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.

Why you should refinance pharmacy school loans

If you work in the private sector as a pharmacist — meaning you work for a pharmacy like Walgreens or CVS rather than a non-profit hospital or health organization — you’re ineligible for Public Service Loan Forgiveness, even if you have federal student loans. If you have high-interest student loan debt, that means you’re a prime candidate for student loan refinancing. Student loans for graduate and doctoral degrees tend to have the highest interest rates of any education loan. Even Grad PLUS Loans, a form of federal loan, have sky-high interest rates. For loans disbursed after July 1, 2019, and before July 1, 2020, the interest rate is a whopping 7.08%. With such a high rate, your loan balance can quickly balloon out of control. With student loan refinancing, you take out a loan from a lender like ELFI* for the amount of your combined existing debt. The new loan has completely different repayment terms, such as length of repayment and interest rate. Your old loans are consolidated together, so now you’ll have just one loan and one easy monthly payment.

Benefits of refinancing pharmacy school loans

There are two main benefits to student loan refinancing:

1. You can save money

With a pharmacist’s salary and good credit, you could qualify for a lower interest rate when you refinance your debt, allowing you to save a significant amount of money. For example, let’s say you had $163,000 in student loan debt at 7.08% interest and a 10-year repayment term. Over the course of your repayment, you’d pay back a total of $227,915; interest charges would add $64,915 to your loan cost. But let’s say you refinanced your debt and qualified for a 10-year loan at just 5% interest. You’d pay back a total of just $207,464. Refinancing your loans would allow you to save $20,451. Use the student loan refinance calculator to find out how much money you can save.*

2. You can reduce your monthly payment

If you have a large amount of student loan debt, your monthly payments may be more than you can afford. If that’s the case, student loan refinancing can help make your payments more affordable. When you refinance your debt, you can opt for a longer repayment term. With a longer term, you may pay more in interest, but the tradeoff may be worth it to give yourself more breathing room with your cash flow. Let’s say you had $163,000 in student loan debt with a 10-year repayment term. At 7.08% interest, your minimum monthly payment would be a whopping $1,899 per month. If you didn’t qualify for a lower interest rate, but extended your repayment term to 15 years, you’d reduce your monthly payment to just $1,472 per month, freeing up $427 from your budget.

How to refinance pharmacy school loans

To refinance your loans, follow these four simple steps:

1. Find out if you meet the eligibility requirements

Each refinancing lender has its own eligibility criteria. At Education Loan Finance, borrowers need to meet the following requirements:

Must be a U.S. citizen or permanent resident
Must have at least $15,000 in student loans
Must have a bachelor’s degree or higher
Must have a minimum income of $35,000
Must have a credit score of at least 680
Must have a minimum credit history of 36 months
Must have received a degree from an approved post-secondary institution

2. Ask a friend or relative to cosign the loan

If you don’t meet the minimum credit or income requirements, consider asking a friend or relative with good credit and reliable income to cosign the loan application with you. A cosigner shares responsibility for the loan with you, lessening the lender’s risk. Having a cosigner on the application increases your chances of getting approved and qualifying for a lower interest rate than if you applied on your own.

3. Request a loan estimate

Before submitting a loan application, get an estimate so you know what interest rate and loan term to expect. With ELFI, you can get a rate quote without affecting your credit score so you can select the right loan that works for you.*

4. Submit your loan application

Once you find a loan that matches your needs, you can complete the loan application. You’ll be asked to enter information about yourself, including your name, address, Social Security number, employer, income, and current loans.

4 other options for managing your loans

While student loan refinancing can be a smart idea for pharmacists, it’s not for everyone, especially if you don’t work in the private sector. If you decide against refinancing your loans, you may be able to get some help with your student loan debt in the form of loan forgiveness, reduced payments, or repayment assistance.

1. Income-driven repayment plans

If you have federal student loans and can’t afford your payments, you may eligible for at least one of the four income-driven repayment (IDR) plans. Under these plans, the federal government extends your loan term to 20 to 25 years and caps your monthly payments at a percentage of your discretionary income. Depending on the repayment plan, your income, and your family size, you could significantly reduce your monthly payment. Some borrowers even qualify for $0 payments.

2. Public Service Loan Forgiveness

If you have federal Direct student loans and work for a government agency or non-profit organization, you may qualify for loan forgiveness through Public Service Loan Forgiveness (PSLF). With PSLF, the government will forgive the remaining loan balance after you work for an eligible employer for 10 years and make 120 qualifying payments.

