and hospitality have taken over and dominate the job market.

 

The unemployment rate is lower than the national average, and overall job growth is at 2.5% with 15,900 jobs added.

 

In Oklahoma City, the average salary is $58,000. While that’s lower than the salaries of some cities on this list, Oklahoma City has a much lower cost of living, so your income will go further.

   

7. Milwaukee, WI

Like Oklahoma City, Milwaukee’s economy has seen significant changes in recent years. Industries like mining and manufacturing declined, while leisure and hospitality is a booming field.

 

In the area, job growth increased by 1.6%, and unemployment reached 3.2%, which is slightly below the national average. According to PayScale, the average salary is $63,000. However, Milwaukee has a lower cost of living than other cities, so your income is even more valuable.

   

6. Minneapolis-St. Paul, MN

The Minneapolis-St. Paul area has lower-than-average unemployment and is seeing significant growth in a number of industries. The biggest industries include trade, transportation, and utilities, education and health services, and professional and business services.

 

The average salary in Minneapolis is $69,000, far higher than the national mean wage for all occupations.

   

5. Nashville, TN

The city known for its culture and music is also one of the fastest-growing economies in the country. It has more than 1.9 million residents and over 40,000 businesses in it. The biggest job opportunities are for workers in the service industry, including restaurants, hotels, and skilled construction workers.

 

The unemployment rate in the city is just 2.7%, which is far lower than the national average. The biggest employers are the Vanderbilt University Medical Center, Nissa North America, and HCA Healthcare, Inc. However, Amazon recently announced that it would build a center in Nashville, bringing 5,000 jobs to the area. This development would dramatically change the city’s employment landscape.

 

The average salary in Nashville is $61,000, but the city has a lower-than-average cost of living, making your salary worth even more.

   

4. Birmingham, AL

Birmingham boasts an extremely low unemployment rate at just 2.2%. And according to the Bureau of Labor Statistics, the number of total non-farm jobs grew by 1.9% in 2019.

 

Healthcare and banking are two of the biggest industries in the city, with major employers like the University of Alabama at Birmingham, BellSouth, and the Baptist Health System hiring workers.

 

The average salary for Birmingham workers is $59,000. While that’s relatively low for a city on this list, Birmingham’s cost of living is much lower than other cities, making the salary more valuable.

   

3. Boston, MA

Workers in historic Boston can command high salaries. The average salary for workers is $76,000.

 

The city also has unprecedented job growth. According to a GlassDoor report, Boston’s job listings grew by 8.4%, the highest in the country. The biggest employers are primarily in three industries: health care and social assistance, finance and insurance, and educational services. The largest employers are Massachusetts General Hospital, Brigham and Women’s Hospital, and Boston University.

 

Boston also has an extremely low unemployment rate. At just 2.1%, it’s significantly lower than the national average.

   

2. San Francisco, CA

San Francisco is a hotly-desired area for job seekers. With an incredibly low unemployment rate — it’s just 1.8% — and big-name employers calling the area home, it’s easy to see the appeal.

 

The job growth rate is 2.4%, outpacing the national average. The biggest employers in the area are Advent Software, California Pacific Medical Center, and Charles Schwab.

 

The average salary in San Francisco is a whopping $95,000. However, the high income is tempered by the fact that San Francisco has a higher-than-average cost of living, cutting into how far your salary can go.

   

1. San Jose, CA

At $99,000, San Jose has the highest average income of any city on this list. Like San Francisco, its cost of living is higher than normal, but that salary is still impressive.

 

San Jose’s unemployment rate is just 2.2%, and non-farm jobs have grown by 2.9%. The area is home to hundreds of technology and research firms, including big names like Apple, Lockheed Martin, and the Stanford School of Medicine.

 

Maximizing Your Income

Deciding to relocate can have a big impact on your income and, consequently, your student loan repayment. If you do move to another state for a great job and secure a pay increase, you’re a prime candidate for student loan refinancing and you can get a low interest rate on your loan. You can get a no-obligation quote from ELFI without affecting your credit score.*

   
 

*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.

Photo of graduation cap on top of a pile of money
2020-02-10
Financial Aid Options for Middle-Income Families

It’s no secret that college comes with a hefty price tag. Every year, students and their families have to figure out how they’re going to pay thousands of dollars in school bills. While high-income families may have the resources to pay tuition, footing the entire bill just isn’t realistic for some families, especially if they have more than one child attending college. This is why many students rely on financial aid to fund their education.

