Student Loan Refinancing Archives | Education Loan Finance

Pay Down Student Loan Debt or Invest In a Traditional 401(k)?

Posted on April 22, 2019April 30, 2019 by Sioban Schmeding

Student loan debt in the United States has amounted to $1.5 trillion according to the Federal Reserve. This large student loan debt burden has affected many young people who are looking to start families and create a life for themselves. Despite this tough obstacle, many young people still have excess savings and need to determine what to do with these savings. Should they take their savings and invest in a traditional 401(k) or use that savings to pay down their student loan debt? We’re going to share different situations all spanning 10 years that involve paying down student loan debt and investing in a traditional 401(k) plan.

Let’s say you have a taxable income of $150,000 and file taxes jointly with a spouse. Under the new 2018 tax brackets, your effective federal tax rate is 16.59%. Let’s also assume you have $70,000 of student loan debt with 10 years left at a 7% interest rate. Your monthly student loan payment would be about $812.76 assuming you’re making the same payment amount every month. What should you do? Pay down the student loan or invest in a traditional 401(k) account?

Income: $150,000

Effective Tax Rate: 16.59%

Student Loan Debt: $70,000

Monthly Payment: $812.76

Term: 10 years

Interest Rate: 7%

Scenario 1 – Paying Down Debt Student Loans Then Investing

Let’s start off by taking a look at how you can pay this debt down faster. Did you know that if you pay an extra $100 a month in addition to your regular student loan monthly payment, you’ll save $4,464.13 in interest paid? Not only will you save money by paying extra every month, but you’ll cut down the overall repayment period by a year and a half. Yes, you’ll be debt-free a year and a half earlier than you thought!

$812.76 + $100 = $912.76 Monthly Payment

After being debt free sooner than expected, you may decide to start investing in your 401(k). If you put all of the money you were paying from your student loan into your 401(k), you’d contribute $1,094.31 monthly.

You may be wondering how you can contribute more money towards your 401(k) than your student loan payment. The answer lies in taxes.

Student loan payments are made with post-tax income. 401(k) contributions are made with pre-tax income. Since a traditional 401(k) account uses pre-tax income, you are able to contribute more towards your 401(k) than you would have your student loan debt with the same income. Though you don’t pay taxes on 401(k) contributions, ordinary income tax will be applied on 401(k) distributions.

$912.76 / (1-16.59%) = $1.094.31 Monthly Contribution

After a year and half of contributing $1,094.31 per month, compounded monthly, at an assumed 7% rate of return, you would have $20,826.09. The investment amount of $20,826.09 combined with the student loan interest savings of $4,464.13 would give you a total 10-year net value of $25,290.23.

Scenario 2 – Investing While Paying Down Student Loan Debt

If you have a higher priority of saving for retirement than paying off your student loan debt, you may want a different option. Let’s see what would happen if you decided to put that extra $100 a month into a tax-deferred 401(k) account. The $100 would be contributed to your 401(k) account instead of your student loan debt balance, but you would continue to make monthly student loan debt payments. Due to the pre-tax nature of a 401(k), your contribution of $100 post-tax would become $119.89 pre-tax.

$100 / (1-16.59%) = $119.89 Monthly Contribution

With an assumed 7% rate of return, compounded monthly, on your 401(k), you will have approximately $20,872.19 in your 401(k) after 10 years.

Scenario 3 – Employer Contributions 401(k)

Some employers will match your 401(k) contributions up to a certain percentage of your income. This could be a real game-changer. Turning down your employer’s 401(k) match is like throwing away free money. If you have student loan debt, but your employer offers a match, consider contributing to receive the maximum employer match. If you contribute $119.89 a month with an employer match while making your normal student loan payments, your money can really grow. If your employer matches the 401(k) contribution dollar for dollar, you will double your investment of $20,872.19 from Scenario 2 to $41,744.37 in your 401(k) account after 10 years.

Contributions to a traditional 401(k) are made prior to your income being taxed. The withdrawals on a traditional 401(k) are taxed. The tax rate that is applied to your withdrawals depends on your tax bracket in retirement. As the average person’s career develops, they typically continue to increase their salary and move into a higher tax bracket. Upon retirement, they will see a decrease in income and move to a lower tax bracket. This means your 401(k) withdrawals could be taxed in a lower tax bracket if done while in retirement, instead of in your working years. Note that this will only be the case if your retirement income is less than your working income.

Scenario 1 – Paying Down Then Investing

Scenario 2 – Investing While Paying Down Debt

Scenario 3 – Employer Contribution 401k

As you can see from the chart above, investing while paying down student loan debt or paying down debt than investing produces almost the same total net value. One debt pays down and investment strategy might perform better than the other depending on the return in the 401(k) account. It’s important to keep in mind that the returns on a 401(k) account are never guaranteed

The real deciding factor on whether to invest or pay down your student loan debt will be if an employer offers a 401(k) match. Matching contributions from your employer will make investing significantly more attractive than paying down debt. If an employer match to your 401(k) is available, it’s wise to take advantage of it.

Your comfort level with your student loan debt can be a large factor in your decision to invest in a traditional 401(k) account or to pay down debt. Knowing whether you are more interested in being debt free or being prepared for retirement can help you make a decision. Let’s look at how student loan refinancing can help you amplify your student loan debt pay down and investment strategy.

In Scenarios 1, 2, and 3, the big question was whether you should use the additional $100 a month to pay down student loan debt or invest in a 401(k). What if you wanted to spend that $100 a month instead? Is it possible to find a way to save on student loan debt while spending that extra $100 a month? You’re in luck! This can be done with student loan refinancing.

Scenario 4 – Refinancing Student Loan Debt

By refinancing your student loan debt, you should be able to decrease the high-interest rate of your student loan. In addition, you should be able to save money over the life of the loan and in some cases monthly.

The total interest you would have to pay on your student loans of $70,000 at 7% interest over 10 years is $27,531.12. If you qualify to refinance your student loan debt to a 5% interest rate, the total interest you would pay is $19,095.03. This would mean that refinancing your student loans would be saving you $8,436.09 in interest over the life of the loan or $70.30 a month. When comparing your new 5% interest rate to your previous interest rate of 7%, not only would you be saving over the life of the loan, but reducing your monthly payment!

