Forgo Deferment & Forbearance on Your Student Loans

June 11, 2018

It’s tough to cover a mortgage, wedding, new baby, or medical expense on top of your student loan payments. As such, it can be tempting to request deferment and forbearance on your student loans. Before you apply for these options, be sure to understand the hidden costs that can lead to a much higher, much longer repayment down the road.

Both federal and private student loan programs offer deferment and forbearance options. These options provide you with temporary relief from your burdensome monthly payments and may seem like a good option to avoid a delinquency or default. Think again. Not making payments during your deferment and forbearance periods results in the capitalization of the interest you owe, meaning your loan principal will subsequently increase. Voila! Not only have your monthly payments ballooned when you inevitably start making payments again, but you now owe way more than you did when you first took out the student loans!

Deferment

Deferment is pushing back payments due to a temporary situation and your loan provider has a list of qualifications. The most common types are In-School Deferment, Graduate Deferment, and Military Service Deferment. For Parent PLUS Borrower loans, it is only available to parents who received Direct PLUS Loans or FFEL PLUS Loans. The deferments listed below are available to Direct Loan, FFEL Program loan, and Perkins Loan recipients only as per the Federal Student Aid government website. Types of deferments available differ based on your education loan lender, but there are commonalities between all private student loan debts. According to US News, private lenders can offer deferment relief for up to 6 months, or in extreme cases 12 months.

Federal Student Loan Deferment Types

In-School Deferment Request
Parent PLUS Borrower Deferment Request
Graduate Fellowship Deferment Request
Rehabilitation Training Program Deferment Request
Unemployment Deferment Request
Economic Hardship Deferment Request
Military Service and Post-Active Duty Student Deferment Request

It sounds like a great deal, but remember – you’re increasing the principal balance of the loan and prolonging the inevitable. Let’s say that you chose to defer your loans. As per MarketWatch, the average undergraduate student comes out with $37,000 in student loan debt. Think the cost of an undergrad degree is a lot? The average cost for a law school student that graduated from a private college is $122,158 according to Forbes. Even more unbelievable is the average Medical School Debt at $189,165 as per Modern Healthcare. Check out our chart below to see the hidden costs associated with deferring your student loan payments. Calculations as per those listed in College Reviews.

Undergraduate Deferment Loan Costs

Total Loan Cost	Interest Rate	Deferment Period	Loan Length	Total Debt After Deferment	Total Increase in Debt
$37,172	8.25%	12 months	10 years	$40,238	$3,066
$37,172	8.25%	24 months	10 years	$43,305	$6,133

Graduate Deferment Loan Costs

Total Loan Cost	Interest Rate	Deferment Period	Loan Length	Total Debt After Deferment	Total Increase in Debt
$140,616	9.50%	12 months	10 years	$153,974	$13,358
$140,616	9.50%	24 months	10 years	$167,333	$26,717
$161,722	9.50%	12 months	10 years	$177,085	$15,363
$192,449	9.50%	24 months	10 years	$167,333	$30,727

Forbearance

Financial responsibility starts with taking charge of your financial obligations and developing a sound monthly budget. However, what happens if you unexpectedly lose your job or are unable to work due to medical reasons? You suddenly find yourself in financial hardship and may turn to your student loan provider to seek forbearance options.

Similar to deferment, each loan provider and loan type has a unique set of guidelines to qualify for forbearance. Unlike deferment, forbearance could potentially affect your credit. The guidelines for qualifying for forbearance are different for the federal and private student loan programs, so check with your loan servicers and lenders to determine what forbearance options are available. According to the Federal Student Aid site, there are two types of Forbearance for Federal Student Loans- General and Mandatory.

General Forbearance

According to the government Federal Student Aid site, General Forbearances are used when you cannot make a monthly payment. Direct Loans, FFEL Program loans, and Perkins Loan borrowers qualify for this type of forbearance. Types of General Forbearance as per the Federal Student Aid site.