 

It’s generally known that students from lower-income families can qualify for special scholarships and grants that help fill the gap to fund their education, but for families around the middle-income tier, financial aid may be harder to come by and make them feel that their options are limited. Rest assured that there are options for middle-class families to receive the financial assistance they need – it just may take a bit more effort.

 

FAFSA

When it comes to looking for financial aid for college, the FAFSA is a great place to start. The Free Application for Federal Student Aid has no income cutoff for eligibility, so your child could still receive some need-based aid from the FAFSA, especially if he or she plans on enrolling at a higher-cost school. The FAFSA opens October 1 every year, and you can apply as early as the year prior to your child’s first day of college. The earlier you apply, the more likely your child is to receive financial aid.

 

Scholarships

Researching and applying for scholarships has continually proven itself worthy of the effort. Many scholarships are merit-based instead of need-based, so your child may be eligible for many different scholarships depending on the qualifications. Start by looking for local scholarships – many locally-owned businesses and organizations offer scholarships for graduating high school students. If your child visits the school guidance office, they may have some applications on file. You or your spouse could also ask your employer if they offer any type of scholarships or financial aid for employees’ children. After exhausting local options, your child may want to research national opportunities. A quick web search could reveal countless free scholarships – Niche, Fastweb, and eCampusTours are a good place to start. Finally, many colleges offer merit-based scholarships and endowment scholarships. Make sure your child looks for institutional scholarships at the school he or she plans to attend. You may discover that if your child joins a club or raises a standardized test score by a couple of points, he or she could receive thousands more dollars of financial aid.

 

Tuition Discounts

If a family member, such as a parent or grandparent attended the same college or university you're enrolled in, you may receive a tuition discount. There may be additional requirements to qualifying for this discount, such as, your family member being active in the school's alumni association or maintaining a certain GPA.

 

Tax Rewards

Middle-income families are perfectly positioned to receive tax credits for college expenditures. For example, the Lifetime Learning credit has income requirements that exclude those who earn over and under certain amounts. Programs like this, as well as tuition savings plans, offer a few different ways for middle-income families to receive tax benefits.

 

Federal Loans

If you’ve taken advantage of all your financial aid options and find you still have more to pay, it may be time to consider loans. Non-need based federal loans such as the Unsubsidized Federal Stafford Loan for students and the Federal PLUS Loan for parents can bridge whatever gap you find in your aid and your expenses. Federal education loans generally have low interest rates or may be tax-deductible, so they’re a smart alternative to using a credit card, for example.

 

Private Loans

You may find that you still need financial assistance after exhausting all the options above. If that’s the case, private student loans may be for you. We always recommend you take advantage of grants, scholarships, and federal aid before taking out a private student loan. To learn more about ELFI’s private student loan options,* click here.

 

The cost of college can present a challenge for families at all income levels, but middle-income families often struggle the most to find financial aid because their finances fall between affording college and needing assistance. If your family is in this situation, don’t let it get you down. The options in this article are a good place to start searching for financial assistance. Don’t lose sight of the end goal – getting the degree you want and establishing a successful career. If you’re already looking for financial aid, you’re well on your way.

 
  *Subject to credit approval. Terms and conditions apply.  

Note: Links to other websites are provided as a convenience only. A link does not imply SouthEast Bank’s sponsorship or approval of any other site. SouthEast Bank does not control the content of these sites.

2020-02-07
This Week in Student Loans: February 7

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:

The Dangers Of Using A 529 Plan For Student Loan Debt

The Setting Every Community Up for Retirement (SECURE) Act that was signed into law on December 20 allows families with a 529 college savings plan to use some of the savings to pay off student loan debt. Previously, you would have to pay a 10% penalty on 529 earnings (not contributions) in order to use the savings for non-qualified expenses, such as paying student loans. This Forbes article explains the limitations of using such plans to pay off student debt.  

Source: Forbes

 

How Each State is Shaping the Personal Finance IQ of its Student

According to CNBC, there's increasing research showing that students who are required to learn financial literacy or take personal finance courses in high school make better financial decisions in their early adult life. See how certain states are taking measures to ensure their students are more financially literate in this article.  