$8,436.09 / 120 = $70.30 Monthly Interest Savings

Learn More About Student Loan Refinancing

Scenario 5 – Refinancing and Paying Down Debt Then Investing

Now, what happens if you refinance your student loan debt, pay down the debt, and then start investing? Refinancing your student loan debt will cut your interest rate, saving you $70.30 a month, making your monthly student loan payment now $742.46 instead of $812.76 per month. By taking the additional $100 a month and the $70.30 in student loan savings from refinancing and applying them to your monthly student loan payment, you will be debt free two years and three months sooner than expected. Two years and three months are earlier compared to the one and a half years from Scenario 1. Just a reminder, in Scenario 1, there an additional $100 a month put towards your student loan debt. With refinancing and making the same monthly payment as Scenario 1, you will save $13,017.87 in interest over your original loan.

$742.46 + $70.30 + $100 = $912.76 Monthly Payment

Now that you’re debt free, you can use the money that would have been used for your student loan payment to contribute to your 401(k). Since 401(k) contributions are done with pre-tax income, you will be able to contribute a pre-tax amount of $912.76, which is $1094.31.

$912.76 / (1-16.59%) = $1.094.31 Monthly Contribution

After two years and three months of contributing $1,094.31 per month, compounded monthly, at an assumed 7% rate of return, you would have $32,085.89. The investment amount of $32,085.09 combined with the student loan interest savings of $13,017.87 would give you a total 10-year net value of $45,103.76.

Scenario 6 – Refinancing and Investing While Paying Down Debt

Now let’s try refinancing while you simultaneously pay down debt and invest. In this scenario, you will cut down the interest rate on your student loan debt from 7% to 5% by refinancing. You’ll be contributing the pre-tax amount of the extra $100 a month and $70.30 a month in interest savings towards your 401(k). You will end up contributing a total of $204.17 a month to your 401(k) account.

($100 + $70.30) / (1-16.59%) = $204.17 Monthly Contribution

With an assumed 7% rate of return, compounded monthly, you will have approximately $35,544.87 in your 401(k) after 10 years. Combined with the interest savings of $8,436.09, you will have a total net value of $43,980.96.

Scenario 1 – Paying Down Then Investing

Scenario 2 – Investing While Paying Down Debt

Scenario 4 – Refinancing Student Loan Debt

Scenario 5 – Refinancing and Paying Down Debt Then Investing

Scenario 6 – Refinancing and Investing While Paying Down Debt

As you can see from the chart above, just from refinancing your student loan debt, you can save money and increase your total net value. If you take it one step further and supplement your debt pay down and investment strategy with student loan refinancing, you would approximately double your total net value! By taking advantage of student loan refinancing, you will be able to supercharge your debt pay down and investment strategy. For those who are just trying to save money on student loans or have more money to invest in their 401(k), student loan refinancing is the way to go.

Check Out Our Guide to Student Loan Refinancing

NOTICE: Education Loan Finance by SouthEast Bank is not authorized to provide tax advice or financial advice. If you need tax advice or financial advice contacts a professional. All statements regarding 401(k) contributions assume that you have a 401(k) plan and that you are able to contribute those amounts without contributing more than the current federal law limits.

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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.

Student Loan Refinancing: How To Avoid Predatory Lending

Posted on March 8, 2019April 30, 2019 by Sioban Schmeding

No one wants to get scammed, but it can be hard to feel confident about whether you’re working with a reputable source or not. In an era when we have access to so many different options and there are countless financial entities available at our fingertips, there are definitely some things to keep in mind so that you don’t end up getting a raw deal. It’s not uncommon if you’re interested in student loan refinancing, or have been approached by a company to want to see if they’re legit before you move forward. Here are some tips on how to avoid being a victim of predatory lending.

Check your sources.

It’s not uncommon to find random financing offers around the internet. Maybe you read about it on Reddit, saw a social media post, or even direct mail. Companies regularly send postcards and mailers to try to get your attention. The marketing material can look pretty convincing, too! Don’t let a slick landing page or a nice mailer fool you. You generally want to find suggestions from sources you trust, like a financial expert, or trusted online sources. A good resource would be the Better Business Bureau. You can see online complaints, information about the company, and all provided by an unbiased source. A second site that provides unbiased online reviews is Trustpilot. Websites with unbiased reviews and legitimate accreditation or backing can be an ideal source to verify credibility.

Never trust dishonest marketing.

It may sound extreme, but we’ve heard of examples where someone was approached by an entity that attempted to look like the government. These scare tactics are used frequently enough by scammy companies for one reason – they work. These companies use this scare tactic because when you think the government is trying to get in touch and you’re in trouble, you answer! These options work similarly to the IRS scams that are always happening with the IRS calling your phone, but in reality, the IRS doesn’t actually call anyone. If the company tried to look like a government program and later you find out they’re not, drop them. A legitimate company won’t send fake notices or use a misleading URL in order to get your business.

Listen to the old adage.

If it’s too good to be true, it probably is. There’s a reason that this simple advice is so often passed down. Really amazing offers are rare. If something sounds like there’s no way they could offer you such incredible terms or that great of a deal, there is likely fine print that’s missing. Fact check the offer and look for comparable data. Your alarm bells should go off if you’re looking at a company whose reputation is dubious. This especially proves true if they’re claiming to get you unheard of service or savings.

Requirements to Refinance Student Loans

What do I owe you?

There are lots of scams across all kinds of industries. One of the most common is when a person tries to get you to pay something up front with the promise of services to come. Lending is no different. If you have to pay a fee or anything before you can see the offer, chances are that this is a scam. Companies often will offer to facilitate student loan discharge for someone with a permanent disability. The process of applying for student loan discharge if you have a qualifying disability is free. Any company offering to do it for a hefty up-front fee is scamming you!

Avoid anyone who is too aggressive.

Sometimes a company will aggressively pursue potential borrowers and push them to select a consolidation option that’s not in the borrower’s best financial interest. They might be a legitimate company but will leave out crucial details in order to sign you up. A good general rule of thumb is to be aware of the interest rate and terms. Understand how a lower payment can extend the life of your loans, thus increasing the overall amount due. Always get all the details, so you know the financial implications of your decision.

Give it a gut check.