Financial difficulties
Medical expenses
Change in employment
Other reasons acceptable to your loan servicer

Mandatory Forbearance

If you meet the requirements for this type of loan, your loan servicer is required to grant you forbearance. Mandatory forbearance is only provided for 12 months. If you still qualify at the end of the 12-month period, you must resubmit your information. As per the Federal Student Aid site, here are the types of Mandatory Forbearance:

Medical or Dental Internship/Residency, National Guard Duty, or Department of Defense Student Loan Repayment Program – (Direct Loans and FFEL Program loans only)
Student Loan Debt Burden (Direct Loans, FFEL Program loans, and Perkins Loans)
AmeriCorps Forbearance (Direct Loans and FFEL Program loans only)
Teacher Loan Forgiveness Forbearance Request) (Direct Loans and FFEL Program loans only)

Once you qualify for forbearance, there may be a time period in which you may need to reapply in order to continue receiving benefits, as well as a maximum time they’re available. Keep making your monthly payments until forbearance is granted by your lender, as a delinquency on your monthly payments can result in a negative hit to your credit score. Just like deferment, most student loans in forbearance will accrue interest which gets capitalized and added to the principal amount of your loan. Therefore, this seemingly attractive option to postpone your monthly payments during an unexpected financial hardship ultimately further enslaves you to your student loans.

Although deferment or forbearance may seem like a tempting option, it isn’t always the best path forward. Making even a partial monthly payment is better than making no payment at all. Watch your budget closely and get creative with the steps you can take to avoid deferment or forbearance.

Refinancing your student loans is another great option to consider, just be sure to find a reputable lender like Education Loan Finance. By consolidating private and federal student loans into one monthly payment, you may be able to reduce your student loan payments enough to help you afford that wedding or down payment on a home.

Our Simplest Guide to Student Loan Refinancing

Direct Costs of Replacing Employees

A talented employee exiting your company costs you money. Estimates of how much employee turnover costs can vary by industry and employee salary. A study by Employee Benefit News estimates the direct cost to hire and train a replacement employee equal or exceed 33% of a worker’s annual salary ($15,000 for a worker earning a median salary of $45,000). Cost estimates are based on calculatable expenses like these:

HR exit interview & paperwork
Benefit payouts owed to the employee
Job advertising, new candidate screening & interviewing
Employee onboarding costs
On-the-job training & supervision

You can track the expenses of your company’s employee turnover using this online calculator, or create a spreadsheet to determine how actual costs add up to affect your bottom line.

Full Impact of Employee Loss

Josh Bersin, a human resource researcher, writing for LinkedIn, refers to employees as a business’s “appreciating assets.” Good employees grow in value as they learn systems, understand products and integrate into their teams. When one of these valuable employees leaves, the business loses more than just the cost of hiring and training a replacement. Bersin cites these additional factors contributing to the total cost of losing a productive employee:

Lost investment: A company typically spends 10 to 20% of an employee’s salary for training over two to three years.
Lost productivity: A new employee takes one to two years to reach the level of an exiting employee. Supervision by other team members also distracts those supervisors from their work—and lowers the team’s collective productivity.
Lost engagement: Other team members take note of employee turnover, ask “why?” and may disengage.
Less responsive, less effective customer service: New employees are less adept at solving customer problems satisfactorily.

According to Bersin, studies show the total cost of an employee’s loss may range from tens of thousands of dollars to 1.5 to 2 times that employee’s annual salary.

Strategies to Slow Employee Turnover Rates

An effective exit interview helps you and your HR team pinpoint the drivers of your company’s employee turnover. You may find that hiring practices need to be refined or employee engagement should be enhanced. Changes to the break room space, such as fresh fruit or games, will allow your employees to relax and come back to work with fresh eyes and a better attitude. This will keep up the workplace morale, shaping your company culture to include perks appealing to younger workers and will lead to increased job satisfaction. Today’s employees are career-oriented and highly motivated. Keep them on your team with other opportunities such as:

Pathway for advancement within the company
Professional development & advanced education
Flex-time & work-from-anywhere options
Management support & recognition
Lifestyle rewards or amenities like catering & concierge services
Culture of shared values & volunteerism

Add Student Loan Benefits Through ELFI

Student loan repayment tops the financial-worries checklist of many recent graduates. Older team members question their ability to pay for educating their children. New, highly desirable HR benefits like student loan contributions and financial literacy education are emerging from these employee concerns—and ELFI for Business is leading the way for employers to incorporate them into hiring packages. You can connect with ELFI directly from your HR portal and access multiple ways to contribute to employees’ student loan debt. We offer new-hire onboarding booklets, educational newsletters and onsite consultations filled with information for you and your employees. Reach out to us at 1.844.601.ELFI to add cutting-edge benefits to your HR employee package!