Source: CNBC

 

Student Loan Debt Statistics for 2019

Yahoo Finance has released a report on the state of student loan debt for the year of 2019, including information about the average student loan debt per borrower and student loan debt by state, age, race, and gender.  

Source: Yahoo Finance

 

Ohio Dad Got 55,000 Identical Letters About His Daughter's Student Loan

An Ohio father of a student loan borrower was shocked when he received 59 bins of mail containing 55,000 identical letters from the servicer of his daughter's student loans. The delivery was so large that the man had to pick up the delivery at the back door of the post office and had to make two trips. The servicer claimed it was due to a glitch in the outgoing mail process and that they would work to ensure the mistake would not happen again. When asked what he might do with the letters, the father said, "I just may start a fire, a bonfire, and burn it all," while laughing.  

Source: CNN

    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.

2020-02-06
Private Student Loan Repayment Options Explained (Video)

So you’ve worked hard to get accepted to a great college, and you’ve taken out student loans to make this dream a reality. Now, it’s time to determine the best student loan repayment option before the academic year begins. This video explains the four common student loan repayment options, highlighting the pros and cons of each. These repayment options include:

  • Immediate Repayment
  • Partial Repayment
  • Interest-Only
  • Full Deferment
   

Immediate Repayment Plan

Let’s begin with the immediate repayment option. With this type of repayment plan, you’d begin to make both principal and interest payments as soon as the loan is fully disbursed. This allows you to save money on interest and speed up the repayment process since your loan will be paid off in less time. Keep in mind that immediate repayment is the only plan that does not provide you with a 6-month grace period.

 

Partial Repayment Plan

Next, there’s the partial payment plan. Here, you’d pay a low fixed monthly payment while you are in school, and then ramp up your payments after you graduate, or become a part-time student. This is more affordable on a month-to-month basis; however the interest you do not pay off will then be added to your loan balance after college, increasing your post-grad payments.

 

Interest-Only Repayment Plan

Another intriguing repayment plan option is interest-only, which means you’ll make payments only for the interest that accrues on your loan while you’re in school.  Once you graduate, you’d pay on the interest and principle of your loan. This helps you save money long-term since you’ll cover the interest while you’re in school. Some lenders may offer you lower interest rates if you agree to begin repaying your student loans while enrolled in college.

 

Full Deferment Plan

Finally, there’s the full deferment plan. This allows you to hold off on making any student loan payments while you’re a full-time student. It may sound great to delay payments while in school or during your grace period, but you’ll end up paying more for the loan overall since the interest continues to accrue during the deferment and grace periods. This then gets added to your total loan once you start making payments.

 

Of course, the best way to navigate the student loan repayment process is to consult a professional. Contact ELFI to connect with a Personal Loan Advisor who can walk you through your options.

 

Tips for Starting Your Student Loan Repayment Journey

 
2020-02-05
7 Tips for Parents Paying A Child’s Student Loans

$233,610. This is the amount of money today’s average American family can expect to spend raising one child. If this seems like a lot, get ready for more sticker shock since this doesn’t include the cost of college. The average tuition at a public in-state school for the 2019-2020 school year is $10,116. Multiply that by four years (plus student loan interest), and you’re adding another $50,000+ to the total cost of raising a child.    If you’re reading this blog, you’re likely well aware of the cost of college, and you might now be looking for ways to help your son or daughter pay their college debt. Your recent graduate likely has a student loan (and if they’re lucky, parents who offered to make payments toward that loan). Or you might have taken out a parent loan* to fully cover the cost of college for your child. Either way, those loans are staring you in the face, begging to be paid.   Luckily, there are no rules against helping your son or daughter pay off student loan debt. However, there are some tips to help you navigate this offer.    

Set Up Automatic Payments

The easiest way to help manage your child’s student loan debt is by setting up automatic payments from your checking or savings account. We all get busy and forget items on our to-do list. And while one or two missed payments might not make a difference, several can result in late fee charges and dings on your credit, especially if the loan is in your name or if you were a co-signer for the loan.   

Play By the Rules (Tax Rules)

If you help pay your child’s student loan debt, you might need to pay gift tax and file a gift tax return during tax season. A gift tax applies to the giver (that’s you) and to any contributions more than $15,000, as of 2020. Tuition is excluded from gift tax but, unfortunately,  loan payments are not. Double-check current IRS regulations around loan payments before making the decision to help pay your child’s student loan debt. Here is a current FAQ list around gift tax.  