Sometimes your intuition is your best tool. If something doesn’t feel right, don’t be afraid to hit pause until you can find more information. Be wary of any company that’s asking for too much personal information before you are sure that they’re legit. Keep an eye out for things that just don’t seem right, like misspellings or a digital presence that seems fishy. You should never be faulted or made to feel bad for giving yourself time to look into the details and read everything over. If you feel like you’re being hurried through or your questions aren’t being answered stop and take a breather to do a gut check. All of your concerns should be addressed with ample information so that you feel confident about the process and decision. If that’s not what you’re experiencing, you should back away.

Use your village.

There are lots of reputable companies out there, and it’s pretty easy to find them by reading unbiased reviews. Do your research and continue learning more about how their process will help you. Use resources available to you to vet companies before you reach out. If you utilize the resources available to you, you’ll be less likely to encounter an unreputable company on the prowl.

You should never be badgered or threatened.

No reputable company is going to make threats against you or repeatedly harass you to sign up. As a consumer, you have certain protections and any company that violates these should be investigated. If you’re facing this treatment from any lender, would like to see more information on various types of financial products and your rights, visit the FDIC website.

Check Out Our Guide to Student Loan Refinancing

NOTICE: Third Party Web Sites
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.

How Does Divorce Affect Student Loan Debt?

Posted on January 30, 2019February 8, 2019 by Sioban Schmeding

Lots of millennials are waiting longer to get married so that they’re more secure before tying the knot. The divorce rate dropped 18% in the last several years. Even so, divorce still happens. It doesn’t have to be the end of the world. Maybe your uncoupling is a fresh start, and separating your finances is the first step to setting up your new life.

As a millennial, many of us have student loan debt that is just part of our everyday reality. That’s true whether we’re married, single, or divorced. This is why so many people often will end up seeking out help and advice about student loans during the divorce process. Answers aren’t always clear, but we can help. There are a few things you should know to prevent any financial surprises.

Can’t Divorce a Servicer

Student loan responsibilities after a divorce—particularly for Federal Loans—will be dependent on whose name is on the loan. If you and your ex-spouse agree on a payment arrangement that requires one of you to help pay, if it’s not in your name on the loan, that may not be enforced by the servicer. If your name is on the loan, you’re the one they’re going to pursue for payment. That doesn’t mean you shouldn’t try to come to an agreement that works for both of you but stay on top of which of your loans are being paid. Make sure you never miss a payment even if your ex is supposed to be paying it.

Repayment Amounts and Plans

With divorce, your family size changes, as does your household income. Changes to income and family size can mean changes to your monthly payment. Now it’s likely these changes will only happen if you are on an income-based repayment plan. It doesn’t mean that your monthly payment will go down, but your loan payment could go up or down. The payment amount will depend on what your spouse’s income was when compared to yours, so everyone’s situation is unique. Make sure to update the paperwork and stay current on your loans as you transition to paying your debts on your own.

If you’re having trouble making payments, look at different repayment options like an IBR plan so that you stay current on your loan payments and don’t fall behind. If at all possible, avoid deferment. Deferring your loans ensures that you don’t fall behind on payments, but the interest continues to accrue while you are not paying. This could extend the life of the loan and increase the amount that you owe, so it really should be a last resort.

Credit Score

Some people think just filing for divorce will negatively affect credit, but that isn’t necessarily true. What can affect your credit is the process of changing your bills around. For example, putting things in solely your name that weren’t previously could affect your credit score. Making big financial changes like selling a house, refinancing, or restructuring debt can also have effects on your credit score. Some of those things could be good and some could lower your score, so it just depends on your situation. For example, adding on more debt without increasing your income could have a negative effect on your credit score.

If you are in the process of reassessing your financial situation on your own, you’ll want to review paperwork. Gather vital documents like your credit report and score. If you haven’t checked your credit report in a while, now is a great time too. Make sure there are no errors on your credit report and ensure that you know what your score is. You may be looking to make some changes that will certainly need a credit review. Changes could include looking for housing on your own, your own mortgage, changing the car you drive, or something else that will require a credit check. Don’t be caught off guard by not knowing what’s on your report right now.

State Laws

The laws will either determine the debt as separate property or marital property. Now, separate property generally includes things like assists obtained before marriage like that of inheritance. Generally paraphrasing anything obtained by an individual before marriage is considered separate property. Anything that remains outside of separate property typically is marital property. Marital property is where the state laws really play a role.

Your remaining marital property will be divided based on if you are located in “community property” state or an “equitable distribution” state. During a divorce in a “community property” state, any marital property is split down the center at fifty-fifty. Most states tend to fall into the “equitable distribution” state law. The “equitable distribution” law says that each party has a legal claim to the asset or debt. The portion of value that is then divided to each party is determined by a number of different factors according to The Court.

Cosigners and Private Loans

Private loans can be more complex. For instance, if your ex-spouse is a cosigner, then you are both responsible to pay the debt. If he or she was not your cosigner, the debt is the responsibility or you and your cosigner, if any.

It might be a good time to refinance loans.

Whether you are just entering the divorce process or have already completed, see if now is the time to refinance. Get in touch to have one of our friendly advisors walk you through the process and give you information on how we can help.

Divorce can be one of the most stressful events a person will face, but empowering yourself with information will make it easier to navigate. Be sure to consult with a lawyer before you start divorce proceedings so that you can prepare. Do your best to work together to come to an agreement that helps you both afford to live on your own so everyone can move forward.

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Don’t Wait for Graduation to Pay Down Student Loan Debt

Posted on January 25, 2019February 8, 2019 by Sioban Schmeding

What does a currently enrolled graduate student, a recent graduate, or a Doctorate student all have in common? The answer is simple, student loans. Sounds like a bad joke, but student debt in the United States is no joking matter. The current student loan debt total has hit $1.5 trillion as of 2018 according to Federal Reserve data. If you find yourself a borrower of student loan debt, know that debt doesn’t just start after graduation. The moment your loan is approved you become a borrower and therefore take on the responsibility to pay down that debt. As a borrower, here are some ways to be financially responsible and pay down debt quickly ensuring yourself a brighter financial future.

Don’t Go Overboard

According to CollegeBoard the average full-time bachelor degree seeking student, who attends a four year school will pay somewhere in the range of $21,370 to $48,510 per year in 2018 – 2019. Now the average Master’s seeking student will pay about $19,080. These estimates do include the cost of room and board and will differ depending on if the student is attending an out of state school or an in-state school.