Learn More About ELFI for Business

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2019-06-17

Why Do Employees Leave?

Today’s tight labor market and frequent employee turnover are challenging U.S. employers to view company cultures with a critical eye. A report by the Work Institute found that some 42 million (one in four) employees would leave their jobs in 2018. What is the cost of replacing so many experienced people in an organization? According to the report, last year’s “employee churn” costs hovered at $600 billion—a figure that could increase to $680 billion by 2020. Of further concern to companies is the growing realization that young team members are most inclined to move on after a relatively short period of employment. In a recent survey, 59% of respondents felt they should begin looking for a new position after only one to two years on a job. Older employees continuing to work past retirement age or re-entering the workforce are adding stability to many companies, but the turnover trend has serious implications for the long haul. Why are employees leaving and what can employers do to stem the tide? Data gathered by HR organizations and research firms reveal some interesting trends about motivating and retaining current and future employees.

Top 4 Reasons Employees Leave a Company

The current employee shortage has upended traditional hiring models. Companies are racing to reshape their corporate cultures and embrace the values of a more limited workforce. Although improved pay and benefits packages continue to be important, these four workplace problems are the leading reasons why employees pick up—and move on.

Not enough work-life balance. Team members value their time and don’t want employers to waste it. Their enthusiasm and performance will wane if they are weighed down with busy work and meaningless meetings. Younger employees appreciate flexible schedules, the ability to work from home, and a workload that is challenging without spilling over into personal time.
Poor management. Supervisors who are unable to engage their employees or unwilling to help them grow by providing positive feedback are commonly cited as reasons to leave. Today’s professionals respond to personal interaction and appreciate public shout-outs and ancillary rewards like gift cards, tickets, and free meal vouchers.
Lack of recognition & career advancement. Employees who excel like to be recognized for their extra effort. They also need to see a clear pathway for furthering their careers. Today’s staff members expect companies to help them grow professionally while providing access to career development and mentorship programs.
No company engagement. When a company does not have (or cannot properly communicate) its goals and values, employees lack a shared sense of purpose. Businesses fostering a sense of community are better able to inspire, engage, and retain employees.

Create a Satisfying Workplace to Keep Valuable Team Members

In many ways, today’s workforce is looking for the same type of job satisfaction as high performers of past generations. Respect, appreciation for a job well-done, opportunities for advancement, challenging work, and monetary rewards still lead to employee satisfaction and engagement. According to Gallup research, 34% of employees are engaged at work, but 53% are not engaged and likely to leave a job for another offer. To involve these employees and access their potential, employers are putting greater emphasis on corporate culture assets like these:

Relevant workplaces with a clear mission & shared values
New-hires who contribute to the corporate community
Greater creative freedom & autonomy for staff when possible
Updated technology to support performance
Employee input as valuable business partners

Learn More About The Act Regarding Student Loans and Employers

Student Loan Benefits Appeal to Workers of All Ages

Many young employees begin their careers with a heavy burden of student loan debt. They worry about the monthly toll payments will take on their starting salary. Will they have enough money to travel, buy a home, or start a family? Worries about student debt repayment are not limited to the youngest workers. Some data suggest that these concerns cut across age groups and include professionals over age 55. Older workers may have taken on student loan debt to fund advanced degrees or send a child to college. Widespread student loan debt suggests that companies offering repayment contributions and other related benefits have a distinct advantage in attracting and engaging their workforce.

