Choosing the Right Student Loan Repayment Term

July 29, 2020

Choosing the right student loan repayment term will make a huge difference in how much and how long it takes to pay back your student debt. To make this choice, here are a few key questions to consider:

• How much student debt do you have?
• How much can you afford to pay each month?
• What are your long-term financial goals?

It’s important to choose a student loan repayment term that fits your lifestyle and allows room for you to continue saving toward major financial goals. Once you’ve answered those questions, you’ll be ready to dive into the details and choose the perfect repayment term!

Key terms: Principal and Interest

In the next sections, we’ll talk a lot about principal and interest. Understanding these terms is vital to choosing the right student loan repayment term.

Principal is the original value of the loan. For example, if you take out a loan for $15,000, then your principal amount is exactly $15,000. As you know, however, the total loan amount you’ll repay includes more than the principal amount.

Lenders also charge interest as a convenience fee for providing you money when you need it. Your interest is calculated as a percentage of the principal, then added to your payment total.

As a rule of thumb, long repayment terms offer lower monthly payments, however, they also generate more total interest. On the reverse side, short repayment terms incur less interest but tend to have higher monthly payments.

You can use the ELFI Student Loan Refinance Calculator¹ to estimate different term lengths to see how they will impact the interest on your student loans.

First, decide whether a fixed or variable rate loan is right for you.

Now that you’ve determined your total amount of student debt and your monthly budget for making payments, you can determine whether a fixed or variable rate is right for you.

This choice will go together with selecting your student loan repayment term to be sure you’re getting the most value out of your repayment plan. If you have an ELFI Personal Loan Advisor, you can also discuss these options with him or her for expert feedback on your specific financial situation.

Fixed-Rate Loans

A fixed-rate loan means your interest rate will not change for the duration of your student loan repayment term. The rate will remain the same across every payment until your loan is paid back in full.

These types of loans are best for borrowers who:

1. Have smaller loans to pay back
2. Are planning to opt for a short-term student loan repayment period

The benefit of fixed-rate loans is your interest rate will never rise, and you won’t have any unpleasant surprises when calculating the monthly total for your loans. On the downside, fixed-rate loans often have higher initial interest rates than variable-rate loans. There’s no risk of your interest rate jumping, but also no chance of the rate lowering over time.

Variable-Rate Loans

Variable-rate loans, on the other hand, have interest rates that change over time. Rates are currently based on the London Interbank Offered Rate, or LIBOR. Lenders update their variable interest rates at regular intervals, so while the interest totals themselves will change, the dates they change won’t come as a surprise to borrowers.

Variable-rate loans are best for borrowers who:

1. Have larger loan totals to pay back
2. Are planning to opt for a long-term student loan repayment period

The benefit of variable-rate loans is that interest rates may decrease over time. If you’re planning to pay back your student loans over a long-term period, like 15 or 20 years, opting for a variable-rate loan may decrease the total interest you pay over the life of the loan.

Then, choose your student loan repayment term.

Short-Term Repayment

Short student loan repayment terms are a fantastic option for borrowers with small student loans who can afford to make higher monthly payments. The benefit of short-term student loans is that they can significantly decrease the total amount of interest paid over time.

For example, a $15,000 loan with a 5-year term will have higher monthly payments than the same loan spread out over 10 or 15 years, but it will incur less total interest because you’ll pay down the principal amount more quickly.

Long-Term Repayment

Long-term repayment plans, on the other hand, are perfect for students with large loans who need to decrease their monthly payments. While long-term plans incur more interest over time, they make monthly payments more affordable and easier to handle.

For example, if your $15,000 loan is spread out over 20 years, you’ll have much more time to pay down the principal amount. While each payment will incur additional interest, opting for a long student loan repayment term will allow you to repay the loan in a way that fits your monthly budget.

It’s important to choose your student loan repayment term based on your budget and total loan amount. Selecting the right term will allow you to repay your loans as quickly and efficiently as possible.

ELFI Student Loan Repayment Options

Refinancing your student loans can be a great way to earn a better interest rate, as well as to change your repayment term. ELFI offers a variety of student loan repayment options, offering both fixed- and variable-rate loans, as well as terms spanning 5 – 20 years.*

For more information on how to efficiently repay your student loans, check out ELFI’s blog, “What’s the Best Way to Repay Student Loans.”

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.

* To qualify for refinancing or student loan consolidation through Education Loan Finance, you must have at least $15,000 in qualified student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary Education Loan Finance institution. Education Loan Finance Parent Loans are limited to a maximum of the 10-year term.

¹Subject to credit approval. Terms and conditions apply.