3. Substance Use Disorder Workforce Loan Repayment Program

The National Health Service Corps (NHSC) operates the Substance Use Disorder Workforce Loan Repayment Program. Under this program, eligible pharmacists can receive up to $100,000 in student loan repayment assistance. In exchange, you have to make a service commitment to work in a substance use disorder site with a health professional shortage area as designated by the NHSC. For more information, visit the NHSC website.

4. National Institutes of Health Loan Repayment Program

Highly qualified pharmacists willing to commit to biomedical or biobehavioral research careers can receive up to $50,000 in student loan repayment assistance. In return, you must commit to working in a research area in an approved subject. Visit the National Institutes of Health website for more information.

Repaying your student loans

If you’re a pharmacist with education debt, you should know that you’re an excellent candidate for student loan refinancing. Whether you want to save money or lower your monthly payments, refinancing your loans can help you achieve your goals.*

*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.

woman asking employer for student loan assistance

2020-08-05

How to Ask Your Employer to Help Pay Student Debt

These days, employers offer all kinds of benefits to keep employees, from kombucha on tap and innovative new office spaces to ping pong tables and video game rooms. The list of benefits seems to grow all the time. When you think about it, though, how much do you really need that kombucha on tap? Instead, what many graduates need is help with their ever-mounting student loans. In combination with other methods of dealing with student loan debt, employers can play a valuable role in ensuring their employees’ financial stability. Employers are beginning to recognize this trend, as well. That’s why some have begun to offer help to employees with student loan debt. While an uncommon practice at the moment, some companies now offer options to help employees pay back their student loans. The practice is rapidly becoming more popular, and if you’re lucky, your employer may already offer a student debt relief program. Here are several ways employers are already helping to reduce their employees' student loan debt.

Financial Education

Employers have begun to understand that their own financial success is tied to the financial success of their employees. As a result, some employers have begun to offer financial education opportunities. These opportunities come in many forms, including workshops, webinars and even counseling. While many employees already have a firm grasp on financial concepts, these programs can still be incredibly beneficial to those weighed down by student debt as they often cover lesser-known tactics and reinforce familiar strategies.

Student Loan Repayment Signing Bonuses

Another method of helping employees with student debt is the signing bonus. For example, some companies offer $1,000 towards student loans for new hires. This $1000 can drastically reduce the amount graduates pay in interest over the life of their student loans and is an effective way for companies to hire and keep dedicated, hardworking employees.

Employer Repayment

The most exciting benefit employers are beginning to adopt is direct assistance with student loans. Now, in addition to savvy fiscal advice, some companies are backing up their support with dollars and cents. A few companies now offer yearly bonuses to help pay back student loans. One of the most generous of these companies is Nvidia. Employees earn $6,000 a year towards their student loans up to a $30,000 maximum. Several companies offer comparable or lower amounts. Regardless of the repayment amounts, this innovative strategy provides a new way to fight back against student debt. A variation of this policy is occasionally used, as well. In this variation, employees who don’t take their PTO can trade their PTO days for student loan assistance. With many in the United States not taking their PTO days anyway, this is a compelling option for student loan borrowers.

Contributions to 401(k) Plans

It may seem strange for 401(k) contributions to go hand-in-hand with paying off student debt. You might even expect to have to choose between them. If you’re employed by Abbott Laboratories, though, you don’t have to choose. Employees who contribute at least 2% of their pay toward student loans are eligible for the full 5% employer matching in their 401(k), even if they do not otherwise contribute to their 401(k). Abbott Laboratories is the first company to offer this incentive to help employees to pay off student debt, and hopefully many companies will follow in their footsteps. Sadly, these types of programs are not as commonly offered as they should be, but that isn’t necessarily bad news for you. If student loan assistance programs are something that you would like to see at your company, then make an appointment to speak with either your boss or to human resources. In this day and age, the competition for the best employees is fierce, and employers are always looking for ways to keep employees happy. In some cases, it may even be cheaper than a raise. It’s also worth mentioning your interest in such programs while negotiating your salary and benefits package for a new job. They may include it as an additional benefit. If your employer already provides these benefits, that’s fantastic! You’re already one step closer to being unburdened by student debt. If you're curious about how to finish the job and free yourself from student debt completely, one great way to do that is Student Loan Refinancing. You can learn more here.