When the time comes to apply for your loans, be sure you have a budget! We cannot stress this point enough you need a financial plan before you make the decision to apply for student loans. Know what you’ll need to borrow money for. Think about tuition costs, housing, meals, book costs, personal costs, and transportation costs. Only borrow what you absolutely need for school.

The Countdown

Don’t be the student who has the countdown until graduation. You know, the one using the grace period to look for their future career and move back in with their parents. Now there’s nothing wrong with moving back in with the parents to save a few bucks, in fact, we would encourage it. What we mean is instead of waiting until the clock starts at the end of your grace period start paying down debt on day one! The sooner you can start throwing money at your student loans, the better off your future self will be.

Now it doesn’t have to be an astronomical amount of money. Even the smallest contribution towards your debt will help you in the long run. Let’s say that instead of going out to brunch with your friends on the weekend you decide to make it. Let’s say you usually buy an egg and cheese, on a bagel with a coffee for about $10 for simplicity. That $10 a week can turn up to $40 a month.

Say you took out $30,000 in student loan debt. If you completed a $40 payment every month while you’re in school, you would save $2,515 from the total of your loan. Yes, you can drop almost $3,000 off your loan by simply making a $40 a month payment. Small sacrifices make all the difference in paying down your student loans before graduation.

It’s No Vacation

College in the past was seen as an experience but it is not any longer. Don’t treat your education like a vacation with a limitless budget. According to the Bureau of Labor Statistics, the annual American household cost for eating out is $3,000. Even if it’s only one person, that would count as a household. Broken down that would be $250 a month the average household spends eating out! Before you start spending money on food remember that’s money that could go towards your student loan debt. We all have to eat to live, but is eating out necessary? Try using that meal plan or doing weekly grocery shopping and meal prep.

Stay in Budget

Someone once said “Just because you can, doesn’t mean you should” that could not be truer here. Though you may have money for streaming services like a Spotify Premium® membership or Netflix® – doesn’t mean you should have it. In addition to cutting down on eating out, you could lose that Netflix® account. About nine out of ten college students use Netflix® according to Daily to Reader. If you’re living on campus you’re provided with free cable. Yes, the keyword being “FREE” – drop the subscription services and put them towards student loan debt. No, you won’t be able to watch the latest series of Stranger Things on your own, but I’m sure your friend or their friend has Netflix®. The Basic plan on Netflix® as of 10/2018 is $7.99 a month. Let’s take your savings from cutting back on eating out including our previous example- $100 and savings from losing that Netflix® subscription $7.99 that equates to 107.99 a month towards student loan debt. When you pay $107.99 every month towards your loan it is a savings of $7,083.71 from the total loan amount.

They’re Called Doctors

If you’ve ever seen the movie Tommy Boy you’ll get the reference. If not, you can watch the clip online. Going to school for seven years is for doctors, not the average student seeking a bachelor degree. All jokes aside, you need to do your best to graduate on time. Staying in school longer means more debt and that means more money you’ll need to pay off in the long run.

In recent years there has been a trend of typical 4-year degrees taking 6 years to achieve. Students who take longer to graduate are spending 50% more than participated for their degrees according to Student Debt Relief. One major tip (no pun intended) know what you want to major in before starting. It’s okay to change your major but work closely with counselors take summer classes. Do your best to stay on track for your estimated graduation date.

Evaluate Loans

Yes, you finally graduated! Don’t be fooled the work doesn’t stop. To continue being a financially responsible borrower you’ll need to evaluate the types of loans that you have. Do you have federal or private loans? The type of loans that you have will have major implications on the options that you available to you moving forward. Pay attention to your interest rates and knowledgeable regarding repayment types.

Be wise; if you are within that 6 month grace period, continue to make those payments because we know that they will pay for themselves and then some. Create a long-term plan to pay down your debt. Use your income to create the long-term plan and stick with your budget. There are so many resources available at your fingertips to research things like loan consolidation, student loan refinancing, student loan forgiveness, and deferment and forbearance.

Your responsibility for staying a responsible borrower is to continue those healthy spending habits that you created for yourself in college. In addition you should look to further your education. Do you want to get a Master’s Degree? Use reliable sources and stick to a budget and long-term plan. Education is so no joke. Whether you’re the currently enrolled graduate student, a recent graduate or a Doctorate student debt doesn’t have to weight you down forever.

Learn More About Grace Periods

Marriage and Student Loan Debt

Posted on January 17, 2019January 22, 2019 by Sioban Schmeding

Ever been on a date where the other person doesn’t stop talking about their ex? If you’ve had this experience, you can likely relate it to discussing your student loan debt in your relationship. Talking about finances is a necessary evil in a marriage. It can be difficult to discuss finances in a marriage because many people handle finances different based on their personal experiences and how their parents handled them. You might be great at adulting, but if your parents were never open about managing money, you’re probably unsure of how to bring it up. You might even be unsure as to where to start when it comes to managing finances together. Student loans are a big part of many couples’ financial reality. Figuring out how marriage will affect your student loans is an important part of managing your money together. Here are some main points that we think you should know about marriage and student loan debt.

Honesty

The fastest way to create a rift and cause problems in your relationship is to hide information about your finances. According to C reditCards.com, 6% of Americans in a relationship have hidden credit cards or checking/savings accounts from their partner. That total adds up to about 7 million, for perspective, that’s the size of the state of Massachusetts. It’s not uncommon especially in younger people ages 18-29 to withhold some financial information. It’s when a partner begins to lie about large purchases that a partner should become concerned.

People might think that love solves everything, but it’s better to be on the same page and realistic about the situation. If you are mature enough to get married and really want to work together to succeed, you need to face your finances. As a couple, you need to get over any fears about assessing the financial situation and air everything out. It doesn’t have to be painful but it needs to be an honest outlook. For some couples, this can seem really overwhelming but it doesn’t have to be.

Get Tips on How to Talk Finances With Your Partner

Get a Plan

Have a conversation about how to best review everything. Discuss each of your finances and then surmise a plan to tackle them. Now in some cases, it may not be this simple depending on your income level, occupation, and level of debt. You may want to meet with a financial counselor first and go over everything together, or sit down as a couple at home and discuss the basics before moving any further. It’s totally up to you both, as a team.