Benefits of Student Loan Refinancing for Engineers

Student loan refinancing is a strategy that can help engineers better manage and pay off debt. When you refinance your engineering student loans, a private lender will “purchase” your debt from your original lenders. You can request rate quotes from several different lenders, then refinance with the one that offers you the most competitive rate. Decreasing your interest rate means you’ll pay less over the life of the loan. Here are just a few of the benefits of student loan refinancing for engineers:

Ability to consolidate student loans into one monthly payment
Option to choose between fixed and variable student loan refinancing interest rates
Chance to earn a lower interest rate, potentially lower than federal student loans
Opportunity to change your student loan repayment term

To see how much you could save by refinancing your engineering student loans with Education Loan Finance, try our Student Loan Refinance Calculator.*

How to Refinance Engineering Student Loans

Refinancing your student loans is normally a quick and simple process, and you can apply in minutes at home. If you’re curious about the process of refinancing, take a look at our student loan refinancing guide. Researching lenders has very few downsides. Most lenders prequalify applicants using a soft credit check, which won’t hurt your credit score. Just know that before you can officially refinance your loans, your lender will likely need to do a hard credit check. Here are the next steps to take if you’re thinking about refinancing your engineering student loans:

Figure out which how much or which loans you’d like to refinance.
Make sure you meet student loan refinancing eligibility requirements.
Shop around and compare pre-qualified rates from multiple lenders.
Submit an application to refinance your student loans
Finalize the loan application by reviewing the loan terms & signing the documents provided by the lender.

Alternatives to Pay Off Engineering Student Loans

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

Student Loan Forgiveness for Engineers

Select engineers may qualify for Public Service Loan Forgiveness (PSLF). If you do qualify, you’ll make payments for a specified amount of time, normally 10 years, then the remaining balance will be forgiven. You will, however, still have to pay taxes on the forgiven amount. Here are a few ways in which engineers may qualify for Public Service Loan Forgiveness:

Working in areas of national need could provide up to $10,000 in loan forgiveness over five years of service
Working for a non-profit, government agency, or other eligible employers could provide loan forgiveness after 120 payments (10 years)
Working as a teacher could provide up to $17,500 in loan forgiveness if working at a low-income school or other eligible agencies

If you aren’t sure which is right for you, research student loan refinancing vs. PSLF. While both may help decrease your debt, it’s important to know how they compare before taking the next steps.

Income-Based Repayment Plans

If you don’t qualify for Public Service Loan Forgiveness, you may also choose to pursue an income-based repayment plan. These types of plans set a monthly payment as a percentage of your income. Income-based repayment may be a good fit for entry-level engineers who are still working toward higher salaries. Here are a few types of income-based repayment plans available to engineers:

Pay-as-You-Earn (PAYE): PAYE plans are based on a percentage of your adjusted gross income and family size. They are available to individuals who borrowed after 10/1/2007, or those who received eligible Direct Loan disbursements after 10/1/2011.
Revised Pay-As-You-Earn (REPAYE): REPAYE plans are similar to PAYE plans, but do not have date restrictions on the loans. They do take your state of residence into consideration, however.
Income-Based Repayment (IBR): IBR plans require you to be experiencing financial hardship. If you qualify, they are based on a percentage of your adjusted gross income and family size.
Income-Contingent Repayment (ICR): Many individuals who can’t qualify for PAYE or IBR plans apply for ICR. These start as a percentage of your adjusted gross income, then grow as your income grows.

State Student Loan Assistance Programs

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

Harold Arnold Foundation
Wavemaker Fellowship
North Dakota DEAL Loans

Employer Student Loan Repayment Assistance Programs

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

Refinance Your Engineering Student Loans with ELFI

If you’re ready to refinance your engineering student loans, ELFI can help. By refinancing your engineering student loans with ELFI, you’ll enjoy benefits including:

No application fees
No origination fees
No penalty for paying loans off early
If approved for refinancing, ELFI has a referral bonus program

Ready to get started? Learn more about student loan refinancing with ELFI and apply today: https://www.elfi.com/student-loan-refinancing/.*

2020-10-19

Current LIBOR Rate Update: October 2020

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

What is LIBOR?

The London Interbank Offered Rate (LIBOR) is a money market interest rate that is considered to be the standard in the interbank Eurodollar market. In short, it is the rate at which international banks are willing to offer Eurodollar deposits to one another. Many variable rate loans and lines of credit, such as mortgages, credit cards, and student loans, base their interest rates on the LIBOR rate.

How LIBOR Affects Variable Rate Student Loans

If you have variable-rate student loans, changes to the LIBOR impact the interest rate you’ll pay on the loan throughout your repayment. Private student loans, including refinanced student loans, have interest rates that are tied to an index, such as LIBOR. But that’s not the rate you’ll pay. The lender also adds a margin that is based on your credit – the better your credit, the lower the margin. By adding the LIBOR rate to the margin along with any other fees or charges that may be included, you can determine your annual percentage rate (APR), which is the full cost a lender charges you per year for funds expressed as a percentage. Your APR is the actual amount you pay.

LIBOR Maturities

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

Current 1 Month LIBOR Rate – October 2020

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

Current 3 Month LIBOR Rate – October 2020

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

Current 6 Month LIBOR Rate – October 2020

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

Current 1 Year LIBOR Rate – October 2020

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

Understanding LIBOR

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

*Subject to credit approval. Terms and conditions apply.