2020-08-04

Student Loans: What is the Difference Between a Principal and an Interest Payment?

If you’re planning on going to college, you should be prepared for potentially high costs. The average cost of tuition and fees at a public four-year university for an in-state student is $10,440, while it’s $36,880 at a private school. By Kat Tretina While those numbers are pricey enough on their own, financing can add to the expense. If you borrow money to cover the total cost of attendance, you’ll end up repaying more than you initially borrowed because of interest charges — what lenders charge you in exchange for lending you money. When dealing with student loans, it’s important to understand how student loan interest rates affect your repayment and how your extra payments are applied to your debt.

How Student Loan Interest Rates Affect Your Loan Balance

Student loan interest rates can cause your loan balance to grow over time. The higher the rate, the more interest that accrues. For example, if you took out $30,000 in student loans and qualified for a 10-year loan at 4% interest, you’d pay $6,448 in interest charges on top of the $30,000 you borrowed. But if you qualified for a $30,000 loan at 5% interest — a difference of just 1% — you’d pay $8,184 in interest charges. The extra percentage point would cause you to pay over $1,700 more in interest charges. However, you can cut down on interest payments by paying off your debt ahead of schedule. When you pay off your loans early, less interest accrues over your loan's life, allowing you to save money.

The Difference Between Principal and Interest Payments

When you enter into repayment, your loan payments cover two different aspects:

- Interest: Interest that has accrued to date
- Principal: The original loan amount

When you make a payment, lenders typically apply the payment to any fees first, such as late fees or returned payment fees, then to interest charges. If any money is left over, they will apply the excess to the principal balance.

Education Loan Finance Student Loan Repayment Options

If you take out private student loans from ELFI*, you can choose from the following repayment options:

- Immediate repayment: You make payments toward the principal and interest right after disbursement
  - Best for: You’re working while in school and can afford the payments. You want to pay the least amount of interest possible.
- Interest only: While you’re in school, you make payments that only cover the interest that accrues on the loan.
  - Best for: You can’t afford to make full payments, but you want to minimize interest charges. You’re working part-time or have some income while in school.
- Partial payment: With partial payments, you make a flat-rate payment — typically $25 — while you’re in school.
  - Best for: Money is tight while you’re in school, but you want to chip away at some of the interest that accrues.
- Fully deferred: If you opt for fully deferred repayment, you don’t make any payments at all while you’re in school. This is the most expensive repayment option, as more interest accrues over the life of the loan.
  - Best for: You are in a rigorous academic program and need to completely focus on your studies, so you don’t want to make any payments while in school.

Use the private student loan calculator to see what your payment would be and how much you’d repay over the life of the loan under each repayment plan.*

Student Loan Repayment Strategies to Pay Off Your Debt Faster

Once you graduate, there are ways to accelerate your debt repayment and reduce the amount of interest that accrues.

1. Make Extra Payments

If you want to pay off your debt faster and are thinking about different student loan repayment strategies, consider increasing your minimum monthly payments. More of your payment will go toward the principal each month, reducing how much you’ll pay in interest and allowing you to pay off the debt ahead of schedule. For example, if you had $30,000 in student loans at 5% interest and a 10-year repayment term, your monthly payment would be $318 per month. If you only made the minimum payments, you’d repay a total of $38,192 by the end of your loan term. If you increase your payments to $368 per month — an addition of just $50 per month — you’d pay off your loans 20 months early. And, you’d repay just $36,731. By adjusting your monthly payment, you’d save $1,461.

2. Use the Debt Avalanche or Debt Snowball Methods

If you have multiple student loans, consider using either the debt avalanche or debt snowball method to tackle your debt. With the debt avalanche method, you make extra payments toward the loan with the highest interest rate. With the debt snowball, you target the debt with the lowest balance first. Which is best for you? It depends on your goals and personality. Learn more in our breakdown of the debt snowball and debt avalanche method repayment strategies.

3. Refinance Your Debt

Student loan interest rates have a big impact on your overall repayment. By refinancing your student loans,* you can qualify for a lower interest rate so more of your monthly payment goes toward the principal. Over time, refinancing can help you save a significant amount of money.

The Bottom Line

By understanding how payments work and how student loan interest rates affect your total repayment, you can pick a repayment plan that works for you. If you still have questions, ELFI’s Personal Loan Advisors can walk you through the loan application process and answer any questions you have.*