Don’t be shy or embarrassed by your financial situation as a couple. There are people who make a living on making sure couples are financially confident and ready to tackle financial goals together. Don’t overlook this benefit of consulting with an outside source about finances—especially if you feel like you don’t know what you’re doing. If you can’t afford an outside counselor check online, you may be surprised at the educational resources available for free. When it comes to self-learning about finances just be careful how you select your resources. As the old saying goes not everything you see online is true!

Loan Responsibility

When the person you’ve chosen to marry has student loan debt you can face some challenges. If you haven’t co-signed for a spouse and it’s just their name on the loan, this won’t be something that shows up on your credit report. Beware that even if you did not co-sign your partner’s loan there are instances when you might be responsible for paying the loan. Student loans aren’t that different from other types of loans.

For example, if someone passes away, the rest of their loan will likely be forgiven and the spouse would not have to continue making those payments. There are some cases where death will not discharge the remaining debt and the loan company may contact the estate for payment. If your spouse ever lost their income and went into default, the loan companies will look for someone to pay. If your spouse doesn’t have an income, your wages could be garnished. It’s a pretty extreme scenario, but it also happens and is something you should be aware of.

If you are choosing to marry someone with student loan debt, it’s important to talk about this. You’ll want to have a plan set up for each of these scenarios. Though they are extreme if you have savings and you pay down your debt responsibly you shouldn’t have any problems.

Repayment Plan Adjustments

IBR and other types of repayment plans are often used when paying back student loans. We would caution against using these programs. In some cases, your monthly student loan payment may not be covering the interest accrued that month and therefore your balance will continue to increase.

Repayment plans can be based on your household income and family size. When you get married your income and family size may change. If your spouse makes a considerable amount of money, your minimum payments could go up even with your family size going up. If your spouse makes less than you or is not working, your loan payment could go down. It all depends on the details of your financial situation and your loan servicer, but it’s worth noting that this is a possibility.

Refinancing

Fairly often we receive request to refinance couple’s student debt together. Many see this as creating a lot less hassle for themselves by creating only one bill. That’s not always possible, and many experts suggest keeping your loans separate in case your relationship status or financial situation changes in the future. You are not always able to refinance together, either. Whether or not you can refinance your student loan with your spouse will depend on the loan type and servicer you have. If you’re looking into refinancing, talk to each other about goals. Do you want a lower payment so you can save for a house or do you want to pay loans off sooner so you can live abroad or go to grad school? Again, it’s up to the two of you, but you can’t be on the same page if you don’t talk about it.

Don’t stress.

Take a deep breath and know that it’s normal for people to get stressed out talking about money, but it doesn’t have to be that way. No matter how much money you make, you will have to work together as a team to set priorities. This isn’t a blame game. Just talking about finances doesn’t mean that you’re secretly harboring any resentment or grudges. No one is being attacked and no questions are stupid. You both have to agree to create an open dialogue where you both feel good about discussing money and plans. Know that sometimes there are compromises, or one of you might change your personal plans to advance the other. That’s what it means to be a team.

Tips for Finding the Perfect Lender to Refinance Your Student Loans

Employer Participation in Student Loan Assistance Act H.R. 795

Posted on January 2, 2019January 16, 2019 by Sioban Schmeding

Nothing could be better than working for a top company that helps you pay off your student loans, right? Well, a bill was introduced by legislators on 2/1/2017 that is trying to make this a reality. This bill was introduced as the Employer Participation in Student Loan Assistance Act. In addition to the introduction of this Act, the Internal Revenue Service (IRS) also released a private letter ruling. What could these events mean for companies and employees who carry student loan debt?

Employer Participation in Student Loan Assistance Act

First, this bill would amend the tax code by giving tax breaks to employers that provide educational assistance to employees. Educational assistance can be in the form of contributions to student loans through either a payment to the employee or lender.

Specifically, this act would allow employers to offer a tax-free student loan benefit in addition to a salary to its employees.

IRS Private Letter Ruling

Recently, there was a private letter ruling released by the Internal Revenue Service (IRS). If you want to review the contents of the private letter ruling, it can be found here. The ruling allows employers to use 401(k) plans to help employees pay down their student loan debt. It is done by taking the employer 401(k) match to pay down student loans.

Any employee who is eligible for a 401(k) plan would be eligible for this plan. The ruling states that the plan is a voluntary program that employees must elect to enroll. Employees who choose to participate in this plan would be eligible for non-elective contributions made by the employer to their student loan debt. These contributions would be equal to what would have been contributed to a 401(k) plan had the employee opted out of the program.

What Does Student Loan Debt Assistance Mean for Employers?

When managing a business, it is imperative that you stay on top of recent news. Part of staying on top of things includes understanding what challenges your employees face. Both these aspects of operating a business and understanding the needs of your employees, however, can fall hand in hand. When it comes to student loan debt assistance, it can be a huge positive for any business. Not only does student loan debt assistance help employees achieve their financial goals, but it also brings many benefits to a firm.

Offering a student loan debt assistance program does not typically cost a company extra. The employer contributions to student loans are what a company would have typically made as a 401(k) contribution. Therefore the costs of providing 401(k) contributions and student loan debt assistance are equal. Another positive that comes from offering a program like this is that it helps with finding top talent, recruiting, and retaining all-stars. With older generations of employees retiring in record numbers and the workforce shifting to younger millennials, it’s important to take some time to examine the benefits of providing student loan debt assistance.

As many millennials have student loans and report that paying them down is a priority over saving for retirement, companies should begin thinking about reevaluating their benefits package to attract millennials. Finding ways to help this generation pay off student loans could be a big boost to a company’s recruiting strategy. Offering student loan payment assistance could put a company on the cutting edge as far as millennial professionals are concerned.

Click to Learn More About ELFI for Business

According to a benefits report by OneDigital, nearly 80 percent of employees surveyed by American Student Assistance felt that an employer-sponsored student loan repayment benefit would be a deciding factor in accepting a job. This could be a huge differentiator for an employer aiming to recruit the best employees.

The American Student Assistance survey also showed that 86 percent of employees would feel compelled to stay with an employer for at least five years in exchange for student loan repayment assistance. Considering how much companies spend on turnover (recruiting, training, and onboarding new employees), this could mean huge potential savings on talent management costs for employers.

What Does Student Loan Debt Assistance Mean for Employees?