Focus on Loans with High-Interest Rates

Look at all your loans—car loans, mortgage loans, credit card debt—and focus on those with the highest interest rate. If you have a credit card with an 18% interest rate, and the interest on your child’s student loan is just 8%, it would be wiser to focus on paying your card first. Even adding an extra $50 or $100 per paycheck to those higher rate loans can help in the long run.  

Prepay the Loan

If you receive a bonus or a cushy tax return, allocate those extra funds toward the student loan debt. By paying down your child’s student loan faster, you can reduce the total amount of interest paid over the life of the loan by paying less monthly interest.    You can also allocate extra funds toward paying your child’s student loans by rearranging other existing finances. For example, if you have multiple credit cards, consolidate the balances into one loan. A single loan with a fixed interest rate that’s lower than the APR on your credit card will help you simplify and save.   

Refinance Student Loans

Refinancing student loans is another way to simplify payments and readjust finances. Whether the loan is a parent loan or student loan, reducing the interest rate lowers monthly and total loan payments. You can also change the term of the loan to 5, 7, or 10 years to help lower monthly payments, allowing you to reallocate funds to other expenses or debts (refer back to our tip about paying off debts with high-interest rates first).   Related >> Should You Refinance Parent PLUS Loans?   ELFI offers student loan refinancing options for both parents and students. We also have no application fees, no loan origination fees, and no penalty of paying off your student loan early. See how much you could save with ELFI Student Loan Refinancing*.  

Set Up Biweekly vs. Monthly Payments

You might have noticed that some months, you get an extra paycheck. This is because the 52 weeks in a year don’t evenly divide into four weeks for every 12 months. You can take advantage of these extra four weeks by setting up biweekly loan payments. If your monthly payment is $300, and you readjust to paying $150 every other week, you pay the same amount each paycheck, but end up with an extra loan payment paid over the course of a year. This pays your student loan debt faster. Another bonus? This tip works for paying off any loans, not just student loans.   

Fully Understand Your Offer

Paying your child’s student loans, whether partially or in full, is a generous offer. It can help your new graduate get on his or her feet in the working world. It can also help free up money for dealing with other debts or life’s unexpected surprises. Since your offer also impacts your financial situation, be sure you fully understand the pros and cons. Consider how close you are to retirement, and if your 401k or other funds will suffer. Be aware of the balances and interest rates in your other debts.    Whether or not you chose to help your child pay their loan, student loan refinancing (or even refinancing your parent loan) can help avoid the hassle of multiple payments and get a more affordable rate and flexible terms. See if you qualify for student loan refinancing*.   
  *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.
2020-02-04
Refinancing Student Loans to Buy Your First Home

So, you’re ready to buy your first home? Look at you all grown up and wanting to be smart with your money. The truth is, you were smart enough to invest in your future by working hard for your degree(s), and now you want to double down and dig in some roots. But you may be wondering how you’re going to juggle both a mortgage AND a burdensome student loan payment every month. In fact, 41% of college grads with student loan debt hesitate to purchase a home because of the sizeable amount of student loan debt they have.   Note: This blog was previously published in March of 2018, but has been updated to be current for our readers.   Purchasing your first home is a massive decision, and you’re wise to not take it lightly. But it doesn’t hurt to dream, right?   Picture yourself parking in the driveway of your first dream home. As you slowly walk up to the front door, everything has this wonderful soft glow and your peripherals are a bit cloudy because, well it’s a dream and that’s what they do in the movies. Anyways, you reach out for the door handle and are pleasantly surprised to find it has the perfect form, as if it were fitted for your hand alone.   You squeeze the latch, crack the door open and take the first step inside. It’s perfect. Everything is just as you imagined. You take another step towards the living room and brush against something with your foot. You look down to find a pile of old mail. “That’s strange,” you think to yourself. “This home doesn’t have any previous owners. This is MY dream home.” Perplexed, you shuffle through the stack and are horrified to find they’re all bills…. And they’re all addressed to you.   An eerie feeling crawls up your spine about the same time you hear a chilling voice say, “Stuuuudent Loooaaans.” The front door slams behind you, presumably by the Ghost of Student Loan Future. To your dismay, the living room begins to shrink and warp into a strangely familiar studio apartment. It’s at this moment you realize your dream has just become a nightmare and you have descended to the basement of Homeowner’s Purgatory, known as, “Oh Yeah, I Have Enough Student Loan Debt to Buy a Mid-Sized House. Maybe One Day I’ll Be Able to Afford It. Maybe.”   Fortunately, this is only a dream, and a fake one at that. More relieving, perhaps, is that this blog was not written to encourage or discourage you from purchasing a home; chances are you’ve already made up your mind on that. Besides, there are plenty of other blogs out there that can take you down that rabbit hole. What we’d like to do is help you understand how your student loan debt can and will affect your eligibility for homeownership, as well as ways to improve your chances of approval by offering ways for you to possibly pay off your debt faster and reduce the amount you'll pay in total, such as refinancing your student loans.  