Improve Retention With Cutting Edge HR Benefits From ELFI

As an ELFI business partner, you can add value to your benefits package with monthly contributions to student loan debt. You’ll also plug into resources like newsletters, webinars and onsite consultations. Connect with ELFI from your HR portal and discover how significant student loan benefits are to your team members—and how cost-effective they are for your company.

Tops Ways to Engage Millennials at Work

2019-06-12

Should You Pay Off Student Loans Immediately or Over Time?

When you start your post-college career, you may be tempted to breathe a sigh of relief. Before you do that, you have important decisions to make. You’ll have to stretch your paycheck to cover your new lifestyle and associated expenses: a furnished home or apartment, vehicle, insurance, and hopefully a 401K contribution. If you are like 70% of college graduates, you also have student loans that need to be repaid. In most situations, it's going to be most beneficial to pay off your loans as quickly as possible so that you are paying less towards interest. The average college graduate's starting salary, however often cannot allow for enough additional income to cover more than the regularly scheduled student loan payments. Most student loans have a six-month grace period so you can do some budgeting and planning first - if you need to. We don't suggest using the grace period unless you find it necessary to organize your finances. During a deferment such as a grace period, the interest could still be accruing depending on the type of loan that you have. If you determine that you may be better off establishing sound financial footing and a workable monthly budget before you begin repaying those daunting loans. Keep these tips in mind as you formulate a strategy for debt payoff.

Student Loans Have Advantages

Varying types of debt are governed by different laws and regulations. Banks often base interest rates for consumer credit loans on your established credit rating. Interest rates for auto loans or credit card debt tend to be higher than a mortgage or student loan interest. As you review your debt load and make a plan, remember: student loan debt comes with a few "advantages" that other types of debt don’t offer.

Preferential tax treatment: With a new job, you will be paying taxes on your income. Student loan interest is deductible up to $2,500 and can be deducted from pre-tax income.
Lower interest rates & perks: Federal student loans have lower interest rates and are sometimes subsidized by the government.
Lender incentives: Private student loans may come with incentives from the lender that make them a better deal than other credit types. These include fee waivers, lower interest rates, and deferment options.
Flexible payment plans: Options for lower payments and longer terms are available for both federal and private student debt.
Build your credit score: You can build your credit score with student loan debt. Now, depending on whether you’re making on-time payments or not, you could negatively or positively affect your credit. If you chose to make small payments during deferments, or a grace period, and regular on-time payments you will be more likely to establish a favorable credit record and reduce the amount of interest you pay overall.

Programs to Help You With Student Loan Payments

There are few options for loan forgiveness with regular debt, but student loans offer opportunities to reduce or eliminate your debt. These may come with commitments and tax implications, so be sure you fully understand them if you decide to take advantage of these programs.

Loan forgiveness: Federal student loans may be forgiven, but you'll want to be sure that you're following all of the requirements needed of the program. Be sure before choosing this option that the federal loans you have qualify for the program. Also, keep in mind there could be taxes due on the amount that is forgiven. Some student loan forgiveness programs include PAYE (Pay as You Earn) and REPAYE (Revised Pay as You Earn), Public Service Loan Forgiveness, and Teacher Loan Forgiveness.
Loan Consolidation: Multiple student loans can be consolidated into one payment with the interest rate determined by a weighted average of your current loans - interest rates. Combining multiple loans may be easier to manage on a modest starting salary. Consolidating federal loans usually doesn’t require a good credit score, either.
Refinance, and you could achieve a lower interest rate: Lenders like Education Loan Finance specialize in student loan refinancing, and have options like variable interest rates and flexible terms. Refinancing your debt could make student loan debt easier to manage than other types of credit.

Pay Off High-Interest Debt First

Before you decide to pay off your student loans, think about the financial obligations you’ll be taking on. Instead of carrying a credit card balance or making low payments for an auto loan, it makes sense to continue your low student loan payments and pay off more expensive debt first or debt with a higher interest rate. In the long run, you’ll save money and build your credit score. If you still have doubts about not paying off student debt first, consult a professional financial advisor for help prioritizing your goals and setting up a budget that lets you achieve them.