Some companies already offer student loan assistance, but these funds are usually taxed. This type of assistance isn’t as attractive as pre-tax funds because taxes reduce the impact of payments on student loans. Tax-free repayment funds from an employer could be more effective in helping graduates pay down their student loans faster. Employees would avoid incurring taxes associated with this type of assistance.

Many Millennials also face the question of, “Should I save for retirement or pay down debt first?” Student loan debt assistance could be a solution that addresses both concerns. Young employees would have the ability to make substantial payments towards their student loan debt. With these large payments, they will be able to cut down their repayment time. That means young employees would have the ability to start saving for retirement earlier in their career instead of trying to pay down their debt.

Looking to the Future of Employment and Student Loan Debt

With the recent Employer Participation in Student Loan Assistance Act and IRS Private Letter Ruling, it seems student loan debt has become a problem for employees. Since employees are having difficulties with paying down student loan debt, it is time for employers to take action. Not only will employers benefit from offering student loan debt assistance programs, but it will most likely be at little or no cost to them.

If this act becomes a law, experts think that companies will immediately begin to rethink their benefits package and consider student loan debt assistance as a way to attract the best employees. Though it may not be easy for millennials to land a position with one of these companies, they will certainly have another factor to decide in student loan debt assistance when choosing their employer.

Interested in starting a conversation regarding your student loans? Give us a call: 1-844-601-ELFI.

5 Benefits Millennials Look For in Employers

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Cosigners and Cosigner Release – What You Need to Know

Posted on December 27, 2018April 30, 2019 by Sioban Schmeding

As more millennials are stepping into experienced job roles and making more money than we were a few years ago, cosigner release is becoming a popular topic. You may have seen a letter in the mail from your student loan servicer or heard from others that they were able to release a parent or relative from cosigner duties. But what does this mean?

What are the responsibilities of a cosigner?

A common misconception about cosigning a loan is that you’ll be the sole responsible party for the loan. Being a cosigner means that you and the student taking out the student loan are jointly responsible for paying the balance of the loan. In the event that the borrower is not able to pay, the cosigner becomes the focus of repayment efforts by the loan holder or servicer. If the borrower is unable to make payments because of a disability, the loans might be forgiven. There are some special cases like this where the cosigner won’t have to pay, but in general, being a cosigner is a long-term commitment that can’t be eliminated except through payoff, release, or extenuating circumstances.

How does cosigning affect credit?

Before asking a friend or family member to take on the responsibilities of a cosigner it’s important to understand how that will affect their credit. Since a cosigner and borrower share the responsibility of a loan, it appears on both of their credit reports. If loan payments are made on time and the borrower is in good standing, then the cosigner will also benefit from the good credit. If the loan has late payments or does into delinquency, this will negatively affect the cosigner’s credit. In addition to affecting the credit score of the cosigner, they may become limited as to the amount of credit available to them. Before asking someone to be a cosigner verify they are not looking to have any large amounts of credit like a mortgage, credit card, or car loan.

When do I not need a cosigner?

Students do not need cosigners to qualify for Federal loans like a Stafford or Direct Loan, but it can improve the chances of being approved. It’s very common for students who apply for private loans to add a cosigner to get the amount that they need and a typically qualify for a much better rate than they could get on their own.

What is cosigner release?

Cosigner release is when the person who cosigned on a loan for you is taken off of the agreement and no longer considered partially responsible for the loan. This makes the borrower solely responsible for the remaining amount of the loan. Some student loan refinancing lenders don’t offer cosigner release.

When student loans are granted, they are provided based on your cosigner’s credit and the borrower’s credit. In traditional cosigner releases the terms of the loan would remain the same as when the borrower took out the loan with the cosigner on it. The only difference with the cosigner release is the cosigner is being removed. When they allow you to release your cosigner depends on the company, if it is offered at all.

Most companies that offer cosigner release allow you to do so, once you’ve made two consecutive years of payments on time. Others may have longer terms for on-time payments before they allow you to apply for release. If you haven’t been making the full payment, that might eliminate your eligibility to release your cosigner. The release also has to be initiated by the borrower and can’t be requested through the servicer by the cosigner.

Not all companies offer cosigner releases. As we mentioned earlier some since loans are originated to include that cosigner, just removing them can be tough. That’s why many companies don’t offer cosigner releases but don’t stress. If you choose to refinance a loan with a cosigner but then decide You’d like to remove that cosigner, there are other options available to you.

Will refinancing my student loan release my cosigner?

People often ask, “What if I just refinance my loan without the cosigner on it. Is it the same as a cosigner release?” Refinancing student loans is not the same thing as getting a cosigner release. Before we go into greater detail it’s important to understand that very few loans are refinanced with a cosigner.

If you are in a position to refinance and qualify, then you don’t need a cosigner to make the new loan possible. There are some exceptions, but during refinancing, you’d be able to check with the servicer to see what terms you could get on your own and then go from there. Most companies that refinance student loan debt will allow you to add a cosigner if you do not qualify on your own, but the cosigner will need to submit some information. If you choose to set up a new refinanced loan without the cosigner, it releases them from the obligation of the former loan.

You may be asking “Is there another way that a cosigner can be removed from a loan without utilizing a cosigner release?” well the answer is yes. Aside from utilizing a cosigner release or refinancing the loan without the cosigner, the borrower or cosigner can pay off the debt. Once the debt is paid off both parties are no longer responsible for the debt.

Before you ask someone to cosign on a loan, consider these things and be sure that they are okay with the responsibility. Make sure that you as a borrower have an understanding and a plan for paying back that debt. If you don’t think that you can pay back the debt or are uncertain of how you will pay off the debt you should not involve a cosigner.

Most students ask their parents to cosign, but frequently have another relative help them by cosigning to get a loan. Know that cosigner release might be possible later, but don’t count on it, and check with the financial institution that holds your loans about cosigner release. You might be able to let mom or dad off the hook by refinancing or paying the debt down in full.

Click For the Difference Between Parent PLUS Loans & Cosigning Education Loans

Glossary of Student Loan Refinancing Terms

Posted on December 20, 2018January 16, 2019 by Sioban Schmeding

There are so many terms that borrower’s encounter in the student loan application process, most borrowers may not be exactly sure what each means. If you’re getting ready to apply or just want to know what the documents are talking about, here’s our glossary of common student loan terms that you should know.