Graduated Savings Plan

First and foremost, paying off student loan debt and purchasing a home are not linear. With a graduated savings plan, you can pay down your debt and save for a home at the same time. Start out by putting the majority of your discretionary income towards your debt and set aside 10% for down-payment savings. Next year, decrease your student loan payments to 75% and increase your savings to 25%. The following year, aim for a 50/50 split and continue the trend until you’ve paid off your student loan debt and can finally allocate 100% of your discretionary income towards your down payment.  

Lower Your Monthly Payment

Before approving your mortgage, lenders are going to be looking closely at how much other debt you owe. Your student loan debt will likely be the heaviest hitter on that roster. They will also take into account car loans, financed furniture, etc. Your best chance for approval is to aim for a debt-to-income ratio of about 25%. Technically the cut-off is at 43%, but you’ll likely borrow at a much higher interest rate and require you to have mortgage insurance. That’s going to really ramp up your monthly payments. While your overall debt-to-income ratio will certainly play a role in your eligibility, it may surprise you to learn that mortgage lenders are not so much concerned with the overall balance as they are with your monthly payments going towards the debt.   One of the best things you can do to get your financial house in order is to lower your monthly student loan payments by refinancing their student loans. While this will not remove the reality of student loan debt, consolidating your multiple student loans into one loan will eliminate the hassle of keeping track on your slew of different rates and terms. You can lower your monthly payment even more by extending the repayment term of your loan by few years, though this will affect the total amount of interest you end up.  

Lock-In Your Rates

Over the past several years, variable interest rate loans have hovered around historical lows. However, you may have noticed that the prime rate has been on the rise, and this will surely affect anyone with variable rate loans. When you consolidate loans, you have the opportunity to lock-in a fixed interest rate for all of your student loan debt, eliminating any variable rates that could prove problematic when the economy improves and interest rates follow suit. Locked-in rates mean locked-in payment, and it’s comforting to know exactly how much you’ll owe every month for the rest of your loan term (the bank will like it too). If you are even thinking about refinancing as a way to get one step closer to purchasing your first home, now is the time to take advantage of your good credit score and get the lowest rates you can qualify for in the event they continue to rise.  

Opening Doors to a New Life

In the end, purchasing your first home while simultaneously paying down student loan debt is more than simply crunching the numbers. Keep in mind that homeownership is far more than a mortgage payment. It’s also furniture and renovations, not to mention general upkeep, which tends to average more than one percent of the total cost of the home per year. You need to weigh very real costs against your invaluable personal happiness – both present and future. As no one can help you with this formula, it’s best to follow your gut.   Remember, your student loan debt and your first home purchase are both investments. Get creative with this abstract equation by having a roommate or utilizing online vacation rental websites, as either option may cover the majority of your mortgage. If you buy in the right neighborhood, you might even earn a couple hundred bucks, which, being the smart and financially responsible adult you are, will go directly towards paying down your student loan debt. It’s a great way to have your cake and eat it too until the day comes when you can reach out and cut a little slice of heaven out of that pie in the sky.   All that being said, take a serious look at refinancing student debt. If you are able to get in on a home purchase more quickly by reducing student loan payments now, you may also enjoy a lower rate on your mortgage loan. ‘A dollar saved is a dollar earned’, especially when it comes to student loan debt. Find out home much you can save with ELFI.*  
  *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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2020-02-03
Top Tips for Finding the Perfect Lender to Refinance Your Student Loans