Woman struggling with student loan refinancing misconceptions

2020-10-16

7 Common Student Loan Refinancing Misconceptions

Refinancing is kind of like leveling up. After months or even years of working hard to become debt-free, you then gain access to a higher tier of borrowing - better terms, a lower interest rate or a smaller monthly payment. Many people have misconceptions about student loan refinancing, however, which keep them from taking advantage of the benefits that student loan refinancing has to offer. If you're new to borrowing, it's easy to get scared of changing anything about your loan repayment process - even if that means losing out on the money that refinancing can save you. Here are some of the most common student loan refinancing myths - and what you need to know instead.

Refinancing Student Loans Takes Too Long

Don't fall prey to the misconception that student loan refinancing is a lengthy, tedious process. In fact, refinancing student loans is usually very straightforward. You fill out an application and wait a couple of days for the lender to run your credit report and verify your personal information. Once that’s been completed, you’ll be presented with the refinance offers you qualify for. The total length of time from beginning to end should take a couple of weeks. This also depends on how quickly you respond to questions from the lender and provide any additional forms or information they request.

Student Loan Refinancing Has Expensive Upfront Costs

Unlike mortgage refinancing, student loan refinancing has no upfront costs like application or origination fees. That’s also why there’s no downside to applying for a student loan refinancing multiple times. Plus, most lenders don’t charge a prepayment penalty, which is a fee for repaying the loan ahead of schedule. The only fee you’ll pay is the stated interest rate. You may owe a late fee if you make a payment after the due date, but that can be avoided if you set up automatic payments.

You Need a High Income to Refinance Student Loans

While some lenders require that borrowers have a high income to qualify for student loan refinancing, others are more lenient. All lenders, however, care about the debt-to-income (DTI) ratio, which is your monthly debt payments divided by your gross income. Most lenders want a DTI percentage below 50%. To calculate your DTI, add up your monthly debt payments including mortgage, car loan, personal loan, credit card payment and any other loans. Include a rent payment if you don't own your property. Then, divide that total figure by your gross or pre-tax monthly income. If your DTI is below 50%, then you’re likely a good student loan refinancing candidate. If it’s higher, then you need to increase your income, decrease your monthly housing payment or pay down some of your debts

You Need a Perfect Credit Score to Refinance Student Loans

Another misconception about student loan refinancing is that you need an excellent credit score to qualify, but lenders often accept borrowers with credit scores as low as 660. This is great news for young borrowers who haven’t built a strong credit history yet, or who ran up some credit card debt in college. What may hurt your chances of being approved are any recent late payments, bankruptcies, defaults, liens or recent applications for other loans or lines of credit. Before applying to refinance your student loans, check your official credit report at AnnualCreditReport.com. About one in five people have a mistake on their credit report, which can lead to an application being denied. Look at your credit report from all three credit bureaus - Experian, Equifax and TransUnion - and make sure you recognize all the accounts. If you notice a mistake, file a dispute directly with each of the credit bureaus. It may take a few weeks to have it removed from your credit report. Make sure to follow up and verify that it’s been deleted. You can check your credit score for free through a bank or credit card provider, or a service like Credit Karma. If your score is 660 or higher, you can feel free to apply for student loan refinancing. You can increase your shot of being approved by applying with a cosigner. A co-signer is someone who agrees to assume legal liability for your debt if you stop making payments and default. The loan will also show up on the cosigner’s credit report. Even if you can be approved to refinance by yourself, you may receive lower interest rates if you apply with a cosigner.

You Can Only Refinance Once

A common misconception is that you have only one opportunity to refinance your student loans. In reality, however, there’s no limit on how many times you can refinance. Many choose to refinance every time the Federal Reserve decreases interest rates because they can get a better deal on their student loans. The only thing that might affect how often you can refinance is your credit score. If your credit dips below a certain threshold, then a lender may not approve your application. Also, you may be denied if you lose your job or your income drastically plummets.

You Refinance All Your Student Loans

Many borrowers have a mix of federal and private student loans and assume they have to refinance all those loans at the same time. But borrowers can choose to refinance the loans they want. They can keep their federal loans as they are and only refinance their private loans. If they have a private loan with a low interest rate and one with a high interest rate, they can choose to only refinance the latter. In some cases, borrowers may have a better chance of being approved if they only refinance some of their loans instead of all of them.

Student Loan Refinancing is a Confusing Process

When you apply to refinance with ELFI, you’ll be matched to a member of the Personal Loan Advisor team. Every time you call ELFI, you can speak to that same person. This minimizes the confusion and frustration involved with the refinancing process. As of 10/19/2020, ELFI has a 4.9 rating on Trustpilot with more than 1,200 reviews. More than 90% of those are five-star reviews. ELFI also has an A+ rating from the Better Business Bureau.