Adjusted Gross Income (AGI) and Gross Income

Gross income is the total income you earn in a year before deductions for federal or state taxes, credits, and so on. Adjusted gross income is the income you earn in a year which is eligible to be taxed after accounting for deductions. AGI is usually lower than your gross income and is what many institutions use to determine if you can get perks like loan tax benefits or financial aid, grants, etc. The easiest place to find these are on your official tax return.

Adverse Action Letter

When you apply for credit, insurance, a loan, or sometimes even employment, and are denied due to something negative on your credit report, the organization inquiring might be required to send you one of these. It explains why you were turned down and it’s important because it gives you a reason to see if something is wrong on your credit report.

Amortization

This term describes how the principal is paid over the course of a loan. Most student loans are fully amortized, meaning that if all payments are made as scheduled over the life of the loan the principal balance will be fully repaid at the maturity date. Other types of loans, including some types of mortgage loans, have a feature known as a balloon payment. With a balloon payment, regularly scheduled payments do not fully repay the principal amount borrowed, so when the loan matures the final payment contains a larger, or balloon, payment of all remaining principal.

Annual Loan Limit

This is the maximum loan amount you can borrow for an academic year. Loan limits can vary by facts like grade level and loan type.

Award Letter

If you received financial aid, expect to see an award letter that explains the different types of aid for which you are eligible. The document will also include information about your loans, grants, or scholarships, and you’ll see a new one each year that you’re in school.

Borrower

The person who is responsible for paying back a student loan. You may not be the only one responsible, like if you signed with a cosigner, but the loan is for you and your academic fees and tuition. You’re the borrower.

Capitalized Interest

When unpaid interest gets added to the principal balance (increasing your overall balance and future interest), this is called capitalization. This is why it’s important to pay interest whenever possible. Capitalization might happen at the end of a grace period or deferment, or after forbearance, depending on whether it’s a federal or private loan. When a loan is consolidated or if it enters default, capitalization may occur.

Cosigner

If needed, borrowers can add a second person who shares responsibility for a student loan. This second person co-signs the loan and becomes partially responsible for repayment in the event that the primary borrower is not able to pay.

Consolidation Loan

Consolidation is when a new loan replaces your current student loans. People might do this to make payments easier to manage or to reduce the amount you owe each month or in total. There are lots of things to know about consolidation.

Default/Delinquent

A loan is considered delinquent when a scheduled payment is not made in a timely manner. Delinquency can result in the imposition of late charges, collection calls or letters, and negative information being placed on a credit report. Default is when the lender determines that the borrower has failed to honor the terms of the loan agreement in such a way that the lender is entitled to declare the entire loan balance due and payable, even if the loan has not yet reached its maturity date. Serious delinquency is very often the reason for a loan being declared in default, but loan agreements typically provide that certain other events can trigger a default. Before entering into a loan agreement, always read the loan agreement carefully and understand what can constitute a default under that loan.

Deferment

Students can usually postpone loan repayment if they meet certain criteria. This might be a pre-set time limit or can be when someone is in school and not able to make payments. Unsubsidized loans accrue interest while being deferred, but subsidized loans do not accrue interest while in deferment.

Disbursement

This is when your school receives funds like financial aid money or student loan funds. The institution then applies it to your bill for tuition and school-related fees. If you consolidate, the disbursement happens when money is sent to pay off your old loans.

Discharge

When some or all of your student loan debt is canceled, this is called discharge.

Entrance/Exit Interview or Counseling

Schools provide entrance or exit counseling to help students understand important financing topics like how to repay loans and stay in good standing with student loans. This can happen during enrollment as an entrance to the process, and after graduation as part of leaving the school system.

Expected Family Contribution (EFC)

This amount is an estimate based on how much money you, your spouse, and/or family can contribute to your tuition for the academic year. It’s calculated with information provided on your FAFSA and helps determine your financial need. Financial need is calculated as the cost of attendance minus your EFC. This determines your eligibility for aid including Stafford loans, Perkins loans, scholarships, and grants.

Fixed or Variable Interest Rate

If an interest rate cannot change over time, it is fixed. A variable interest rate can change over the life of the loan. Variable rates can move up or down based upon changes to an identified index, such a prime rate, a particular U.S. Treasury note, or LIBOR. LIBOR stands for the London Interbank Offered Rate, and is an index commonly used with student loans. Some variable rate loans may have a “cap” and/or a “floor.” A cap is the maximum rate that can be applied to the loan, regardless of changes to the index. A floor is just the opposite – the minimum rate for the loan regardless of changes to the index.

Forbearance

Forbearance is when you can postpone or reduce student loan payments, but interest continues to accrue and increase the total amount you owe.

Free Application for Federal Student Aid (FAFSA)

FAFSA is the application a student must complete to apply for any type of federal student aid including loans, grants, or scholarships.

Full-Time/Part-Time Enrollment

Whether you are enrolled or not, and your status as part-time or full-time can affect different aspects of student loan financing and repayment. Part-time is usually six credit hours and full-time is twelve, but this can vary.

In-School Deferment

While in actively enrolled in school, you might be able to postpone your federal or private student loan payments until you graduate or drop below half time.

Loan Forgiveness

When you qualify for certain programs, you may be able to have the final balance of your loans forgiven after a certain period of time. There are specific criteria for eligibility and usually a detailed application process.

Master Promissory Note (MPN)

This document states the terms of repayment for your student loans and is the official document proving your commitment to repay the money you borrowed with interest. To receive federal loans, all borrowers must sign an MPN.

Principal Balance

The principal balance is the amount of money borrowed under the loan that you currently owe. It doesn’t include interest or fees that are either unpaid or yet to accrue.

Repayment Period

This amount of time is what you have to repay your student loans. Standard for Stafford loans is ten years, but this can be extended with reduced repayment plans. The longer you take to pay your loans, usually, the more you end up paying in interest. A repayment plan is the formal agreement you have with a servicer that details how you plan to repay your loans each month.

Repayment Terms

These terms represent all of your rights and responsibilities for the student loan, including what you’ll pay for monthly payments. Lenders are required to disclose repayment terms to you before you can commit to borrowing a loan.

Right to Cancel

Once an approved application has been accepted by the borrower, the federal Truth in Lending Act requires the lender to provide a Final Truth in Lending disclosure statement. This final disclosure statement includes a three business day right to cancel, during which time the borrower can change their mind and cancel the loan. To protect borrowers, the lender cannot disburse the loan proceeds until the right to cancel period has expired.