Taking out student loans is an investment in your future, just like buying a house, contributing to a 401K, or building a portfolio of stocks and bonds. Whereas housing and stock markets alike can crash seemingly without warning, however, a college degree delivers, more often than not. According to the College Board’s “Education Pays” report, a college student that is behind employed peers in terms of wages while paying for a bachelor’s degree will recoup these losses by age 34 and begin to surpass those same peers.   Note: This blog was previously published in August of 2017, but has been updated to be current for our readers.   In other words, you’ve done good by going to college, and the result is that you are now paying your bills and student loans while also saving for your future. Still, you can’t help but notice all the media hype over the benefits of student loan refinancing, or the great offers from companies like Education Loan Finance that could help you to save money over the life of your student loans.   If you’re going to refinance in order to reduce your interest rates, monthly payments or overall payout on student loans, you have to be just as smart as you were when choosing a profitable major. You need to ask the right questions and compare student loan refinancing lenders. Here are the top questions to help you get to the bottom of which lender is your best choice when it comes to refinancing student loans.  

Do I qualify for refinancing?

This is question number one. If a lender won’t work with you for some reason or another, you’ll have to go back to the drawing board. As a college student paying down debt, however, you might find yourself in a great position to refinance.   Potential factors affecting your ability to refinance include:   Not every lender will use the same factors in determining eligibility. While some rely primarily on credit score and history, others now weigh minimum income requirements more heavily. The good news is, if you earn a good income, you’re working to reduce debt and you’ve built up a solid credit score (680+) and clean credit history, you’re probably in a great position to refinance with just about any lender you approach, allowing you the opportunity to shop around and pick the lender you prefer.  

What are the benefits?

There are a lot of potential benefits to refinancing student loans, but when you do it right, the biggest benefit is saving money. Once you’ve qualified for refinancing, it’s time to look for the best terms, and this could include comparing:
  • Interest rates
  • Variable/fixed rates
  • Monthly payments
  • Loan duration
  • Overall payout
  With the right terms, you could reduce your debt and save money on every front. This, in turn, could mean paying off debt faster, improving your credit score, reducing stress and generally feeling pretty awesome about your excellent life choices. You might be able to buy your first home or start a business sooner than you hoped. Maybe you can start putting money into retirement accounts and taking advantage of compound interest early in life. Sound refinancing opens doors. Hashtag winning, anyone?  

What’s the deal with fixed vs. variable rates?

You may have noticed that among your myriad student loans are lurking some variable rates. As a college grad, you probably understand the difference between the terms “fixed” and “variable,” so you know why the former is generally preferable. Variable-rate loans fluctuate, which is pretty great during economic downturn because your interest rates and payments go down.  

Are there penalties for early repayment?

According to the office of Federal Student Aid, the federal loans you take for college incur no penalties for early repayment. Can you keep the same benefits when you refinance? You’ll need to make sure the lender you choose allows you to make extra payments toward the principle of the loan, as opposed to paying off fees and accrued interest first. This way you’ll be sure to enjoy the rewards of your responsible financial behavior, and actually reduce debt and pay your loan down faster.  

Are there further discounts available?

You might already know that you should ask about available discounts when comparing insurance policies, but did you know you can also get discounts through loan refinancing? You might not save the same amount as with a greatly reduced interest rate, but every little bit helps.   Some lenders will reduce your rate by a small percentage (say 0.25%) if you select an automatic payment method. You might also be eligible for discounts related to good behavior like on-time, consecutive payments. Or you could get bonuses for referrals. If there are discounts to be had, you definitely want to know about them, and the best way is to ask.  

What are some other benefits to refinancing student loans?

You want more than monetary savings when you refinance? You got it. Some lenders are finding ways to sweeten the deal with extras like unemployment protection, career coaching, entrepreneurship programs and more. Often, these bonuses are in the best interest of both lenders and borrowers.   For example, pausing loan payments during hardships like job loss can give borrowers the opportunity to get back on their feet and resume payments faster, and helping borrowers with career and entrepreneurship opportunities can lead to increased earnings and perhaps future loans. It looks like lenders are starting to see the value of long-term relationships with college grads.  

Should I refinance or consolidate?

Why not do both? When you refinance and consolidate at the same time, you stand to reduce interest rates and payments, but you could also increase convenience by turning a dozen monthly payments into a single bill.   Before your refinance your student loans, you need to choose a lender that’s going to offer you the best terms and the most benefits. With a list of targeted questions in mind, you can find the perfect lender for the job. It could just be the beginning of a beautiful friendship.  
  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.