Servicer

The loan servicer handles your student loan billing like collecting payments and offering customer service between you and the lender.

Student Aid Report (SAR)

The SAR is a detailed list of all of the financial and personal information you submitted for your FAFSA, including financial info for your family. Your school receives a copy of this and you should receive one as well.

Subsidized and Unsubsidized Loans

While in school and during your grace period, the government pays the interest on your subsidized loans so you don’t have to. Federal loans that are not based on financial need are unsubsidized, meaning you’re responsible for paying the interest that accrues.

Top Tips for Finding the Right Student Loan Refinance Lender

Student Loan Refinancing & Your Dating App

Posted on November 13, 2018December 13, 2018 by Sioban Schmeding

When understanding student loans or any part of the finance industry for that matter, you’ll notice similarities. One significant similarity is that all requested borrowers of a loan will have their information reviewed by an underwriter. It sounds complicated, but in reality, the guidelines of a loan underwriter’s job are relatively simple. In fact, you could say that the entire application process works like that of a dating app and the underwriter is the Tinder® that will get you there.

Swipe Left-

On a dating app, you’re not going to swipe right on everybody. Well, we hope that you have some standards for yourself! Similarly, when applying to refinance student loans, you’ll find different criteria or standards for companies. In a dating app, it’s usually pretty superficial first. The same can be said for student loan refinancing data. You see, student loan refinance lenders will have mandatory requirements like minimum student debt, minimum credit score, and others like institution attended.

The guidelines are pretty straightforward at this point to determine if you could be a good fit for the lender. If you are not, at this time a good fit for a lender, keep trying! Work on that credit score, assuming it’s something that can be fixed. If someone swipes left, that’s okay. It’s better to determine it now, than have it not work out later after you’ve invested significant time, energy, and emotion.

Swipe Right-

Dating and financial stability are relatively comparable. Both take a long time to build and can be destroyed with one simple mistake. To gain back stability, it could take years, but that shouldn’t stop you from living your life and doing what’s best for yourself. Though it can be daunting, there are times when you’ll hit it off! If you “matched” with the lender you’ll move on to your application process or the case of a dating app slide on into the DMs.

Getting That “Match”

Congrats, you’ve now moved on to the next level! You’ve received your notification and will start getting to really know one another. In the case of a lending institution, it can be a bit more formal. You’ll likely be submitting required documents at the time of your application. These documents differ based on the lender. Documents that are typically requested include, W-2, pay stubs, and government-issued ID.

The Date

Once you’ve worked your way through the application form or direct messages, it’s time for the date. Yes, the date! Here’s where your underwriter really comes into play. An underwriter is someone that is hired by a financial institution to evaluate requested borrowers. An underwriter reviews the information that a requested borrower submits and determines if they are a good fit. Consider the underwriter your dating app, it allows you to get to know someone and learn more about them.

In some cases, an underwriter may feel that they do not have adequate information and may request that additional information be provided. This can be common in the case of adding a cosigner, being recently employed, or other circumstances. Don’t be thrown off if additional information is requested. Just like when you’re messaging, and your match throws you a curve ball. If you see it through both things could work out well for you.

Long Term

If your date worked out well for you, it’s likely you may want to go on another one. Fortunate for you, when it comes to student loan refinancing you can always continue to refinance your student loans through other vendors to get the best interest rate available. Once you’ve completed the application process and worked with an underwriter if needed, you’ll either receive an acceptance or a notification with details as to why your loan was not approved. When you’re dating well, there could be many possibilities. One of those possibilities could include getting ghosted. Regardless, we hope that it’s the beginning of a long and happy relationship for you both!

10 Facts About Student Loans That Will Save You Money

Our Simplest Guide To Student Loan Refinancing: Part lll

Posted on November 2, 2018December 13, 2018 by Sioban Schmeding

This is the third part of our Simplest Guide to Refinancing. If you’re interested in student loan refinancing and want to know everything there is to know—in simple terms—about refinancing, check out part 1 and part 2. We’ve talked about the benefits of refinancing and process to refinance your student loans, so let’s take a look at what prospective lenders will be reviewing when looking to refinance your student loan debt.

Refinancing After Claiming Bankruptcy

Bankruptcy is a challenge when it comes to refinancing. Many people may find it challenging to refinance student loans after a bankruptcy for some time. It could even take as long as ten years for a bankruptcy to clear from your credit report entirely. Bankruptcy doesn’t clear student loan debt unless an exception is made, therefore it’s best to look into refinancing before a bankruptcy. If it’s too late for that as an option, that’s okay it may just be harder to qualify for student loan refinancing after bankruptcy. Check with lenders to see what they can offer.

Debt-to-Income Ratio

Debt-to-income ratio or DTI is the amount of money you owe versus the amount of money you make. This equation gives lenders an idea of what you should be able to afford as far as payments and additional debt amounts.

What’s a good DTI? Some sources note 36% or less as the acceptable debt-to-income ratio. It varies based on a lender’s underwriting criteria, but having less debt and more income will qualify you as lower risk for lending. You’ll be considered a lower risk because you have a more disposable income to dedicate to your debts.

Credit Score and History

Traditionally a “good” credit score is about 680 or higher. Most lenders won’t qualify you for refinancing if your credit score is below 660, but that’s not always the case. If you have a low credit score don’t hesitate to refinance, but be aware that the better your credit score the better rates you’ll receive from lenders. If you didn’t know, your credit score is impacted by your credit history. So what is your credit history? Well, it’s exactly that, a history of your credit. Credit history keeps track of how long you’ve had credit and if you’re a responsible lender. Obviously the longer you’ve had credit history the better, but we can’t all have credit as children – unless your parents added you as an authorized user to a credit card when you were born. Even if you don’t have perfect credit and a long credit history, it’s worth checking to see if refinancing might be right for you.

Employment

There are a few things to consider regarding employment as you refinance your student loan debt. Lenders will likely look at your income from your job, the length of time you’ve worked there, and job history. If you have a job offer or promotion, you can get a job offer letter to submit that might help the lender understand your employment situation. People with long job history (and one with few gaps), higher income, and good earning potential are less risky for lenders. If you don’t hit all of these criteria, you might still be able to refinance. Without using a cosigner it’s in your best interest as a borrower to be employed to qualify for student loan refinancing.